CRA rules on double German profit transfers (under “PTAs”)

Under an “Organschaft,” a German parent and its German subsidiary can enter into a profit transfer agreement (PTA) in which the subsidiary agrees to annually transfer its entire profit determined in accordance with German (statutory) GAAP to the parent. In 26 May 2016 IFA Roundtable Q. 6, 2016-0642081C6, CRA confirmed that, at least in the simple case of a parent wholly-owning a subsidiary with a single class of shares, the annual profit transfers will be deemed to be dividends under s. 90(2) and, thus, not foreign accrual property income to the direct or indirect Canadian parent of the German parent.

Last week, CRA released a ruling, that was requested in 2015, and which might have been the provenance of the 2016 IFA announcement. It dealt with double (i.e., back-to-back) PTA transfers from German grandchild to German child to German parent (all of them, CFAs). The ruling letter includes some helpful background on the German PTA regime.

Neal Armstrong. Summaries of 2016 Ruling 2015-0617351R3 under s. 90(2) and s. 87(8.1).