Canco is wholly-owned by MNC, a non-resident multi-national corporation. All the treasury functions for the group are carried out by Canco, which lends to non-resident subsidiaries of MNC (Foreign Subs). Before starting to make these loans, Canco subscribes for common shares of the Foreign Subs so that it holds 1% (or, in another scenario, 10%) of the shares of each.
After noting that the loans might not be exempted by s. 15(2.3) in the absence of the cross-shareholdings, CRA stated:
We may consider the possible application of paragraph 95(6)(b) of the Act in those situations such that the acquisition of the shares of the Foreign Subs by Canco would be deemed to not have occurred. We note that that subsection 95(6) applies only for the purposes of subdivision i of Division B of the Act (other than section 90). Subdivision i in part deals with the definition of "foreign affiliate" and the share acquisition has a direct impact on whether the Foreign Subs are foreign affiliates of Canco. We are of the view that paragraph 95(6)(b) of the Act could be applied to those situations with consequences to the application of subsection 15(2.1).