Canadian foreign affiliate rules.

On March 21, 1997, Tax Executives Institute submitted the following comments to Canadian Finance Minister Paul Martin on a Notice of Ways and Means Motion setting forth proposed statutory language imposing substantial information reporting burdens in respect of the foreign affiliates of Canadian taxpayers. The Institute's comments were prepared under the aegis of TEI's Canadian Income Tax Committee, whose chair is Alan Wheable of Canada Trust.

On December 5, 1996, a Notice of Ways and Means Motion with Technical Notes for the 1996 Federal Budget was released. The Notice includes draft statutory language revising certain proposed foreign affiliate information reporting requirements that were tabled as part of the March 6, 1996, Budget Motion. On August 7, 1996, Tax Executives Institute submitted comments on the March version of the proposed foreign affiliate information reporting rules. On behalf of Tax Executives Institute, I am writing to express our comments on the latest version of the proposed legislation.

Background

TEI is an international organization of more than 5,000 professionals who are responsible -- in an executive, administrative, or managerial capacity -- for the tax affairs of the corporations and the other businesses by which they are employed. TEI's members represent the 2,800 leading corporations in Canada and the United States.

Canadians make up approximately 10 percent of TEI's membership, with our Canadian members belonging to chapters in Calgary, Montreal, Toronto, and Vancouver, which together make up one of our nine geographic regions. In addition, a substantial number of our U.S. members work for companies with significant Canadian operations. In sum, TEI's membership includes representatives from most major industries including manufacturing, distributing, wholesaling, and retailing; real estate; transportation; financial services; telecommunications; and natural resources (including timber and integrated oil companies). The comments set forth in this submission reflect the views of the Institute as a whole, but more particularly those of our Canadian constituency.

Proposed Foreign Affiliate

Reporting Requirements --

Phase II

The latest version of the draft legislation imposing a foreign affiliate information reporting regime is a significant improvement over the March 1996 draft proposals. The draft incorporates revisions and limitations urged by the Institute and other commentators and otherwise addresses a host of concerns fostered by the original proposals. Specifically, the revised legislation will narrow the scope and number of non-controlled foreign affiliates for which detailed information is required to be submitted. In addition, the new exception from the reporting rules for inactive or dormant affiliates will afford taxpayers important relief from filing unnecessary reports, provided Revenue Canada interprets the legislation in an appropriate fashion and supplies permissive criteria enabling taxpayers to avail themselves of the exception. For these reasons, we commend the Department of Finance for its consultations with taxpayers and taxpayer groups about the scope of the reporting rules.

The December draft proposal also expands the time period within which a taxpayer is required to file its affiliate information to a date 15 months subsequent to the close of the taxpayer's year. For most taxpayers, the additional time will increase their ability to file materially complete and accurate reports. The six-month deadline set forth in the original draft would...