The B2B rules operate in a formulaic and mechanical manner

The formula in s. 212(3.2) for allocating interest to an ultimate funder for purposes of the back-to-back (BTB) loan rules could result in an ultimate funder being allocated a pro-rata portion of the deemed interest even though it has provided a non-interest-bearing loan or it has not provided any loan at all but has granted "specified rights".

The character substitution rules in ss. 212(3.6) and 212(3.92) et seq. are intended to prevent taxpayers from avoiding the BTB loan or royalty rules by substituting a payment of interest or royalties between an intermediary and a non-resident with payments that are economically similar. In the case of shares, this would suggest that the shares should be debt-like. However, given that once a dividend is declared, it generally gives rise to a debt, these rules may potentially apply to ordinary common shares on which dividends have been declared during the relevant period and where the requisite tests are met.

Neal Armstrong. Summaries of Sabrina Wong, "Bill C-29 Amendments to the Back-to-Back Rules," International Tax, Wolters Kluwer CCH, December 2016, Number 91, p. 5 under s. 212(3.2), s. 212(3.9)(b)(ii) and s. 212(3.6)(a).