In This Issue

I remember the federal budget of February 22, 1994, as a young stagiaire at Stikeman Elliott in Montreal. This budget caused a great deal of excitement and some panic at the office, even prompting one senior tax partner to contemplate switching to the practice of corporate law. Some felt that the sky was falling on the tax practice. This was the budget that proposed the introduction of significant changes to the foreign affiliate rules and the butterfly rules. Some 28 years later, notwithstanding these and many other changes since that day, the practice of tax law is thriving.

For my part, as a young practitioner, I saw such developments as opportunities—as great levellers. They allowed newcomers such as myself to catch up quickly to more seasoned practitioners by knowing as much as they did about the new measures—more, perhaps, given the energy, enthusiasm, and fresh perspective of the young practitioner.

So here we go again. The last few months have seen watershed developments in the field of international taxation; we could not have picked a better time to launch this newsletter. In this inaugural issue, we bring together various highlights and various perspectives on some key developments.

Perhaps the most fundamental changes to international tax principles and international tax practice are reflected in the OECD initiatives relating to BEPS and, more generally, to the digitalization of the global economy. Thus, a significant portion of this issue is devoted to these topics. Patrick Marley and Penelope Woolford take us through the OECD’s two-pillar solution, which is aimed at allocating new taxing rights to market jurisdictions (pillar 1) and the introduction of a 15 percent global minimum tax (pillar 2). Michael Colborne shines a more focused light on the continuing work to exclude so-called extractives from the scope of pillar 1. Sue Wooles and Carl Irvine, living in the real world, remind us that there is no “easy button” when it comes to the ever-increasing compliance and administrative burdens that arise with each new initiative.

There have also been important developments in Canada’s implementation of other BEPS-related initiatives. Ken Buttenham and Alex Cook provide a useful summary of the proposed “excessive interest and financing expenses limitation” (EIFEL) rules—a new regime to limit the deduction of excessive interest and financing expenses, inspired by BEPS action 4. Nik Diksic does likewise with respect to the proposed hybrid mismatch arrangement rules, inspired by BEPS action 2.

On the jurisprudence side, the Supreme Court of Canada has favoured us with two very important decisions, one in the inbound context (Loblaw Financial) and one in the outbound context (Alta Energy Luxembourg SARL). David Duff, in his article, and Michael Kandev and John Lennard, in their co-authored article, share their different perspectives on the Alta Energy decision and its implications both for the application of GAAR (in general and, more specifically, in the context of treaty shopping) and for the new principal purpose test (PPT) now applicable in relation to many of our tax treaties as a result of Canada’s implementation of elements of the MLI, which reflects yet another cluster of BEPS initiatives. David Bunn provides a remarkably straightforward summary of the Loblaw decision, which reflects a number of principles that are fundamental to tax practice—taxpayers’ rights to arrange their affairs, and the role of the courts both in general and in the interpretation of the law, in the context of the FAPI rules.

Finally, Shiraj Keshvani and Amanda Heale highlight the growing need for effective and efficient dispute prevention and resolution mechanisms in the transfer-pricing context—an area of tremendous importance in international tax practice.

Some of the articles are much longer than we will want in future issues, but exceptions have been made for this inaugural offering, given the breadth and importance of some of the developments covered in these articles.

We have a very strong community of international tax practitioners, academics, and tax administration officials in Canada, at all stages of their careers, and we have very highly regarded public-interest institutions, two of which have graciously joined forces to host this new publication. We hope that readers will enjoy this newsletter, and will be inspired to submit their contributions from time to time as we all enter this new era of international taxation.

Angelo Nikokakakis
EY Law LLP, Montreal

International Tax Highlights

Volume 1, Number 1, May 2022

©2022, Canadian Tax Foundation and IFA Canada

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