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:
Meaning of "directly or indirectly" in new subparagraph 95(2)(a).
Position: See letter.
Reasons: Intent( (and Finance comments).
XXXXXXXXXX 951744
Attention: XXXXXXXXXX
February 1, 1996
Dear Sirs:
Re: Subparagraph 95(2)(a)(ii) of the Income Tax Act (Canada) (the "Act")
We are writing in response to your letter dated June 22, 1995 in respect of new clause 95(2)(a)(ii)(B) of the Act and the interpretation of the words "directly or indirectly" in the phrase "the income is derived from amounts that were paid or payable, directly or indirectly, to the particular affiliate or a partnership of which the particular affiliate was a member...", contained in the preamble to subparagraph 95(2)(a)(ii).
At the 1995 Canadian Tax Foundation Conference, a representative of the Department of Finance stated that the words "directly or indirectly" were meant to deal with back to back loans and certain fronting arrangements involving insurance. He added that, "The object of subparagraph 95(2)(a)(ii) is to keep the active business income of certain affiliated or related groups of corporations whole where there are payments amongst its members."
In our view, where an arm's-length intermediary is involved in a payment flow, an amount would be considered to be paid or payable directly or indirectly by another qualified foreign affiliate to a particular foreign affiliate where the payment can be traced and shown to be a payment made directly or indirectly to a particular foreign affiliate that was deductible by the other foreign affiliate in computing its earnings or loss from an active business.
The above comments represent our general views with respect to the subject matter of your letter. These comments do not constitute an advance income tax ruling and therefore, as described in paragraph 21 of Information Circular 70-6R2, are not binding on the Department.
Yours truly,
for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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