Stopping the Losses : The Application of Stop-Loss Rules to Transactions Involving Foreign Affiliates

The purpose of this article is to provide a consolidated overview of stop-loss rules that are of particular relevance in the cross-border and foreign affiliate contexts. The author reviews selected transactions to illustrate the various issues, anomalies, and potential traps that can arise as a result of the interaction of the stop-loss rules with the foreign affiliate regime. He also reviews certain aspects of the new functional currency regime in section 261, which may be used to help manage the foreign exchange risk of a multinational group in some cases and thus limit the Canadian tax exposure that might arise from the application of the stop-loss rules to transactions involving foreign affiliates