28 May 2015 IFA Roundtable

Question 1 – George Weston: hedging impact

The Tax Court of Canada recently rendered its decision in the George Weston Ltd. (GWL) case [George Weston Limited v. The Queen (TCC) 2015 TCC 42], which considered the income or capital characterization of the taxpayer’s gains on foreign currency derivatives.

In 2001, the taxpayer borrowed significant funds to finance the acquisition of a U.S. based business (the “US Operations”) by its indirectly held subsidiaries. Due to the risk of currency fluctuations, the taxpayer entered into a series of cross-currency swaps in order to protect against the impact of currency fluctuations on the translated value of the US Operations reported on its consolidated balance sheet. In 2003, the risk of currency fluctuations had been reduced and the taxpayer chose to terminate the swaps. The taxpayer realized a gain on the termination of the swaps and reported the gain on account of capital, which the CRA reassessed as being on account of income. The Court held in favour of the taxpayer finding the taxpayer entered into the swaps to hedge a capital investment and the gain was appropriately reported as being on account of capital.

The GWL case was not appealed. How does this decision impact the CRA’s position with respect to foreign currency hedges for net investments in foreign operations and their characterization for income tax purposes?

Notes From Presentation

CRA accepts that GWL confirms that there can be a hedge of a net investment where a sufficient linkage can be demonstrated with the underlying hedged assets. Accordingly, CRA will apply this case where there is a similar level of support to establish such a linkage.

There are a number of other hedging cases that are in the system. CRA will defer providing more comprehensive comments until these cases are decided.

Official Response

28 May 2015 IFA Roundtable, Q. 1, 2015-0577691C6

Question 2 - GAAR and treaty shopping

Considering recent developments, can the CRA outline its position on the possible application of the GAAR to treaty shopping arrangements?

Notes From Presentation

CRA does not consider that the Finance comments made in the 2014 Budget and in the August 12, 2013 Paper should preclude it from applying GAAR to the appropriate cases. In fact, the GAAR Committee has recently approved the application of GAAR to Treaty shopping cases. The application of GAAR may be appropriate even where the non-resident is entitled to benefits under specific Treaty rules and is not subject to specific Treaty anti-abuse rules.

Official Response

28 May 2015 IFA Roundtable, Q. 2, 2015-0577691C6

Question 3 – Entity classification/LLLPs

It is our understanding that the CRA generally follows a so-called “two-step” approach in classifying foreign entities or arrangements, as follows:

1. Determine the characteristics of the foreign entity or arrangement by reference to any relevant law and the terms of any relevant agreements relating to the entity or arrangement; and
2. Compare the characteristics of the foreign entity or arrangement to the characteristics of entities or arrangements that exist under Canadian law.

The classification of the foreign entity or arrangement for Canadian income tax purposes is then based on the entity recognized under Canadian tax law (i.e. a partnership, corporation, trust or co-ownership) that the foreign entity or arrangement more fundamentally resembles. Can the CRA confirm that it still follows this “two-step” approach, and can you update us on any new entities or arrangements that are being considered?

Notes From Presentation

CRA still considers the two-step approach to be the most appropriate one to follow. For example, it does not use separate legal personality as a touchstone for determining whether an entity is a corporation. Thus, CRA has recognized that US limited partnerships are partnerships notwithstanding that in some states they have separate legal personality, i.e., they can acquire property in their own name and sue in their own name.

CRA recently has been considering whether Florida Limited Liability Limited Partnerships and Florida Limited Liability Partnerships are partnerships under the two-step approach. Their limitation of liability goes beyond that available to Canadian limited partners. Further, the LLLPs and LLPs can convert into an LLC without any change in the ownership of their property. In these circumstances, CRA is concerned that these Florida LLLPs and LLPs should be viewed as corporations. Delaware LLLPs also recently became possible. CRA is welcoming submissions and comments on the issue. Finance is being consulted.

Recently, a taxpayer request was submitted to consider an LLC as a partnership.

Official Response

28 May 2015 IFA Roundtable, Q. 3, 2015-0581511C6

Question 4 – Upstream loans: s. 90(9) deduction

Part A

Assume the following:

• Canco directly owns all the shares of FA, a foreign affiliate;
• In 2013 FA made a US$100 loan (Loan 1) to Canco;
• FA’s currency for surplus purposes is the US$ and at the “lending time” in 2013 FA had exempt surplus and net surplus of US$100;
• In 2014 FA paid a dividend (Dividend) of US$50 at a time when it had exempt surplus and net surplus of US$150 (no Reg. 5901(2)(b) election is made);
• Loan 1 is not repaid within two years; and
• Canco has nil adjusted cost base (“ACB”) in the FA shares.

