Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: How the back-to-back loan rule in subsection 90(7) is applied in a cash pooling arrangement.
Position: No position taken.
Reasons: Position would require full knowledge of all the details of the particular situation.
IFA Roundtable, May 2014 Question 3(c)
Question 3(c): Upstream Loan Rules Back-to-back Loans
In some foreign affiliate groups, one entity in the group provides cash management services to the other members of the group, pooling cash balances received from group members and making advances to other members of the group, generally on a short term basis. The volume of transactions may be so great as to make tracing each amount impractical or impossible.
How should the back-to-back loan rule in subsection 90(7) be applied in these circumstances? Should loans that are repaid within two years be ignored for purposes of applying subsection 90(7)? What is the result if a loan to the cash manager is for longer than two years, but the loan by the cash manager to another affiliate is shorter than two years?
CRA Response
The CRA has not yet developed any specific positions on the operation of the upstream loan rules that are unique to cash pooling arrangements. A position on how the back-to-back loan rule in subsection 90(7) would generally be applied was outlined in a question addressed at the 2013 Canadian Tax Foundation Conference CRA Roundtable (our file 2013-050815). Nevertheless, it remains a question of fact of how the upstream loan rules apply to any particular arrangement.
Given that the industry and business community outside of the CRA has a great amount more experience in carrying out the intricate and detailed transactions involved in a cash pooling arrangement, in our view, that community would be the best positioned to consider and document the breadth of challenges faced when contemplating such arrangements in the context of the upstream loan rules. With this in mind, we would welcome a submission from the industry and business community (perhaps as a joint submission from numerous firms, or from a professional association, etc.) comprised of a complete discussion of the various challenges a cash pooling (or similar) arrangement brings to the application of the upstream loan rules as well as recommendations for what, if any, positions are, in their view, appropriate under the circumstances. Our receipt of such a submission would allow us to focus on all of the issues and recommendations raised by the industry and business community with the intention that we would be able to issue a communication publically that described what positions the CRA was prepared to take.
Olli Laurikainen
2014-052674
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