Finance narrowed the potential overreaching in its amendment to s. 212.3(1).
The recent amendment to s. 212.3(1) expands the scope of the foreign-affiliate dumping rules to include investments in non-resident corporation that are not foreign affiliates of the corporation resident in Canada (the “CRIC”) that makes the investment but are foreign affiliates of a corporation that does not deal at arm’s length the CRIC (the “other Canadian corporation”). As compared to the September 16, 2016 version of the amendment (which arguably could have referred to another non-arm’s length Canadian corporation of which the subject corporation was not an FA), the final version of this amendment:
clarifies that the reference to the "other Canadian corporation" is only relevant where the CRIC made an investment in a subject corporation which is not its FA (or becomes its FA as part of the series of transactions) but is an FA of the non-arm's length corporation (or become the non-arm's length corporation's FA as part of the series of transactions). This clarification appears to largely address the Joint Committee's concerns of the potential overly broad application of the FAD rules.
Neal Armstrong. Summary of Sabrina Wong, "Summary of International Amendments in Bill C-63, Budget Implementation Act, 2017, No. 2", International Tax (Wolters Kluwer CCH), No. 97, December 2017, p. 6 under s. 212.3(1).