In 2014 Canco will have an income inclusion for the Canadian dollar equivalent (assume it’s C$63) of the US$50 dividend. Is Canco able to claim a deduction in each of 2013 and 2014 under clause 90(9)(a)(i)(A) for the Canadian dollar equivalent (assume it’s C$125) at the “lending time” of Loan 1? Will Canco be entitled to a deduction in computing its 2014 taxable income of C$63 under paragraph 113(1)(a)?

Part B

The facts are the same as in Part A except that FA’s exempt surplus balance went down to US$60 as a result of a loss in 2013 and at the time of the Dividend in 2014 Canco’s ACB in the FA shares was equal to C$63 as a result of a share subscription, in 2014 but before the dividend, by Canco into FA. Canco makes an election under Reg. 5901(2)(b) such that the 2014 C$63 dividend is deemed to be paid out of pre-acquisition surplus. Is Canco able to claim a deduction in each of 2013 and 2014 under clause 90(9)(a)(i)(A) of C$125? Is Canco able to claim a deduction in computing its 2014 taxable income of C$63 under paragraph 113(1)(d)?

Part C

The facts are the same as in Part A except that at the lending time in 2013 Canco’s ACB in the FA shares was C$63, no new exempt surplus is generated after Loan 1 is made and, instead of FA paying the US$50 dividend in 2014, FA made a second loan (Loan 2) to Canco of US$50 (which loan is not repaid within two years). Is Canco able to claim a deduction in each 2013 and 2014 under clause 90(9)(a)(i)(A) of C$125? Is Canco able to claim an additional deduction in 2014 of C$63 under clause 90(9)(a)(i)(D) on the basis that it could have made a Reg. 5901(2)(b) election in respect of Loan 2?

Notes From Presentation

In the interests of time, CRA simply answered “yes” to all the questions, with the proviso that in the case of Part B, there was no tax avoidance going on. The analysis will be provided in the written response, which will be released in two or three weeks.

CRA then turned to respond to a supplementary question on tax reporting. CRA expects taxpayers to report inclusions under s. 90(6) and (12). As the ss. 90(9) and (14) deductions are discretionary, CRA considers that the onus is on the taxpayer to show that it is taking the applicable identified deduction. Where a taxpayer initially does not report an inclusion on the basis that it expects to repay the upstream loan within two years, and it later becomes apparent that this will not occur, CRA expects the taxpayer to refile the applicable return to show the inclusion.

Official Response

28 May 2015 IFA Roundtable, Q. 4, 2015-0581501C6

Question 5 – Back-to-back loans: “because” test

The new back-to-back loan rules in subsections 18(6) and 212(3.1) of the Income Tax Act (the “Act”) include a “because” test as the requisite degree of linkage, between a debt owing by the taxpayer to a creditor and a secondary obligation existing between that creditor (or someone not dealing at arm’s length with that creditor) and certain non-residents, sufficient to potentially engage subsection 18(6.1) and 212(3.2), respectively. Can the CRA comment on how it interprets the “because” test?

Notes From Presentation

CRA does not have experience with this provision. It expects that it will take its lead from the policy disclosed in the 2014 Budget, which is to target situations where there has been a use of a third party to avoid the withholding, or application of the thin cap rules, that would have occurred had there been a direct loan. Generally, where there is this element, CRA would expect that there would be sufficient linkage to satisfy the “because” test.

Essentially the same test also is contained in s. 17(2), which has been in place for many years. However, CRA also has not been asked to comment on the s. 17(2) test.

Official Response

28 May 2015 IFA Roundtable, Q. 5, 2015-0581531C6

Question 6 – s. 95(2)(a)(ii)(D) and contribution of capital

In document no. 2013-0496841I7 (the “First Document”) the CRA took the position, in the context of a question from a TSO, that clause 95(2)(a)(ii)(D) did not apply to recharacterize interest on a debt issued to acquire a note that was subsequently contributed to the capital of another foreign affiliate without the receipt of shares. The CRA appeared to reverse that position in document no. 2014-0519801I7 (the “Second Document”) [also summarized under 2013-0496841I7], but gave no reasons. Could you now provide us with the reasons for this apparent reversal?

