CRA considers that the FAT denial rule in s. 91(4.7) applies year-by-year based on actual dividend deductibility

The s. 91(4.1) rule for denying a deduction for foreign accrual tax is deemed by s. 91(4.7) to be met if, under relevant foreign law, dividends on shares held by specified owner “are treated” as interest or another form of deductible payment. Under Brazilian law, corporations can choose to make tax deductible distributions to shareholders. CRA considers that this ability to elect deductibility does not engage s. 91(4.7) in any particular year provided that, in fact, no dividends paid to a specified owner are deductible by the paying corporation under Brazilian tax law. If the deductibility election is made in the year that could also by reason of the chain rules (i.e., based on the expansive definitions of “specified owner” and “pertinent person or partnership”) result in the denial of FAT in respect of FAPI for subsidiaries within a stacked chain of foreign affiliates.

Neal Armstrong. Summary of 26 April 2017 IFA Roundtable, Q.5 under s. 91(4.7).