10 January 1990 Internal T.I. HBW4125I7 F - Withholding Tax Requirements on Loans

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.

January 10, 1990

Dear 19(1)

We are writing in regards to your letter of November 27, 1989, concerning the Canadian withholding tax requirements on loans subsidized by 24(1)

Under Article XI of the Canada-Italy Income Tax Convention, Canada would withhold 15% on all interest payments made to the 24(1) Paragraph 3(c) of Article XI provides that if the loan is guaranteed or insured by an institution specified and agreed upon by letters exchanged between the competent authorities, the interest would not be taxable in Canada.  Our records indicate no such exchange of letters has taken place concerning the 24(1)

It is our understanding that paragraph 3(c) is intended to grant exemption to those loans made, guaranteed or insured by the Contracting States official export agency (in the case of Canada, this would be the Canadian Export Development Corporation).  We are unable to comment on the status of the  24(1)  You may wish to contact the Italian tax authorities in this regard.

Paragraph 3(c) applies to those loans "guaranteed" or "insured" by the eligible institution.  In your letter you mention the loans would be "subsidized" by the 24(1) Regardless of whether the 24(1) was recognized as an eligible institution pursuant to an exchange of letters, we would require additional information concerning their exact involvement in the transaction before we could confirm the Canadian withholding requirements. We would review this aspect of the problem only after an exchange of letters was finalized.

The fact that the loan may be booked through a U.S. branch does not affect the Canadian withholding requirements.  Interest is still arising in Canada and being paid to a resident of Italy.

We trust you will find this to your satisfaction.

Yours sincerely,

C. SavageA/DirectorProvincial and International Relations Division

Enclosure

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