Loans by Canco to a wholly-owned CFA might result in Part XIII tax

Ss. 15(2) and 214(3)(a) on a literal reading can deem there to be a dividend that is subject to Part XIII tax where a Canadian corporation (Canco) lends money to a non-resident subsidiary that happens to be the shareholder of another non-resident subsidiary.

Although CRA has considered (in 2004-0064811E5) that s. 15(2.3) only exempts a loan from the application of s. 15(2) where it was "made in the ordinary course of the lender’s ordinary business of lending money," the loan nonetheless might be exempted (under the other branch of s. 15(2.3)) as "a debt that arose in the ordinary course of [Canco’s] business" if it is customary for Canco to finance its foreign subsidiaries.

Neal Armstrong.  Summary of Randy S. Morphy, "The Modern Approach to Statutory Interpretation, Applied to the Section 15 Anomaly in Foreign Affiliate Financing", Canadian Tax Journal, (2013) 61:2, 367-85, under s. 15(2.3).