Notes From Presentation

CRA keeps an open mind. In this case, further submissions were made on the point, which were passed along by the relevant TSO. The Rulings Directorate’s decision to reconsider an internal technical interpretation respecting an audit issue depends on the further involvement of the relevant TSO.

After further consideration in this case, the Directorate concluded that as the contribution of Note1 by FA2 to FA3 enhanced the dividend-earning potential of the shares of FA3 held by FA2, Note1 should be considered to have been acquired by FA2 for the purpose of earning income from those shares, so that the test in s. 95(2)(a)(ii)(D) was satisfied.

Official Response

28 May 2015 IFA Roundtable, Q. 6, 2015-0581601C6

Question 7 – FA mergers and deficit double counting

Assume that Canco owns 100% of the shares of a foreign affiliate (“FA1”), FA1 owns 100% of the shares of a second foreign affiliate (“FA2”), and FA2 owns 100% of the shares of a third foreign affiliate (“FA3”). FA1 and FA2 merge to form “Merged FA” in a merger that qualifies as a “foreign merger” within the meaning assigned by subsection 87(8.1) of the Act, and the shares of FA3 become the property of Merged FA as a consequence of the merger. Further assume that immediately prior to the merger FA1 has an exempt surplus balance of $200, FA2 has an exempt deficit balance of $125, and FA3 has an exempt surplus balance of $150, and, upon the merger, FA2 ceases to exist. None of FA1, FA2 and FA3 has any other surplus/deficit balances. Finally, assume that section 93 has no application in respect of the merger.

Subsection 5905(3) of the Income Tax Regulations (the “Regulations”) applies to determine the opening surplus balances of a foreign affiliate of a corporation resident in Canada where the foreign affiliate has been formed as a result of a foreign merger. This determination is based on the surplus balances of the predecessor corporations immediately before the merger. On the other hand, subsection 5905(7.2) of the Regulations applies when an upper-tier foreign affiliate of a corporation resident in Canada has an exempt deficit and any shares of a lower tier foreign affiliate in the same corporate chain are acquired by the corporation or by another foreign affiliate of the corporation. Subsection 5905(7.2) of the Regulations applies to achieve a result comparable with the result that would have occurred had a dividend been paid, immediately before the targeted transactions, to the extent necessary to "fill the hole" in the deficit affiliate. This is effected by the reduction, under paragraph 5905(7.2)(a) of the Regulations, of the exempt surplus balance of the lower-tier affiliate and the reduction, under paragraph 5905(7.2)(b) of the Regulations, of the exempt deficit balance of the upper-tier affiliate. The latter adjustment is deemed to take place immediately after the acquisition. In the above case, both of the above provisions have application and due to the timing of the adjustments provided for under subsections 5905(3) and 5905(7.2) of the Regulations, it would appear that the deficit of FA2 would reduce not only the opening exempt surplus of Merged FA but the exempt surplus of FA3 as well.

Is it the CRA’s view that Merged FA’s opening exempt surplus as determined under paragraph 5905(3)(a) of the Regulations is $75 and, at the time specified in paragraph 5905(7.2)(a) of the Regulations, FA3’s exempt surplus is reduced to $25? In other words, is it the CRA’s view that in this case FA2’s exempt deficit is effectively used to reduce both Merged FA’s opening exempt surplus and FA3’s exempt surplus?

Notes From Presentation

The technical difficulty for avoiding a conclusion that the deficit of FA2 in effect was deducted twice relates to the timing of the adjustments under Reg. 5905(7.2) and (3). The Reg. 5905(3) adjustment appeared to occur immediately before the time of the merger after Reg. 5905(7.2) already had operated to reduce the exempt surplus balance of the “acquired” lower-tier affiliate (FA3) by the exempt deficit of the upper-tier affiliate (FA2).

CRA consulted with Finance, who confirmed that this was not the intended result. Accordingly, CRA will consider that FA3’s exempt surplus will be reduced to $25 under Reg. 5905(7.2) and that the merged entity will have exempt surplus of $225, so that the deficit of FA2 is not counted twice.

