Canco was assessed for and paid Part XIII tax regarding royalty payments that it made to its non-resident parent (Parentco) and to a non-resident subsidiary of Parentco (Sisterco), without seeking to recover from Parentco and Sisterco the amount of Part XIII tax paid on their behalf.
For the purposes of s. 15, was there a debt owing by Sisterco to Canco arising from the payment made by Canco pursuant to s. 215(6)?
After referring to 2006-0214291I7, which indicated that the unrecovered payment of Parentco’s Part XIII tax constituted a taxable benefit subject to ss. 15(1) and 214(3)(a) and that ss. 56(2) and 214(3)(a) did not apply to the unrecovered payment of Sisterco’s Part XIII tax because such payment would not be included in the non-resident’s shareholder’s income if Part I were applicable to it, the Directorate stated:
[W]e would consider that, for the purposes of section 15, Canco conferred a benefit on Parentco and Sisterco, rather than considering that Parentco and Sisterco received a loan from or became indebted to Canco.
Consequently, the amount of Part XIII tax paid by Canco on behalf of Sisterco would not be included in computing the income of Sisterco under subsections 15(1) or (2) because, respectively, on the one hand, Sisterco is not a shareholder of Canco and, on the other hand, Sisterco would not be considered to a have received a loan from or become indebted to Canco.