CRA confirms that the B2B notifiable transaction reporting applies whenever there is an interest withholding tax reduction going from an ultimate to an immediate funder

The list of notifiable transactions for purposes of s. 237.4(3) essentially includes a non-resident person (NR1) entering into an arrangement to indirectly provide debt financing to a taxpayer through another non-resident person (NR2) where the taxpayer treats the interest paid by it to NR2 as subject to a lower withholding tax rate than if it paid that interest directly to NR1.

CRA was presented with the situation where the mostly non-resident public shareholders of Foreign Parent subscribe for shares of Foreign Parent, which uses those proceeds to make an interest bearing loan and subscribe for shares of its wholly-owned subsidiary, Foreign Opco, which uses all of such proceeds to make an interest-bearing loan to Canco. Interest paid by Canco to Foreign Opco is subject to a 10% withholding tax rate, whereas the rate would be 15% had the interest been paid by Canco to Foreign Parent. The character substitution rules in s. 212(3.6) do not apply and there are no “specified shares” as defined in s. 212(3.8).

CRA indicated that Foreign Parent (regarded as NR1) would be required to report pursuant to s. 237.4(4)(a) because it would be considered to be a person to whom a tax benefit results; and Foreign Opco (regarded as NR2) and Canco would be required to report under s. 237.4(4)(b) because they entered into the transaction for the benefit of Foreign Parent.

CRA also indicated:

• Intent and purpose do not provide a basis for limiting or excusing the reporting obligation, nor is there a materiality threshold.
• If Foreign Parent only equity-financed Foreign Opco, which used all or a portion of the proceeds to make an interest-bearing loan to Canco, the arrangement would not come within the s. 212(3.1) rules (assuming the shares were not specified shares) so that there would be no reporting obligation.

Neal Armstrong. Summaries of 3 December 2024 CTF Roundtable, Q.3 under s. 237.4(4)(b) and s. 212(3.1).