4 February 1988 Income Tax Severed Letter 95-5091 F

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.

RE:     Paragraph 212(1)(b) of the Income Tax Act (the "Act")

This is in reply to your letter of November 18, 1987 in which you asked for our views on a situation involving paragraph 212(1)(b) of the Act. Our telephone conversation is also acknowledged.

You have outlined a situation where interest payments on notes issued by a Canadian corporation to non-residents are specified to be at a specified rate linked to the consumer price index of Canada or the comparable index of another country. The example you have given is the interest payments being equal to the average rate of the one-month Government of Canada Treasury Bills less an inflation rate computed monthly by reference to the Canadian Consumer Price Index or the United Kingdom General Index of Retail Prices.

You have expressed the opinion that post-amble of paragraph 212(1)(b) would not apply to exclude the interest described above from the exemptions provided for in subparagraphs 212(1)(b)(ii) to (vii) and (ix). In this regard you gave asked for our opinion on this matter and in particular our opinion that no part of the interest is computed by reference to "revenue, profit, cash flow, commodity price or any other similar criterion".

Because commodity prices are a component in the calculation of consumer price indexes it is our view that the payments you describe would come under the phrase "computed by reference to revenue, cash flow, commodity prices or other similar criterion" in the post-amble of paragraph 212(1)(b) and as such would not be entitled to the withholding exemptions provided for in subparagraphs 212(1)(b)(ii) to (viii) and (ix).

We trust this is the information you requested.