Official Response

28 May 2015 IFA Roundtable, Q. 7, 2015-0581611C6

Question 8 – S. 39(2.1) and s. 261(10) inclusion

Subsection 39(2.1) of the Act applies to reduce a capital gain or capital loss, as determined under subsection 39(2), where a corporation resident in Canada (the “borrowing party”), has received a loan from its foreign affiliate prior to August 20, 2011, a partial or full repayment of the loan is made prior to August 20, 2016, and the borrowing party’s capital gain or loss matches the affiliate’s capital loss or gain, as the case may be.

Assume that: (i) the borrowing party and its foreign affiliate are calendar year taxpayers; (ii) the borrowing party makes a functional currency election starting in 2014; (iii) the U.S. dollar is both the elected functional currency and the currency of the loan; (iv) the loan is on account of capital; and (v) the loan is repaid in 2015. In these circumstances, subsection 261(10) applies to deem the borrowing party to make a gain or sustain a loss, as the case may be, in 2015 relating to the loan’s foreign currency fluctuations, vis-à-vis the Canadian dollar, that occurred in the time preceding the borrowing party’s transition to the functional currency tax reporting regime.

Given that the matching condition for the application of subsection 39(2.1) requires that the borrowing party’s capital gain or loss be determined under subsection 39(2), will subsection 39(2) apply to a gain that is “made” (by virtue of paragraph 261(10)(a)) or a loss that is “sustained” (by virtue of paragraph 261(10)(b)) in respect of the repayment of the loan?

Notes From Presentation

The gain determined to be made under s. 261(10) is a gain contemplated under s. 39(2). Therefore, on these facts, s. 39(2.1) can apply given that the gain and loss (before applying s. 39(2.1) and s. 95(2)(g.04)) will match. However, these provisions will not be satisfied where the borrowing party and FA do not have the same taxation year.

Official Response

28 May 2015 IFA Roundtable, Q. 8, 2015-0581561C6

Question 9 – s. 95(2)(i) re purchase note

Assume that a controlled foreign affiliate (“CFA”) of a taxpayer has borrowed money from a bank in a currency other than Canadian dollars and has used all of that borrowed money to acquire a building which it uses at all times in its retail business. When the CFA repays the loan to the bank, a foreign exchange gain or loss may arise relative to the Canadian dollar. Generally, such a gain or loss would result in foreign accrual property income or loss to the CFA which would be included in the income of the taxpayer on a current basis. However, because the CFA had used all of the money borrowed from the bank to acquire a property that it used at all times in its active business, the foreign exchange gain or loss, if any, would be deemed to be a gain or loss from the disposition of an excluded property and therefore, the CFA would have no resulting foreign accrual property income or loss.

The above result arises because paragraph 95(2)(i) provides that any income, gain or loss of a foreign affiliate debtor (or a partnership of which a foreign affiliate is a member) is deemed to be income, gain or loss from the disposition of excluded property if it arose on the settlement or extinguishment of certain debts. More specifically, paragraph 95(2)(i) applies in circumstances where all or substantially all of the proceeds of a debt of the debtor had been used at all times to earn income from an active business carried on by the debtor or to acquire property that had been excluded property of the debtor at all times that the debt had been outstanding to the debtor.

Given that paragraph 95(2)(i) specifically refers to the use of the proceeds of a debt by a foreign affiliate, it is not entirely clear whether the provision would apply to the settlement of an indebtedness that had not given rise to borrowed money. In the above example, the CFA had received borrowed money on its bank loan and, therefore, had received proceeds from that debt which it used to acquire excluded property. However, would paragraph 95(2)(i) apply if the CFA had acquired the building from a third party by issuing a note? More generally, in the CRA’s view, can paragraph 95(2)(i) apply in respect of an amount payable for property acquired?

Notes From Presentation

In context, the reference in s. 95(2)(i) to “debt of the debtor all or substantially all of the proceeds from which were used to acquire property” can refer to the note issued to acquire the building. Accordingly, if the other conditions are satisfied, s. 95(2)(i) can apply to debt issued on account of the purchase price of acquired property - and even to debt that is assumed on the purchase of property.

Official Response

28 May 2015 IFA Roundtable, Q. 9, 2015-0581581C6

Question 10 – 111(4)(e) step-up and 212.3(2)

Following an acquisition of control, paragraph 111(4)(e) permits a taxpayer to make a designation in respect of certain capital property in order to deem a disposition and reacquisition of that capital property. Generally, this designation may be beneficial to a taxpayer in circumstances where the taxpayer has a capital property with accrued gains and also has capital losses which would otherwise expire after the acquisition of control.

