CRA finds that a U.S. LLC’s intra-group lending business can qualify its C-Corp. member, under the Treaty active trade or business test, for the 0% Treaty-reduced rate on an LLC loan to a Canadian affiliate

Article XXIX-A, para. 3 of the Canada- U.S. Treaty indicates that a U.S. resident which is not a qualifying person nonetheless will be eligible for Treaty benefits with respect to income derived from Canada in connection with a substantial business (other than, in the case of a non-financial institution, a business of making or managing investments) actively conducted in the U.S., including such income derived by it "through" another U.S. resident.

CRA considers that a U.S. "C-Corp" that is the sole member of a U.S. LLC which acts as a group Finco will satisfy this test, so that interest paid by a Canadian affiliate on a loan from Finco is eligible for the 0% withholding rate under the Treaty, notwithstanding that the C-Corp is carrying on the business which so qualifies it for this Treaty benefit "through" the LLC.  Among other things, this appears to confirm that a money-lending business is not a business of making investments, and that the LLC look-through provision (in Art. IV, para. 6) dovetails nicely with this active trade or business test in Article XXIX-A.

Neal Armstrong.  Summary of  2012 Ruling 2012-0458361R3 under Treaties - Art. 4 and Treaties - Art. 29A.