CRA finds that a cross-border cash pool entailed a series of loans and repayments

Canco (along with other members of the group) was part of a “physical” cash pooling arrangement with a non-resident affiliate (Finco) under which funds were automatically transferred to and from Finco by way of daily cash sweeps, with interest being computed on the resulting balances owing either way. Due to fluctuations in Canco’s position, it was both a net lender and a net borrower for various periods during the taxation years in question. The only question posed was whether the daily cash sweeps were to be considered to be a series of loans or other transactions and repayments. After noting the restrictive interpretations accorded to this phrase in Attis, Uphill and Meeuse, CRA nonetheless concluded:

[T]he Cash Pooling Arrangement appears to be structured in a manner that results in automatic daily cash sweeps which produce a “rolling forward” of the inter-company loans from Canco to Finco. If that is the case, we believe that a respectable argument could be made that the automatic daily cash sweeps constitute a series of loans or other transactions and repayments and as such, the exception under subsection 15(2.6) should not apply as it would otherwise result in a perpetual deferral of the inclusion under subsection 15(2).

Neal Armstrong. Summary of 27 February 2018 Internal T.I. 2017-0682631I7 under s. 15(2.6).