Finance releases revised back-to-back financing rules

Canada has long had an inbound financing rule designed to ensure that Canada’s thin capitalization rules could not be circumvented through a back-to-back loan – phrased in terms of one non-resident member of a group lending funds to another person (an intermediary) on condition that the intermediary in turn lend funds to a Canadian member of the group. In the February 11, 2014 federal budget, the government announced expanded rules designed to capture certain variations of back-to-back loans and their economic equivalents, not only for thin capitalization purposes but also for withholding tax purposes. These rules were further revised when released as draft legislation in August 2014. My Quick Report contains is a very high-level description of these rules, as applied to a foreign-controlled corporate group.