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.
QUESTION 71
Interest Withholding Tax Exemption
Subparagraph 212(1)(b)(vii) contains no provision like subsection 18(6) that deals with back to back loans. Therefore is an exemption from withholding tax available when a non-resident deposit funds with a non-resident financial institution that in turn loans funds to a Canadian corporation with which the non-resident individual does not deal at arm's length?
DEPARTMENT'S POSITION
Subparagraph 212(1)(b)(vii) is clearly intended to exempt from withholding tax only interest payable to a non-resident person with whom the borrower is dealing at arm's length. The deposit of funds by the non-resident with the financial institution could constitute an avoidance transaction within the meaning of paragraph 245(3)(b). Assuming that it is an avoidance transaction, it would be considered to be a misuse of subparagraph 212(1)(b)(vii) and, for that reason, would be subject to subsection 245(2).
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