In This Issue

In some circles, the saying is “Three strikes and you’re out.” Well, after our first three issues of International Tax Highlights, we’re still in the game, and I’ll venture to call no strikes so far, thanks to the thoughtful and generous contributions of our authors this past year, and to the commitment of our production staff.

We start the new year with a variety of highlights, contributed by an equally thoughtful and generous group of authors. The themes of this issue include the revised EIFEL rules, the pillar 2 global minimum tax, some administrative practice developments, some Canadian and foreign jurisprudence, and some broader thinking on digitalization and data.

With respect to the EIFEL rules, Ken Buttenham and Alex Cook provide a neat overview of the revised proposals released on November 3, 2022. The revised proposals include rules addressing foreign affiliate situations, which are the focus of the more detailed article that follows, by Nathan Boidman and Eivan Sulaiman (in what represents, incidentally, a very nice inter-firm and, indeed, intergenerational collaboration). Ken Griffin then rounds out this theme with a rather penetrating look at the application of these proposals in relation to non-residents that are taxed on a net basis under section 216 in respect of certain Canadian rents or timber royalties.

There is only one article on pillar 2, by the incredibly dedicated and talented Oleg Chayka, who provides an update on the numerous developments of the last couple of months, including the very recent release, on February 3, of the OECD’s so-called administrative guidance on many of the questions that remain regarding the implementation of pillar 2. We continue to await further announcements from Canada on this topic. It is hoped that there will be some news in the upcoming budget.

Samantha D’Andrea then takes us through the international tax elements of the most recent CRA round table, at the 2022 Canadian Tax Foundation annual conference. (How nice it was, by the way, to have an in-person event.) Michael Kandev and Marie-Emmanuelle Vaillancourt, in the next article, likewise address the CRA’s round table pronouncements, but they focus more specifically on the CRA’s new views regarding the withholding tax treatment of payments for broadcasting rights.

On the jurisprudence front, Pierre J. Bourgeois reviews the recent Quebec income tax case in Kone, in which the court rejected the recharacterization (under general principles and under the Quebec GAAR) of a cross-border repo transaction. Anja Taferner and Katia Agazzini cover the recent rejection by the European Court of Justice of “state aid” allegations made by the European Commission against Luxembourg in the Fiat case. Both of these decisions will have important implications for Canadian taxpayers.

Kim Maguire and Camille Andrzejewski bravely tackle the theme of the taxation of data-driven transactions, reporting on the discussions in this regard at the 74th Congress of the International Fiscal Association, held in Berlin in September 2022, and providing insight into the Canadian perspective on many of the relevant issues (and a shout-out to Mathieu Champagne and Marie-Emmanuelle Vaillancourt, who had prepared the Canadian report discussed at the congress). This article and many of the items from the CRA round table referred to above provide important reminders that the taxation of data-driven transactions is not just about the imposition of a digital services tax or about other new approaches to taxation under pillar 1. This area of taxation continues to give rise to a number of very interesting and challenging traditional income tax questions.

Finally, Balaji Katlai and Kenneth Keung (in another inter-firm collaboration) remind us that the foreign affiliate dumping rules should not necessarily be viewed as a barrier to establishing research and development activities in and through Canada, if the required governance parameters are respected.

We hope that readers will enjoy this issue, and, once again, we thank our contributors.

Angelo Nikolakakis
EY Law LLP, Montreal