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.
952123
XXXXXXXXXX Olli Laurikainen
(613) 957-2116
Attention: XXXXXXXXXX
August 16, 1995
Dear Sirs:
Re: Income from a Financing Business of a Foreign Affiliate
This is in response to your request for a technical interpretation. You request our view whether subparagraph 95(2)(a)(i) has application to the interest income of a foreign affiliate in the following hypothetical situation.
1) FA is a foreign affiliate of a taxpayer ("Canco") resident in Canada in respect of which Canco has a qualifying interest (as defined in paragraph 95(2)(m)) throughout the taxation year of FA.
2) Salesco is a non-resident corporation which is related to FA as well as Canco. Salesco has 500 employees.
3) Salesco carries on active business activities in a country other than Canada. No part of Salesco's active business activities are carried on in Canada. The active business of Salesco is the purchase, marketing, sale and service of equipment (the "Product"). A significant proportion of the Product sold by Salesco is manufactured in Canada by persons related to Canco. The Product is purchased by Salesco for fair market value consideration. The customers (the "Customers") of Salesco deal at arm's length with Salesco and are resident in countries other than Canada.
4) FA derives interest income (the "Interest") from financing purchases by the Customers of Product sold by Salesco. Subject to the application of subparagraph 95(2)(a)(i), the Interest would be included in computing income from property of FA pursuant to 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 subparagraph 95(2)(a)(i). This opinion does not apply to any other income earned by FA.
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
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