In This Issue

In this issue of International Tax Highlights, we cover a lot of jurisprudence, mainly because there have not been very many legislative or administrative developments in the international tax context since the last issue. The federal budget was light in this area, although the Budget Implementation Act, 2023, No. 1 (Bill C-47)—now working its way through Parliament after the related notice of ways and means motion was released on April 17, 2023—includes several items of interest. On a quick review, it looks like most of these items appeared among the August 9, 2022 legislative proposals. We continue to await revised or new legislative proposals on the EIFEL rules and the hybrid mismatch rules, and, of course, on pillar 2, among other initiatives.

We are particularly grateful to our contributors to this issue. Many of them agreed to address topics arising from the budget’s release while also identifying alternative topics in the event that the budget provided little in the way of new material (which turned out to be the case).

So what do we have to offer in this issue? We begin with Patrick Marley and Oleg Chayka, who review the budget measures on various green tax incentives through the lens of pillar 2, explaining the treatment of qualified refundable tax credits in relation to other types of tax incentives. This article provides a useful reminder that even purely domestic measures can have significant international tax implications in the new world of pillar 2. Kevin Chan and John J. Tobin then provide an interesting review of recent OECD and Canadian reports on dispute prevention and resolution practices, with a focus on advance pricing agreements (APAs). Stretching a little further back, Christopher Montes and John Farquhar take a fresh look at the August 9, 2022 proposed revisions to the definition of “relevant tax factor” in respect of foreign affiliates of CCPCs, highlighting the important retroactive implications they may have.

Balaji (Bal) Katlai and Hugh Neilson then sound the alarm about the new underused housing tax, showing some of its counterintuitive implications for various common situations. Also on the theme of real property, Alex Cook and Suhaylah Sequeira review the recent decision in 3792391 Canada Inc. (2023 TCC 37), which serves as a useful reminder to tenants that they might be hit with charges and penalties for failure to withhold and remit part XIII taxes even if they had no reason to believe that their landlord was a non-resident.

Payments to non-residents are also the topic of the issue’s next two contributions, both of which cover the recent decision of the BC Supreme Court in Hootsuite Inc. (2023 BCSC 358). This decision involves the application of BC PST to payments for (the use of) software and services provided on or through the cloud by Amazon Web Services. Robert G. Kreklewetz and Peter Werhun take us through the court’s analysis of the facts and the PST issues, reminding us that income taxes are not the only important consideration in the international tax context. Kim Maguire and Ilana Ludwin then take us through some of the potential income tax implications of the court’s factual determinations, reminding us that income tax cases are not the only good source of knowledge, even for income tax practitioners.

Rounding out our coverage of judicial developments, Ehsan Wahidie provides background and an update regarding two cases—namely, Paletta (SCC, no. 40325) and Deegan (SCC, no. 40552). Paletta involved a foreign-currency straddle strategy, which did not succeed at the FCA and failed to get leave to appeal from the SCC. That case is concluded, but its implications for other cases may persist. Deegan is a case in which leave to appeal to the SCC has been applied for; it involves a challenge to Canada’s implementation of the intergovernmental agreement with the United States to streamline the application of the US FATCA reporting rules. That case may yet produce some additional jurisprudence, although the chances of getting leave, as Ehsan demonstrates, are not great in general when it comes to tax cases. His contribution includes an interesting statistical analysis—based on data collected over the last 15 years—of the probability of a tax case getting leave.

Finally, Joannie Ethier takes us through some inconsistencies and potential pitfalls relating to the “throughout the year” requirement for the recharacterization of active business income under the foreign affiliate rules. This article is a very good reminder that, in this area of tax law, one should never assume that one knows anything, and that one should always read the relevant legislation again—and then again—with each new set of facts.

Thanks again to everyone for stepping up and being flexible and helping to keep our very nice IFA Canada/CTF collaboration going.

Angelo Nikolakakis
EY Law LLP, Montreal