EIFEL rules a fundamentally new approach

  • June 27, 2022

The Joint Committee on Taxation of the Canadian Bar Association and Chartered Professional Accountants of Canada, in a letter to Finance Canada, comments on Excessive Interest and Financing Expenses Limitation, or EIFEL, proposals that were included as part of the draft legislation that was released on February 4, 2022.

The objective of the EIFEL regime, the letter says, is to address issues surrounding “base erosion and profit shifting,” or BEPS, from taxpayers deducting excessive interest and other financing costs, principally in the context of multinational enterprises and cross-border investments.

The Joint Committee favours an approach that is “reasonably straightforward for groups and tax authorities to apply.” Especially in Canada as the proposed EIFEL regime would overlay existing rules that cover several circumstances and situations. “The existing rules include a number of detailed, complex and interrelated provisions, none of which are proposed to be simplified or repealed in connection with the introduction of the EIFEL regime,” the letter reads.

The Joint Committee prepared detailed recommendations to help ensure the Canadian system be as coherent, cohesive and straightforward as possible. And, equally important, to avoid putting Canadian multinationals “at a competitive disadvantage relative to their peers, either from an administrative perspective or from a substantive perspective.”

In addition, the letter stresses how important it is to introduce the proposed rules in a fully developed form, given that it represents a fundamentally new approach in the Canadian context.