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: Whether drawdowns under a credit facility are eligible for withholding exemption on interest if credit facility is for a period in excess of 5 years.
Position: No
Reasons: Each drawdown is considered a separate obligation and each must be measured from date of draw to expiry date of facility
XXXXXXXXXX 981683
J. P. Dunn
Attention: XXXXXXXXXX
July 16, 1998
Dear sirs:
Re: Revolving Loans and Part XIII Tax
We are writing in response to your correspondence of June 25, 1998 in which requested the views of the Department regarding the application of the exemption from withholding tax, pursuant to paragraph 212(1)(b)(vii) of the Act, on interest paid by a corporate lender resident in Canada to a non-resident lender in respect of drawdowns made pursuant to a credit facility granted by that lender.
It is the view of the Department that each such drawdown is, for the purpose of determining whether the borrower may be obliged to repay more than 25% of the principal amount of that obligation within five years from its date of issue, considered to a separate obligation of the borrower. Consequently, interest paid in respect of a drawdown which is made subsequent to a date that is five years prior to the expiry date of the credit facility will not qualify for the exemption from withholding tax pursuant to Part XIII of the Act.
We trust that this is the information which you require.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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