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 95(2)(a)(ii)(B) applies to the situation described in the letter
Position: Yes
Reasons: Interpretation of the provisions of the Act. In this case, notwithstanding that GPco only has a nominal interest in LLP, subclause 95(2)(a)(ii)(B)(II) of the Act applies to the interest paid by LLP to Holdco such that the income derived from that payment by Holdco is deemed to be included in computing the active business income of Holdco. The tracking of funds from LLP to Finco is not necessary in this case because the payment of interest from Holdco to Finco is deductible in computing the active business income of Holdco (refer to paragraph (b) of the definition of "earnings" in subsection 5907(1) of the Income Tax Regulations).
XXXXXXXXXX 2000-005038
S. Leung
Attention: XXXXXXXXXX
October 10, 2000
Dear Sirs:
Re: Clause 95(2)(a)(ii)(B) of the Income Tax Act (the "Act")
We are writing in response to your request for an opinion in respect of the above-noted provision of the Act in the situation described below.
The situation
1. Canco is a public corporation incorporated in Canada.
2. Canco owns 100% of a corporation ("Holdco") which was created under the domestic law of a foreign country ("Country A").
3. Holdco owns 100% of the shares of a corporation ("LPco") which was created under the law of Country A and which is a 50% limited partner of a partnership ("LLP") formed in Country A. The general partner of LLP is GPco, a corporation which was created under the law of Country A. GPco has a nominal interest in LLP.
4. LLP carries on active businesses in Country A and all of its income is derived from such businesses.
5. Canco also owns 100% of a corporation ("Finco") which was created under the law of another country ("Country B").
6. Finco loans money to Holdco at an interest rate equal to the fair market value rate. Holdco in turn loans the funds received from Finco to LLP at an interest rate slightly above the interest rate charged by Finco to Holdco. The loaned funds are used by LLP in its active businesses operated in Country A.
7. Interest paid on the loan by LLP to Holdco is deductible in computing the active business income of LLP and interest paid by Holdco to Finco is deductible by Holdco in computing its income from its loan to LLP.
With respect to the above situation, provided that Holdco, LPco, GPco and Finco are foreign affiliates of Canco and Canco has a qualifying interest in GPco throughout the year in question, it is our opinion that the income derived by Finco from the interest payments from Holdco would be included in computing the income from an active business for that year of Finco by virtue of clause 95(2)(a)(ii)(B) of the Act.
As stated in paragraph 22 of Information Circular 70-6R3 dated December 30, l996, the opinion expressed in this letter is not a ruling and is consequently not binding on the Canada Customs and Revenue Agency.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
??
- 2 -
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2000
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2000
Email this Content