11 October 1996 APFF Roundtable, 7M12910 - APFF ROUND TABLE -- summary under Subsection 245(3)

In a situation where Canco subscribes for shares of its Barbados subsidiary, and the Barbados subsidiary loans the same funds to a U.S. subsidiary of Canco with interest, Revenue Canada will make a comparison with hypothetical transactions in which the U.S. subsidiary borrowed money at interest directly from Canco, with the result that Canco would earn interest income, and the U.S. subsidiary will be subject to Canadian withholding tax pursuant to ss.15(2) and 214(3).