Subject to certain exceptions, the foreign affiliate dumping rules in section 212.3 are designed to deter Canadian subsidiaries of foreign-based multinational groups (herein “foreign controlled CRICs”) from making investments in non-resident corporations that are, or become as a result of the investment or a series of transactions that includes the investment, foreign affiliates (“FAs”) of the foreign controlled CRICs in situations where these investments can result in the inappropriate erosion of the Canadian tax base. In general terms, the application of the foreign affiliate dumping rules results in deemed dividends paid by the foreign controlled CRICs subject to non-resident withholding tax or in reductions of the paid-up capital of cross border shares of the foreign controlled CRICs.

Assume that, prior to an acquisition of control of a taxpayer, the taxpayer was controlled by a non-resident corporation (“old parent”) such that it was a foreign controlled CRIC. Assume further that it held the common shares of an FA. Following the acquisition of control of the taxpayer, the taxpayer made a paragraph 111(4)(e) designation in respect of the common shares of the FA such that the taxpayer was deemed to have disposed of, and reacquired, the FA shares immediately before the time that is immediately before the time of the acquisition of control.

In the CRA’s view, would the deemed reacquisition of the common shares of the FA by the taxpayer result in the application of the foreign affiliate dumping rules?

Notes From Presentation

CRA considers that the deemed reacquisition by CRIC of the shares of FA under s. 111(4)(e)(ii) would be an investment by the CRIC in the FA under s. 212.3(10)(a). None of the exceptions in s. 212.3(18) would apply, and it is not apparent how the s. 212.3(16) exception could apply. Accordingly, s. 212.3(2) would apply. However, no property is transferred, on the acquisition of control, by CRIC to FA. Accordingly, the deemed dividend arising under s. 212.3(2) is nil.

CRA will be issuing a technical interpretation in about a month’s time describing the disclosure requirements for a notification provided to CRA under s. 212.3(7)(d)(i) respecting the application of the PUC grind.

Official Response

28 May 2015 IFA Roundtable, Q. 10, 2015-0581641C6

Question 11 – FA borrows to pay dividend

Paragraph 95(2)(a) of the Act re-characterizes, in various circumstances, amounts that would otherwise be income from property of a foreign affiliate as income from an active business. Provided all the other requirements for the application of clause 95(2)(a)(ii)(B) are satisfied, it applies to income derived by a foreign affiliate from amounts paid or payable by another foreign affiliate provided the amounts paid or payable were for expenditures that were “deductible” by that other affiliate in computing the amounts prescribed to be its earnings or loss from an active business.

Assume that a foreign affiliate (the “Borrower FA”) of a taxpayer resident in Canada carries on an active business in a country other than Canada. Borrower FA does not carry on any other income earning activity. Borrower FA borrows money from another foreign affiliate (the “Lender FA”) of the taxpayer to pay a dividend. The amount of the dividend does not exceed the accumulated profits of Borrower FA which are currently used by Borrower FA to earn income from its active business. Assuming all other necessary conditions for clause 95(2)(a)(ii)(B) are met (e.g., qualifying interest, etc…), does the CRA view the interest as deductible by Borrower FA in computing the amount prescribed to be its earnings or loss from an active business such that the interest will be included in computing the active business income of Lender FA?

Notes From Presentation

The interest would be considered to be deductible by the other affiliate in computing the amounts prescribed to be its earnings or loss from an active business. The precise route to this conclusion would depend on whether the “earnings” definition in Reg. 5907(1) provided for the computation of its earnings in accordance with the identified foreign tax law or under the Act, and on the treatment under any such foreign tax law.

If its earnings were determined under the Act, then the interest would be deductible under s. 20(1)(c). The s. 95(2)(a)(ii)(B) test also would be satisfied if the earnings were to be determined under the applicable foreign tax law, and it was deductible under such laws. On the other hand, if the interest was not so deductible, it would be considered to satisfy the Reg. 5907(2)(j) requirement that it have been incurred for the purpose of gaining or producing the earnings.

