CRA concludes that amounts paid on a hybrid instrument to the taxpayer’s parent were deductible interest

CRA has concluded that "amounts" (to use a neutral word) paid by a Canadian subsidiary to its non-resident parent, on a "Contract" that had been issued by it for the purchase of a parent subsidiary, were deductible as interest (to the extent they were reasonable in amount) notwithstanding that the amounts were not treated as income under the domestic tax laws of the parent.  The features of the Contract which were somewhat equity-like were: it was subordinated and convertible at the parent’s option into common shares; the percentage returns included a variable component which went to nil if the taxpayer had no income; there apparently was a long term (perhaps 30 years); and the returns were called "amounts" rather than "interest," and could be paid at the taxpayer’s option through the issuance of preferred shares.

Neal Armstrong.  Summary of 3 June 2013 Memorandum 2012-0468131I7 under s. 20(1)(c).