Double taxation potentially can arise under s. 247(2.1)

There are problems with the operation of s. 247(2.1) even leaving aside the variance, discussed by Marc Roy, between what the provision actually says and what Finance in its Explanatory Notes treats it as saying.

For example, consider the situation of Canco which lends C$100, to a non-arm’s-length non-resident corporation that is not a controlled foreign affiliate through a subsidiary partnership (or through a Canadian trust). Suppose that the loan bears interest at 1%, the prescribed rate under s. 17 is 2% and an arm’s length rate of interest would have been 5%.

It would appear in either the partnership or trust case that there would be double taxation, i.e., there would be an addition to the income of Canco amounting to both 5% and 2% of the loan.

Neal Armstrong Summary of Nathan Boidman and Michael N. Kandev, “Evaluating Canada’s Attempt to Reconcile General Transfer Pricing Rules and Specific Antiabuse Provisions,” Tax Notes International Vol. 98, No. 6, May 11, 2020, p. 699 under s. 247(2.1).