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.
7 - 912364
QUESTION 28
Non-Resident Withholding Tax
Subparagraph 212(1)(b)(vii) of the Income Tax Act (the "Act") contains no provision like subsection 18(6) of the Act that deals with back-to-back loans. Therefore is an exemption from withholding tax available when a non-resident deposits funds with a non-resident financial institution that in turn loans funds to a Canadian corporation with which the non-resident individual does not deal at arm's length?
Revenue Canada's Position
Subparagraph 212(1)(b)(vii) of the Act is clearly intended to exempt from withholding tax only interest payable to a non-resident person with whom the borrower is dealing at arm's length. The deposit of funds by the non-resident with the non-resident financial institution could constitute an avoidance transaction within the meaning of paragraph 245(3)(b) of the Act. Assuming that it is an avoidance transaction, it would be considered to be a misuse of subparagraph 212(1)(b)(vii) of the Act and, for that reason, would be subject to subsection 245(2) of the Act.
Prepared by: H. Woolley
August 28, 1991
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