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.
RULINGS TAX SEMINAR
CENTRAL REGION
OCTOBER 14 & 15, 1992
Subsection 80.4(2)
Question
In some cases, loans between non-resident corporations can give rise to Part XIII tax. For example, where a U.S. corporation ("U.S.co") which owns 100% of the shares of a Canadian corporation ("Canco") which in turn owns 100% of the shares of a foreign affiliate receives an interest free loan from the affiliate, subsection 80.4(2) will deem U.S.co to have received a benefit. Subsection 15(9), paragraph 214(3)(a) and subsection 212(2) will result in Part XIII tax being exigible on the amount of such benefit.
Subsection 15(8) exempts from 15(2) treatment, the indebtedness described in the above example. Are there any policy considerations requiring an exemption from section 80.4 where subsection 15(8) would apply?
Department's Position
Now that the definition of foreign accrual property income ("FAPI") in paragraph 95(1)(b) has been amended to exclude subsection 80.4(2) benefits, we are no longer aware of any
Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information situation where the application of section 80.4 to loans between non-residents may be considered to produce a result that is inappropriate. For instance in the above example, U.S.co will have use of funds, which, if transferred to U.S.co in another manner (e.g. a dividend from the affiliate to Canco who in turn paid a dividend to U.S.co) would have given rise to Canadian tax under Part I and/or Part XIII of the Act. The fact that U.S.co can take advantage of the provisions of subsection 15(8) is in no way justification for not applying section 80.4. It should be noted that if section 80.4 was not intended to apply to loans between non- resident corporations, then an exception similar to subsection 15(8) could have been made in section 80.4 instead of just eliminating the benefit from FAPI.
Olli Laurikainen
October 12, 1992
923004
Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information
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