CRA confirms that US taxes paid by a US Holdco on the earnings of its LLC subsidiaries qualified as FAT if those earnings were distributed to it

A decade-old internal interpretation, which was released on Wednesday, dealt with a US subsidiary (US Holdco) of Canco, which paid US taxes on the income (which was FAPI to Canco) of its LLC subsidiaries.  CRA confirmed that such US taxes qualified as foreign accrual tax to the extent that US Holdco received a distribution of those earnings from the LLCs , i.e., such US taxes then qualified as being "in respect of a dividend received from the [LLCs]."

The making of tax compensation payments by the LLCs to US Holdco was irrelevant: Reg. 5907(1.3) did not apply.

Neal Armstrong.  Summaries of 8 April 2004 Memorandum 2003-0037291I7 under s. 95(1) - foreign accrual tax and Regulation 5907(1.3).