Official Response

28 May 2015 IFA Roundtable, Q. 11, 2015-0581571C6

Question 12 – Conflicting versions of Swiss Treaty

Article 10(2)(a) of the Canada-Switzerland Tax Convention (the “Swiss Treaty”) restricts Canada's right to tax dividends paid by Canadian-resident companies to Swiss-resident companies to a maximum of 5 per cent of the gross amount of the dividends if, inter alia, the dividends are paid to a company that “owns at least 10 per cent of the voting stock and of the capital of the company paying the dividends”. However, in the French version of the Swiss Treaty, which is stated to be “equally authentic”, the rule seems to read differently. Specifically, it appears that the company receiving the dividends needs to “contrôle directement ou indirectement au moins 10 pour cent des droits de vote et au moins 10 pour cent du capital de la société qui paie les dividendes”, meaning that the Swiss-resident company needs to “control directly or indirectly at least 10 per cent of the voting rights and of the capital” of the Canadian resident company.

Assume a corporation resident in Switzerland (“Swissco”) owns all of the shares of another corporation (“Holdco”) which, in turn, owns all of the shares of a corporation resident in Canada (“Canco”). Assume further that paragraph 214(3)(a) of the Act applies to deem Canco to pay a dividend to Swissco. It appears that the rate of withholding tax would be 15% if one applies the English version of the Swiss Treaty but it would be reduced to 5% if one were to apply the French version.

Could the CRA provide us with its views as to the proper application of Article 10(2)(a) of the Swiss Treaty in these circumstances?

Notes From Presentation

This issue was brought to the attention of both competent authorities. There was agreement that in any particular situation, the official version of the Treaty which produced the most favourable result to the taxpayer should be applied. In this case, that version was the French rather than the English version, so that withholding at 5% would apply. (The German version of the Treaty was not considered to be an official version.)

Official Response

28 May 2015 IFA Roundtable, Q. 12, 2015-0581521C6

Presentation by Phil Halvorson (of Finance until 1 May 2015, but in a non-representative capacity) on BEPS

Phil indicated that of the various BEPS action plans, the one that the greatest attention should be paid to by the Canadian tax community was the report on interest deductibility. Although this report is mushy and meandering (not his words), including confusion as to whether it was addressing best practices or minimum standards, Ottawa has a “keen” interest in addressing the scope of the Canadian thin cap rules and, accordingly, is very interested in where the BEPS deliberations land. The whole general topic of erosion of the Canadian tax base through interest deductions has been a perennial issue in Canada, including the subsequently withdrawn s. 18.2 (double-dipping) proposal and with the foreign affiliate dumping rules targeting the same general area (developed after the advisory committee suggested a targeted anti-avoidance rule).

The report discussed using group ratios as a secondary approach. The report seemed to have something of a preference for looking at the ratio of interest expense to EBITDA, which had a certain logic since, as the concern was excess interest deductions, comparison could be made to the income generated. However, Phil noted the difficulties of basing tests on income statement items which are subject to much more volatility (at least on the revenue side) than on tests that look at balance sheet tests, so that a balance sheet approach would provide taxpayers with greater certainty. Therefore, Finance was unlikely to dismiss the current Canadian balance sheet approach.

With the adoption of a comprehensive thin cap approach in Canada, it might be possible to dump the FAD rules which, as other panelists noted (with him implicitly concurring), have the effect of taking regional headquarter jobs away from Canada, because in every in-bound acquisition, the acquirer explores options for getting foreign subsidiaries of the Canadian target out from under.

At a later juncture, Phil made an (at least somewhat off-the-cuff) remark that consideration might be given in Canada to a rule that limited interest deductions to EBITDA minus s. 113 deductions, i.e., to 25% of Canadian-source income. In contrast, Australia uses an asset test which ignores foreign assets. Having said that, Germany, the U.K. and the U.S. use a more EBITDA-based approach so that, as noted, the BEPS approach appears to be more partial to using EBITDA.

The report suggests limitations on foreign-to-foreign base shifting, which would be contrary to the policy approach underlying s. 95(2)(a)(ii). However, he noted that, in footnote 49, the report indicated that interest received by a Finco might be recharacterized as active business income based on the source character of the income, although the footnote at the same time noted that this could give rise to foreign base erosion. It was implicit that Finance is not chomping at the bit to undercut the s. 95(2)(a) policy.

The report treats the scope of interest limitation rules as also applicable to domestic intra-group loans given the EU rules prohibiting discrimination against other members’ corporations. There likely was a BEPS-related consensus that only net interest should be limited under these rules, i.e., where a corporation pays $1,000 in interest and receives $900 in interest, the focus in on the net deduction of $100. A suggestion that there be group-wide interest allocation was unlikely to be adopted.