22 October 2002 Internal T.I. 2002-0149977 - Interest income deemed ABI of A CFA -- summary under Clause 95(2)(a)(ii)(B)

Where Irishco (a foreign affiliate in which Canco has a qualified interest) lends at a market rate of interest to U.S. Holdco (a wholly-owned subsidiary of Canco) and U.S. Holdco uses the funds to contribute capital to a U.S. partnership, then provided that the U.S. partnership is carrying on business in Canada or a designated treaty country, under subparagraph (a)(i) of the definition of "earnings" in Regulation 5907(1), the interest on the loan will be deductible from U.S. Holdco's earnings from an active business. Even if the interest were not deductible for U.S. federal income tax purposes, Regulation 5907(2)(j) would provide that the interest was deductible in computing the prescribed earnings from an active business.