RSM424H1 Lecture Notes - Lecture 20: Foreign Tax Credit, Transfer Pricing, Property Income
11 Jun 2017
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Foreign tax credit: canadian tax law permits companies with unused tax credits on foreign business income to carry those credits back 3 years and forward 10 years. As a result, rents, interest, and royalties paid by a foreign subsidiary, when those items constitute property income to the canadian parent, cannot be carried back or forward if they cannot be used in the current year. However, foreign taxes on non-business income that are not offset by a foreign tax credit can be deducted as a normal business expense. This provides partial, though not total, relief from double taxation. Intercompany transfer pricing: whenever there is a difference in tax rates between the canadian parent corporation and the foreign subsidiary corporation, there is a desire to shift profits to the country with the lowest tax rate. The canadian parent may attempt to either underprice or. Overprice such transactions in other words, to manipulate the prices.
