Canada, by reason of its proximity to the U.S. and the crossover between their economies and markets, has long been a destination of choice for U.S. multinationals interested in expanding their business operations. The Canadian operations of such multinationals may not, in relative terms, be substantial when compared to the profitability and the size of the related US businesses. Even where a U.S. business has not itself entered the Canadian market through a subsidiary or other fixed place of business, it may have business arrangements with Canada through which it generates revenues sourced from Canada. A foreign investor that acquires a U.S. business may not have focused on the Canadian operations or the cross-border arrangements in place between Canada and its U.S. target corporation when it undertook its due diligence, particularly from a tax perspective, prior to an acquisition.

type Tax Law Bulletin – July 2009 – Foreign Investors Beware of Canada’s New LOB Provision