{"id":162,"date":"2012-10-22T16:27:05","date_gmt":"2012-10-22T16:27:05","guid":{"rendered":"https:\/\/www.thor.ca\/blog\/?p=162"},"modified":"2025-02-12T13:29:35","modified_gmt":"2025-02-12T21:29:35","slug":"finance-restricts-new-outbound-financing-rule-if-treaty-overrides","status":"publish","type":"post","link":"https:\/\/www.thor.ca\/blog\/2012\/10\/finance-restricts-new-outbound-financing-rule-if-treaty-overrides\/","title":{"rendered":"Finance restricts new outbound financing rule if treaty overrides"},"content":{"rendered":"<p>In its October 15, 2012 release of updated draft legislation (at <a href=\"http:\/\/www.fin.gc.ca\/drleg-apl\/bia-leb-1012-eng.asp\">http:\/\/www.fin.gc.ca\/drleg-apl\/bia-leb-1012-eng.asp<\/a>), Finance eliminated the benefit of the new outbound financing rule for Canadian subsidiaries of foreign multinational corporations if a treaty applies to reduce the Canadian company\u2019s interest income on the loan.\u00a0\u00a0 Under current law, if a Canadian subsidiary of a multinational group (Canco) lends funds to its non-resident parent company (or certain other non-resident companies in the group), the loan can be deemed to be a dividend subject to withholding tax, unless the loan is fully repaid before the end of Canco\u2019s next following taxation year.\u00a0 A new elective rule (s. 15(2.11)) would avoid this deemed dividend treatment for a \u201cpertinent loan or indebtedness\u201d (PLOI); but this comes at a cost to Canco of either actual or deemed interest income on that loan equal to the Government of Canada treasury bills rate <em>plus 4%<\/em> (\u201cprescribed rate\u201d, currently 5%).\u00a0 However, in the October 15 release, Finance added a further rule which essentially voids (ignores) the PLOI election if Canco\u2019s interest income on the loan is later reduced <em>below<\/em> the prescribed rate by application of a tax treaty (s. 17.1(3)).\u00a0 This reduction could potentially occur if the double taxation provisions of a tax treaty are later engaged by Canco and the non-resident group borrower.\u00a0 Presumably the effect of this new rule is that Canco should only elect PLOI treatment for a loan if the group does <em>not<\/em> plan to later seek a reduction of Canco\u2019s PLOI interest income on that loan under a tax treaty.\u00a0 (See <a href=\"http:\/\/www.thor.ca\">www.thor.ca<\/a> for more.)<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In its October 15, 2012 release of updated draft legislation (at <a href=\"http:\/\/www.fin.gc.ca\/drleg-apl\/bia-leb-1012-eng.asp\">http:\/\/www.fin.gc.ca\/drleg-apl\/bia-leb-1012-eng.asp<\/a>), Finance eliminated the benefit of the new outbound financing rule for Canadian subsidiaries of foreign multinational corporations if a treaty applies to reduce the Canadian company\u2019s interest&hellip;<\/p>\n","protected":false},"author":11,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[],"class_list":["post-162","post","type-post","status-publish","format-standard","hentry","category-corporate-tax"],"_links":{"self":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/162","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/comments?post=162"}],"version-history":[{"count":1,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/162\/revisions"}],"predecessor-version":[{"id":2853,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/162\/revisions\/2853"}],"wp:attachment":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/media?parent=162"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/categories?post=162"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/tags?post=162"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}