Subsection 113(1) - Deduction in respect of dividend received from foreign affiliate
Administrative Policy
2004 Ruling 2004-010311
Ruling that a U.S. LLC would be considered a corporation, that the ownership interest of a member would be considered shares, and that distributions would be considered to be dividends.
93 C.R. - Q. 59
Where all of the shares of a non-resident corporation are owned by a trust whose sole beneficiary is a corporation resident in Canada, dividends paid by the non-resident corporation to the trust that are then paid by the trust to the Canadian corporation will be received as income from a trust and not dividends, unless the trust is a bare trust. Accordingly, if the trust is not a bare trust, s. 113(3) will not apply.
Articles
Kenneth Snider, "Selecting the Foreign Business Entity: A Review of the Canadian Tax Treatment of U.S. Taxes Paid By a Member (Shareholder) of a U.S. Limited Liability Corporation", International Tax Planning, 2002 Canadian Tax Journal, Vol. 50 No. 2, p. 705.
Lanthier, "Emerging Income Tax Issues: Public Service 2,000, International Finance Companies, and U.S. Limited Liability Companies", 1993 Conference Report, pp. 3:19 - 29
Discussion of U.S. limited liability companies.
Paragraph 113(1)(a)
Administrative Policy
2 November 1990 T.I. (Tax Window, Prelim. No. 2, p. 11, ¶1049)
Interest paid by U.S. subsidiary which is recharacterized as a dividend for U.S. purposes will be taxed as interest income in the hands of the Canadian parent.
81 C.R. - Q.12
RC will not issue rulings allowing a Canadian corporation to use a Netherlands corporation as an intermediary to make interest-bearing loans to a U.S. corporation.
Articles
Lanthier, "Foreign Holding Companies and Finance Vehicles: An Update", 1990 Conference Report, c. 42
Paragraph 113(1)(a.1)
Articles
Sandra Slats, David Burns, "Canada Considers New Rules on Repatriation", Tax Notes International, Vol 63, No. 9, 29 August 2011, p. 641
General discussion of hybrid surplus proposals.
Paragraph 113(1)(c)
Administrative Policy
11 June 2013 STEP Roundtable Q. , 2013-0480321C6
Is the US tax paid by a Canadian-resident taxpayer on the income (which also is foreign accrual property income) of an LLC which is owned by it (and is a controlled foreign affiliate) considered to be foreign accrual tax in respect of the LLC?
After noting that the US tax paid paid by the taxpayer would not qualify as FAT, CRA stated that if the taxpayer was a corporation:
any US tax paid in respect of [its] share of the income of the LLC would not be creditable for purposes of subsection 126(1) nor deductible for purposes of subsection 20(12) because the tax would be paid by a corporation in respect of income from a share of the capital stock of a foreign affiliate of the corporation. However…a deduction under paragraph 113(1)(c) would be available in respect of the US tax paid by a corporation resident in Canada in respect of the income of an LLC where a dividend distribution out of taxable surplus is received from the LLC.
Articles
Manjit Singh, Andrew Spiro, "The Canadian Treatment of Foreign Taxes", draft version of paper for CTF 2014 Conference Report
113(1)(c) deduction where LLC dividends paid after Cdn corporate member pays tax on LLC FAPI (p. 26)
If the LLC is a foreign affiliate earning FAPI…U.S. tax paid by the Canadian corporation in respect of the LLC's income will not qualify as UFT, as the definition of UFT - even as amended by Bill C-43 - only applies to taxes paid by a foreign affiliate of the taxpayer, not by the taxpayer itself. [fn 115: … 9703535…] Accordingly, no deduction will be available under paragraph 113(l)(b) in respect of distributions paid out of the LLC's taxable surplus. However, the CRA considers the U.S. tax paid for a year in respect of an LLC's income to be in respect of dividends derived from the shares of the LLC, even if the LLC does not pay dividends in the year for which the U.S. tax is paid. Accordingly, when the LLC pays a taxable surplus dividend, relief from double tax is available in the form of a deduction under paragraph 113(l)(c). [fn 116: … 9703535…9821495…2013-0480321C6 [above]…]
…[A] timing issue remains in this latter context if the LLC is a controlled foreign affiliate and is not able to distribute all of its income each year, as the applicable share of the LLC's FAPI will be required to be included in the member's income in the taxation year in which it is received, without an offsetting deduction for FAT.