Prior to August 19, 2011, Canco borrowed $50M (“Advance A”) from its wholly-owned non-resident subsidiary (“FA”), and borrowed a further $50M (“Advance B”) from FA under the same revolving credit facility in October 2012. The only other relevant advance or repayment is that Canco repaid $50M (the “Repayment”) in September 2014, with neither Canco nor FA making any specific designation respecting the Repayment. Should the Repayment be applied using the “first in, first out” (“FIFO”) method?
After noting that Advance B was required to be repaid before Advance A because Advance A was deemed to have been received on August 20, 2014, Headquarters stated:
Where a particular form of indebtedness is accounted for as a single balance representing various advances and repayments...the FIFO method should apply to repayments, unless a specific designation is made to the contrary. However, in the context of the transitional Upstream Loan Rule, such methodology would apply based on the dates of the actual loan advances and without regard to the fact that certain portions of pre-August 19, 2011 loans might be deemed to be made on August 20, 2014.
…[B]ecause no specific designation has been made in respect of the Repayment…the Repayment should be applied to Advance A even though, for purposes of the Upstream Loan Rules, that loan is deemed to occur after Advance B.