Loss consolidation transactions between a “Lossco” in the Brookfield group (“BRPI”) and “Profitcos” resulted, for instance, in BRPI holding $2.3 billion of loans in its Profitco subsidiary, and the Profitco holding $2.3 billion of preferred shares of its parent until this reciprocal arrangement was reversed five months’ later. The ARQ assessed to deny the deduction of the interest in excess of 6%.
The Court of Appeal found no reversible errors by the Court of Quebec, which referred to the Gervais Auto decision, and evidence of the two ARQ experts indicating that BRPI had been borrowing from arm’s length lenders at around that time at rates ranging between 6.00% and 8.75%; and referred the appeal back to the ARQ for reassessment on the basis of allowing the interest deduction at an 8.75% rate.