Background
Canco3, which was a CRIC (corporation resident in Canada) and an indirect wholly-owned subsidiary of a non-resident corporation (Pubco), wholly-owned an LLC (FinanceCo1), that lent money under the “Forco2-FinanceCo1 Note” to a branch of a non-resident sister (Forco2), which was held by a chain of non-resident subsidiaries of Pubco. The Forco2-FinanceCo1 Note was interest-bearing and its maturity date was automatically extended for consecutive one-year terms unless terminated by either party.
Transactions
- Forco2’s Branch used cash proceeds borrowed from an arm’s length bank to repay the total (USD) amount owing on the Forco2-FinanceCo1 Note to FinanceCo1.
- FinanceCo1 used such proceeds to purchase intercompany notes receivables owing between subsidiaries in the chain of non-resident entities beneath the non-resident parent of Forco2 (Forco1) and some of such subsidiaries for their nominal fair market value, and to pay a dividend to Canco3.
- Canco3 lent USD under the “Canco3-Forco2 Note” to Forco2’s branch, which made a partial repayment of its bank loan.
- Canco3 repaid obligations owing to Canadian affiliates and to Pubco, and repaid loans owing to Canadian affiliates in a separate chain (held by Pubco through Forco5) by delivering portions of the Canco3-Forco2 Note.
Additional Information
The automatic extension of the maturity date of the Forco2-FinanceCo1 Note does not result in a new loan being made for the purposes of s. 90(6).
Rulings
Include that the repayments on the Forco2-FinanceCo1 Note will not be considered repayments made as part of a series of loans or other transactions and repayments for the purpose of s. 90(8)(a) or 90(14).