Does winding up a foreign subsidiary end its filing obligations?
No. Winding up a foreign subsidiary is not the end of its filings. Final returns are due for the last period, information returns are due for that period even where there was no activity at all, and the surplus computations supporting the treatment of the distribution have to be settled in both countries. Local deregistration usually requires tax clearance, which is itself a filing exercise. Treating the resolution to wind up as the end point is the most common reason a dissolved company generates correspondence a year later.
How is a liquidation distribution from a foreign subsidiary taxed at the parent?
The distribution is characterised under the parent's rules rather than the subsidiary's, and those rules may treat part of it as a dividend and part as proceeds. The split matters, because the two parts are usually taxed differently and may carry different treatment for any foreign tax withheld. Working out the split needs the subsidiary's surplus computations, which is why those want bringing up to date before the distribution is made rather than after the cash has moved and the company has been struck off.
Do we still have to file if the subsidiary was dormant all year?
Yes. Information returns are due for the final period even where there was no activity, and a nil return is a filing rather than an absence of one. The same is generally true locally, where a period of dormancy does not by itself remove the obligation to file up to deregistration. It is worth checking this for every year the company was dormant, not only the last one, because a company being wound up is often a company whose filings had already quietly stopped.
What is tax clearance and why is it holding up our deregistration?
Local deregistration usually requires tax clearance, which is confirmation from the local authority that the company has no outstanding liabilities or filings. It is the step over which companies most often lose a quarter, because the authority will not give it until the final returns are filed and any balance settled, and those returns cannot always be prepared until the liquidation accounts are drawn up. The practical answer is to find out what the local clearance requires before the wind-up starts, rather than when the registry refuses the application.
In what order should we wind up a subsidiary in another country?
Work back from the two end points: local deregistration, which needs clearance, and the parent's treatment of the distribution, which needs the surplus computations. That usually means bringing the subsidiary's historic filings up to date first, drawing the final accounts second, agreeing the characterisation of the distribution third, and making the distribution while the company still exists rather than after it has been struck off. Anything left inside the company at deregistration is harder to deal with than the same asset distributed beforehand.
Can we recover the tax withheld on our liquidation distribution?
It depends on what the payment is treated as at each end, which is the reason for settling the characterisation first. Where the parent's rules treat part of the distribution as a dividend and part as proceeds, the local withholding may have been applied on a basis that does not match, and relief may be a claim in the local system rather than a credit at home. Either route needs the same underlying material: the surplus computations, the liquidation accounts and the local filings. Assembled before the distribution, the claim is a document exercise; assembled afterwards, it is a reconstruction.
What is a permanent establishment, and how easily do we create one?
A taxable presence in another country under the treaty — typically a fixed place of business such as an office, branch, factory or workshop, or a dependent agent habitually concluding contracts on your behalf. Some treaties add a services test measured in days. Purely preparatory or auxiliary activity is excluded, but that carve-out is narrower than it sounds: one senior employee working from home in the other country, with authority, has been enough. See business profits and permanent establishment.
What is OECD Pillar Two?
A global minimum effective tax for large multinational groups, delivered through top-up taxes rather than a single global rate. Where a group's effective rate in a jurisdiction falls below the agreed minimum, the shortfall is collected — by the parent jurisdiction under the income inclusion rule, by the source jurisdiction under a domestic top-up, or as a backstop by other jurisdictions. Canada has enacted implementing legislation. The compliance burden is data, long before it is tax. See BEPS and Pillar Two.
