| 922150 | |
| 24(1) | Michael Cooke |
| 957-8972 |
Attention: 19(1)
July 21, 1992
Dear Sirs:
Re: Subparagraph 212(1)(b)(vii)-Withholding tax exemption:
This is in reply to your letter of July 7, 1992, concerning your request for a technical interpretation on the application of subparagraph 212(1)(b)(vii) of the Act.
Your specific concern is whether or not an obligation which otherwise qualifies from the withholding tax exemption under subparagraph 212(1)(b)(vii) would be disqualified if repayment of more than 25% of the principal portion is permitted and made at the Canadian corporate issuer's discretion within five years of the date of issue? Note that the Canadian corporate issuer would be under no obligation to make this repayment.
The department's general position on this matter can be found in IT 361R2 paragraph 7 which partially states as follows:
...an obligation which otherwise qualifies under subparagraph 212(1)(b)(vii) is not disqualified only because repayment is permitted, at the issuer's discretion, of more than 25% of the principal amount within five years of the date of its issue; that is , there is no obligation on the part of the issuer to make the payment.
It is a question of fact as to whether the general position would continue to apply where the intent of section 212 is circumvented in an unreasonable manner.
We hope the above comments are of assistance to you.
Yours truly,
Section ChiefLeasing & FinancingFinancial Industries DivisionRulings Directorate