The FAD rules are premised on FA investments being “dead assets”

Phil Halvorson (who finished a stint at the Department of Finance 10 months ago) and Dalia Hamdy have articulated the purpose behind various of the foreign affiliate dumping rules, for example:

• The s. 212.3(1)(b)(i) safe harbour recognizes that if the non-resident corporation does not materially influence the CRIC's investment decisions (by holding 25% or more of the CRIC's equity as measured by votes or value), it cannot generally be considered to have caused the CRIC to make an investment in anticipation of its acquiring control of the CRIC.
• Given that groups might structure so that every $1.00 of PUC grind to a cross-border class resulted in no more than $0.70 of grind to shares held by the non-resident group, s. 212.3(6)) applies “where a group deliberately structures their holdings to purposely reduce any sting from the PUC grind mechanisms.”
• The FAD rules extend to where the CRIC becomes controlled by the non-resident parent as part of the same series as the investment made by the CRIC in the preceding year in order “to address situations where prior to an acquisition of control of a CRIC an accommodating vendor might 'stuff' foreign affiliate investments under the CRIC.”
• The PLOI rules recognize the conversion of a “dead asset” into one which generates interest revenue within the Canadian tax net.
• The PUC reinstatment rule avoids a double PUC grind or recognizes the redeployment of sales proceeds in Canada.
• The s. 212.3(16) more closely-connected test “is intended to allow a Canadian corporation to invest in FA in circumstances where the Canadian corporation would have made the investment even if it had not been foreign-controlled.”

Neal Armstrong. Summaries of Philip Halvorson and Dalia Hamdy, "An Overview of the Foreign Affiliate Dumping Rules," (OBA article), 23 February 2016 under s. 212.3(1), s. 212.3(4) - dividend time, s. 212.3(6), s. 212.3(11), s. 212.3(9), s. 212.3(16)(a), s. 212.3(18)(a), s. 212.3(18.1).