CRA states that s. 95(2)(a)(ii) (if applicable) can recharacterize a profit transfer payment that is not deemed a dividend under s. 90(2)

Under an “Organschaft,” a German parent (“Parentco”) and its German subsidiary (“Subco”) can enter into a profit transfer agreement (PTA) which Subco agrees to annually transfer its entire profit determined in accordance with German (statutory) GAAP to Parentco. In 26 May 2016 IFA Roundtable Q. 6, 2016-0642081C6, CRA confirmed that, at least in the simple case where Parentco wholly-owns Subco through ownership of 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 Parentco – and then indicated that this supplanted an earlier position (e.g., (e.g., 2001-0093903) that a profit transfer payment made by Subco to Parentco could be re-characterized as income from an active business of Parentco under s. 95(2)(a)(ii) to the extent that Subco had earnings from an active business before taking into account the profit transfer payment – so that this previous position will only apply to profit transfer payments made before 2017.

A questioner pointed out that there are PTA mechanisms in other jurisdictions as well, and that there are still situations where s. 90(2) does not apply, e.g., where a profitable operating subsidiary in Finland or Sweden makes PTA payments to a grand-parent). CRA stated:

[T]he proposal to limit the application of the [s. 95(2)(a)(ii)] General Approach to PTA payments made before 2017 was only meant to apply to situations where the PTA payment is deemed under subsection 90(2) to be a dividend. For any other PTA situations…the CRA will continue to apply the General Approach.

Neal Armstrong. Summary of 2 March 2017 External T.I. 2017-0682291E5 under s. 95(2)(a)(ii).