6 July 1995 External T.I. 9513355 - 6363-1 FOREIGN AFFILIATE - DEEMED ACTIVE BUSINESS

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

		951335
XXXXXXXXXX		Olli Laurikainen
(613) 957-2116

Attention: XXXXXXXXXX

July 6, 1995

Dear Sirs:

Re: Income from a Financing Business of a Foreign Affiliate

This is in response to your facsimile dated May 12, 1995 wherein you request our interpretation whether proposed subparagraph 95(2)(a)(i) as set out in Bill C-70 as passed by the House of Commons June 19, 1995 has application to the interest income of a foreign affiliate in the following hypothetical situation.

1) FA is a foreign affiliate of a taxpayer resident in Canada in respect of which the taxpayer has a qualifying interest (as defined in proposed paragraph 95(2)(m)) throughout the taxation year of FA.

2) XCO is a non-resident corporation which is related to FA as well as the taxpayer referred to in paragraph 1) above.

3) XCO carries on active business activities in a country other than Canada. No part of XCO's active business activities are carried on in Canada. The active business of XCO is the manufacturing of equipment (the "Product") which it sells to customers (the "Customers") resident in countries other than Canada.

4) FA derives interest income (the "Interest") from financing purchases by the Customers of Product manufactured by XCO. Subject to the application of proposed subparagraph 95(2)(a)(i), the Interest would be included in computing income from property of FA pursuant to proposed paragraph 95(2)(l).

In our opinion, in the above circumstances the Interest would be included in computing the income from an active business of FA pursuant to proposed subparagraph 95(2)(a)(i). This opinion does not apply to any other income earned by FA and in particular does not apply to any interest earned by FA from financing purchases of products manufactured by businesses carried on in Canada.

We trust this is the information you require.

Yours truly

for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch