12 December 1989 Internal T.I. 74169 F - Non-resident Withholding Tax Exemption on Interest Payments

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.

SUBJECT:  24(1) Subparagraph 212(1)(b)(vii)

We are writing in response to your memorandum of July 21, 1989, wherein you requested our opinion on the above subject.

The facts as we understand them are as follows:

24(1)

24(1)

Subparagraph 212(1)(b)(vii) provides for an exemption form withholding tax and reads, in part, as follows:

     "interest payable by a corporation resident in Canada to a person with whom that corporation is dealing at arm's length on any obligation where the evidence of indebtedness was issued by that corporation after June 23, 1975 and before 1989 if, under the terms of the obligation or any agreement relating thereto, the corporation may not, under any circumstances, be obliged to pay more than 25% of,

     (A)  where the obligation is one of a number of obligations that comprise a single debt issue of obligations that are identical in respect of all rights (in equity or otherwise, either immediately or in the future and whether absolutely or contingently) attaching thereto, except as regards the principal amount thereof, the aggregate of the principal amount of those obligations, or

     (B)  in any other case, the principal amount of the obligation,

     within 5 years from the date of issue of that single debt issue or that obligation, as the case may be, except

     (C)  in the event of a failure or default under the said terms of agreement,"

24(1)

23

You will note that the interest payment is exempt provided the corporation resident in Canada is dealing at arm's length with the non-resident.  Arm's length is defined in subsection 251(1) for the purposes of the Act.  Related persons are deemed not to deal at arm's length by paragraph (a) and it is a question of fact whether or not two unrelated parties are dealing at arm's length by virtue of paragraph (b) thereof.

24(1)

24(1)

We trust these comments will be useful for your purposes.

R.J. Kauffman ChiefLeasing and Financing SectionFinancial Industries DivisionRulings Directorate