No PUC reinstatement occurs under the FAD rules where sales proceeds are reinvested in a closely connected corporation
5 December 2014 - 2:07pm
The paid-up capital reinstatement rule in draft s. 212.3(9)(b)(ii) for reinvested proceeds is not available where the replacement investment is in shares of a closely connected investment described in s. 212.3(16). This is odd: "Where that [closely-connected] test is satisfied, that investment should be viewed as a "good" investment, so arguably the PUC should be reinstated, since it would not have been constrained in the first place had that investment been made initially."
Neal Armstrong. Summary of Angelo Nikolakakis, "Foreign Affiliate Dumping – The New Paid-Up Capital Offset and Reinstatement Rules," International Tax (Wolters Kluwer CCH), October 2014 Number 78, p.1 under s. 212.3(9).