Question

b. What are the tax advantages of operating in the foreign jurisdiction through an unincorporated branch located in the foreign jurisdiction

Answer 1

All inactive income is treated as Foreign Accrued Property Income (FAPI), which is a classification modeled after U.S. Subpart F. As the primary base-erosion measure, FAPI rules classify interest, royalties, rent, other passive investment income, and income of unincorporated foreign branches as taxable. Irrespective of whether the profits are exiled, FAPI income is taxed on a current basis, in order to alleviate the tax advantage of shifting domestic income to low-tax jurisdictions. The other major anti-erosion measures are the distinctive limits on the deductibility of interest paid by a Canadian corporation to foreign affiliates and transfer pricing rules