RSM424H1 Lecture Notes - Lecture 20: Foreign Tax Credit, Dividend Tax, Legal Personality
11 Jun 2017
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Because the branch constitutes a permanent establishment in the foreign country, branch profits will be subject to the income taxes applicable in the foreign jurisdiction. The foreign branch profits form part of the world income of the canadian corporation, and are therefore also taxable in canada as normal business income. A lower foreign tax rate of 20% simply means that a portion of the normal. As the branch is part of the canadian company, profit distributions do not constitute a dividend payment and therefore do not attract any foreign withholding taxes, as they would if a foreign subsidiary corporation had been established. However, some foreign countries do impose a special additional branch tax equivalent to the tax imposed on the payment of dividends; decision makers should investigate this before choosing the branch structure. Normally, the foreign branch tax is eliminated by the canadian foreign tax credit.
