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.
Principal Issues:
Under what circumstances will the Department not seek to apply the provisions of subsection 18(6) to a back-to-back loan arrangement.
Position:
When each of the loans in such arrangement are made to corporations resident in Canada controlled (de jure) by the non-resident person who made the first loan.
Reasons:
In such case the provisions of subsections 18(4) and 18(5) are not otherwise frustrated or circumvented.
March 27, 1998
Technical Publications Section Olli Laurikainen
Patricia Spice, Chief 957-2116
Attention: Jim McFarlane
963040
Interpretation Bulletin IT-59R4
This is to advise you that the Directorate has reached a consensus regarding the interpretation to be given to paragraph 3 of Interpretation Bulletin IT-59R3 regarding the application of subsection 18(6).
It has been concluded that paragraph 3 of IT-59R3 contemplates a case where a non-resident person ("NRP") which has de jure control over a corporation resident in Canada ("C1"), makes a loan ("Loan 1") to C1 and C1 makes a loan ("Loan 2") in the same amount to another corporation resident in Canada ("C2") over which NRP has de jure control. In such cases the Department would not seek to apply the provisions of subsections 18(4) and 18(6) to interest paid on Loan 2. However, it is noted that in reference to Loan 1, in order to satisfy requirements for interest deductibility under paragraph 20(1)(c) of the Act, the interest rate on Loan 2 would generally have to exceed that on Loan 1.
In connection with this decision, the Directorate is retracting the administrative position which was referred to in our memorandum to you dated May 17, 1996.
Chief
International Section
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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.../cont'd
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