Using funds generated from operations, Opco, which is a foreign affiliate both of its parent (Canco) and grandparent (Can Holdco ), subscribes for equity of Finco (another FA of Canco) which, in turn, makes a non-interest bearing loan to Foreign Sub, which is a direct subsidiary of the parent of Can Holdco (Foreign Parent). As this loan is repaid within two years, s. 90(6) does not apply to the loan. Did the interest-free loan generate Part XIII tax and, if so, who had the obligation to collect and remit the tax – and how could it be collected? After finding that s. 15(9) and s. 215(1) imposed a liability on Finco for having failed to remit Pt XIII tax on in imputed benefit relating to the absence of interest on the loan, the Directorate then stated:
Opco could potentially be jointly liable to the tax under subsection 160(1) if Finco pays a dividend to Opco in the taxation year in which Finco becomes liable to pay such tax or in a subsequent taxation year, to the extent of the amount of the dividend or the amount of such tax, whichever is the lesser. Similarly, if Opco receives a dividend from Finco and then pays a dividend to Canco in the taxation year in which Opco becomes liable to pay the tax under subsection 160(1) or a later year, then Opco would be considered the “transferor” of the property under subsection 160(1) and Canco, as the transferee of the property, would be jointly liable to the tax with Opco, to the extent of the amount of the dividend or the amount of the tax, whichever is the lesser.