April 18, 2016, No. 2016-21. Many Canadian companies with U.S. operations may be affected by new U.S. tax regulations that may deny debt treatment to financing transactions for U.S. purposes. Inbound and outbound financing arrangements may be adversely affected by these complex rules, which were released by the U.S. Treasury Department on April 4, 2016. As a result, both Canadian multinationals with U.S. subsidiaries and U.S. multinationals with Canadian subsidiaries should consider taking steps to mitigate the unexpected application of these proposed regulations, which are expected to be finalized by the end of 2016.
These rules also impose significant documentation and recordkeeping requirements on intercompany loans and, in some cases, automatically treat intercompany loans as equity for U.S. federal income tax purposes. If a loan is treated as equity, the borrower will not be entitled to an interest deduction with respect to the instrument and any payments on the instrument will be treated as dividends for U.S. tax purposes.
Our upcoming KPMG webcast, “New U.S. Tax Rules Target Cross-Border Corporate Financing”, will be held on May 4, 2016 and features a discussion of these rules and how they may apply to your company. You can now register for this webcast, which will feature speakers from KPMG Canada’s U.S. Corporate tax, International Tax and Transfer Pricing Practices.
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Information is current to April 15, 2016. The information contained in this TaxNewsFlash-Canada is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.