Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether or not back-to-back loans are exempt from Part XIII withholding tax.
Position TAKEN:
It is a question of fact.
Reasons FOR POSITION TAKEN:
Back-to-back loans may constitute an avoidance transaction and may be considered to be a misuse of subparagraph 212(1)(b)(vii).
Revenue Canada Round Table
TEI Conference
May 16, 1994
Question IX
BACK-TO-BACK-LOANS
Subparagraph 212(1)(b)(vii) contains no provision like subsection 18(6), which deals with back-to-back loans. Therefore, is an exemption from withholding tax available when a non-resident individual deposits funds with a non-resident financial institution that in turn loans funds to a Canadian corporation in respect of which the non-resident individual is a specified non-resident shareholder as defined in subsection 18(5)?
Department's Position
As was stated in the answer to question 50 of the Round Table at the 1991 Canadian Tax Foundation Tax Conference, the deposit of funds by a non-resident person with a non-resident financial institution that lends those funds to a Canadian corporation not dealing at arm's length with the non-resident person could constitute an avoidance transaction. If it is an avoidance transaction, it will be considered to be a misuse of subparagraph 212(1)(b)(vii) and will be subject to subsection 245(2).