Finance makes adverse retroactive change to the FAD rules

An adverse retroactive change in the draft October 20, 2014 foreign affiliate dumping amendments is that a PUC grind, in the situation where there is more than one cross-border class of shares with the same proportionate ownership by the non-resident parent (and non-resident corporations which do not deal with it at arm’s length), must now also occur on a proportionate basis, rather than the Canadian "CRIC" subsidiary getting to choose the class to which the grind occurs. For example, if the parent owned all of a CRIC's common and preferred shares, under the previous August 16, 2013 draft rule the PUC reduction might have been expected to apply only to the common shares. If in the interim the CRIC had, say, redeemed the preferred shares, a deemed dividend could be triggered as a result of this retroactive change.

Neal Armstrong. Summary of Paul Barnicke and Nelson Ong, "FA Dumping:  PUC Offset," Canadian Tax Highlights, Vol. 22, No. 10, October 2014, p. 5 under s. 212.3(7).