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 the post-amble to paragraph 2l2(l)(b) applies to interest payments which fluctuate on the basis of a formula that seeks to determine the extent to which the stock price of the borrower either out-performs or under-performs the short-term money market index.
Position TAKEN:
Yes
Reasons FOR POSITION TAKEN:
Interest payments determined on this basis would fall within the broad concluding words of paragraph 212(1)(b) "all or any portion of the interest... is computed by reference to... commodity price or any other similar criterion". As a consequence, interest payments on borrowings of this type would not qualify for the exceptions in subparagraphs 212(l)(b)(ii) to (vii) and (ix) of the Act.
XXXXXXXXXX 5-991545
P. Diguer
Attention: XXXXXXXXXX
July 21, 1999
Dear Sir/Madam:
Re: Paragraph 2l2(l)(b) of the Income Tax Act (Canada)
This is in reply to your letter dated June 1, 1999, in which you requested our views with respect to a situation where a corporation that is a resident of Canada issues debt (the "Subject Debt") to a non-resident of Canada. In particular, you ask whether, on the basis of the facts set out in your letter, the interest payable on the Subject debt is described in the post-amble to paragraph 212(l)(b) of the Income Tax Act (Canada) (the "Act") such that it would be precluded from benefiting from the withholding exemption in subparagraph 2l2(l)(b)(vii) of the Act.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular IC-70-6R3 dated December 30, 1996. Nevertheless, we offer the following general comments in connection with your request which we hope are of assistance to you.
It is our view that interest payments which fluctuate on the basis of a formula that seeks to determine the extent to which the stock price of the borrower either out-performs or under-performs the short-term money market index would fall within the broad concluding words of paragraph 212(l)(b) "all or any portion of the interest... is computed by reference to... revenue, profit, cash flow, commodity price or any other similar criterion". As a consequence, interest payments on borrowings of this type would not qualify for the exceptions in subparagraphs 212(l)(b)(ii) to (vii) and (ix) of the Act.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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