The B2B loan rules can render funding received from a non-resident bank subject to withholding tax
A borrowing by Canco directly from a non-resident bank would not give rise to Part XIII tax on the interest. However, if the bank lends to a non-resident corporation in the group (NR1), and NR1 in turn on-lends to group companies including Canco, Canco’s borrowing may now become subject to withholding tax.
In particular, suppose that CA and NR2 (another group company) pledged assets to secure NR1's borrowing, so that the bank has a right to sell the pledged assets on default. If the bank has a "specified right" granted by NR2 which secures repayment of NR1's borrowing, then the bank would not be an "ultimate funder". As the grantor of a specified right, NR2 would become a "relevant funder."
The NR2 pledge supports NR1’s borrowing, and not CA’s borrowing, and such NR1 borrowing does not appear to be an amount described in the relevant exclusions from the “specified right” definition. Accordingly, the B2B rules would apply, and withholding tax would generally apply.
Had the bank lent the funds directly to Canco, with NR2 provided security for that borrowing, the carve-outs from specified right likely would have applied.
Neal Armstrong. Summaries of Nik Diksic and Sabrina Wong, “Cross-Border Lending Practices,” 2017 CTF Annual Conference draft paper under s. 212(3.6)(a), s. 212(3.8), s. 212(3.1)(c)(ii), s. 212(3.1)(d) and s. 20(1)(c)(i).