CRA has been applying s. 15(2) in its audits of cross-border cash pooling arrangements

In its audits of cross-border cash pooling arrangements, CRA has taken the position that:

• amounts received by a related non-resident head account holder in a cash pool from a Canadian entity member of the cash pool (as part of a cash pooling arrangement) are subject to the shareholder loan rules in subsection 15(2) of the Act
• the ordinary business and bona fide arrangement exception [in s. 15(2.3)} is generally not met because:
  • there is a lack of evidence that a Canadian entity loans money to either arm’s length parties or other members in the corporate group …
  • the terms of cash pooling deposit agreements do not generally include a fixed or specific date for the foreign company to repay the loan … [indicating no] bona fide arrangement for repayment
• the repayments exception [in s. 15(2.6)] is generally not met because the automatic daily cash sweeps are considered to form part of a series of loans or other transactions and repayments
• …each loan requires a separate [PLOI] election, so if the election is filed late, there can be multiple late filing penalties
• there will be no refund [under s. 227(6.1)] of the withholding tax paid on the amount of a loan deemed to be a dividend when the loan is repaid if the repayment is part of a series of loans and repayments

Neal Armstrong. Summary of PwC, Tax Insights: Cross-border cash pooling arrangements ─ Recent developments, Issue 2018-41, 2 November 2018 under s. 15(2.6).