CRA finds that interest can be imputed under s. 247(2) to a PLOI which already is subject to s. 17.1 imputed interest

A corporation resident in Canada (“CRIC”) made various loans to an indirect wholly-owning parent which bore interest, payable at least annually, at a floating rate equal to the prescribed rate under Reg. 4301(b.1), with a timely joint election under s. 15(2.11) being made by them for each of those loans to qualify as a “pertinent loan or indebtedness” for the purposes of ss. 15(2) and 17.1(1). In finding that CRA could apply both ss. 17.1 and 247 to these loans (presumably meaning that if the arm’s-length rate was higher than the prescribed rate, interest at that higher rate would be imputed), the Directorate stated:

Subsection 247(2) can apply to debts owing by a non-resident person to a Canadian resident corporation with which the non-resident person does not deal at arm’s length, to which subsection 17.1(1) applies. More specifically, we submit that the principle of statutory interpretation according to which a specific provision in a statute precludes the application of a general provision in that statute, commonly known as the rule of implied exception, does not apply with respect to sections 17.1 and 247 because there is no conflict between those two provisions and they do not interfere with their policy objectives. In short … subsection 247(2), which was broadly worded to embody the arm’s length principle, was meant to apply to all cross-border transactions, arrangements or events, including financial transactions, between non-arm’s length persons or partnerships, unless a specific exclusion applies.

This assertion that there is no conflict in imposing a different interest rate under the general provision (s. 247(2)) than that determined under the specific rule (s. 17.1) applicable to the transaction appears to be a misconstruction of the rule of statutory interpretation at issue, namely, that one should not give “precedence to a general provision over the detailed provisions enacted by Parliament to deal with [the transaction]” (Schwartz, at para. 52; see also Shell, at para. 51). The principle also cuts both ways – presumably, CRA would not accept that if a specific provision limits or prohibits deductibility, the denied expenses nonetheless can be deducted under a general provision (see Symes).

Neal Armstrong. Summary of 6 September 2023 Internal T.I. 2019-0805481I7 under s.247(2.1).