Cash pooling description (p.345)
[W]e will examine a typical cash-pooling arrangement involving a Canadian subsidiary of a multinational group. Under such an arrangement, each member of the pool, including the Canadian subsidiary ("Canco"), transfers funds to, and/or receives funds from, a group member that is designated as the pool head, in this case a foreign subsidiary ("Forco") of the foreign parent corporation, resulting in intragroup payables and receivables between the pool members, including Canco and the pool head.
Effect of withholding refund (p. 346)
Where §15(2) applies, the amount of the loan from Canco to the pool head is deemed to be a dividend, and therefore subject to Canadian withholding tax at a rate of 25%, unless reduced under a tax treaty, and the interest imputation rule in §80.4(2) will not apply. A refund of the withholding tax is generally available under §227(6.1) when the loan is repaid (other than as part of a series of loans and repayments). In addition, to the extent withholding tax has been paid with respect to the loan, §17(1) will not apply to treat the pool head as having accrued interest. However, if on the repayment of all or any portion of the loan the pool head claims a refund of the withholding tax, §17(1) will apply to impute interest income to Canco on the amount owed by the pool head. A claim for a refund of withholding tax must be made by written application by the pool head within two years after the end of the calendar year in which the repayment was made.
Cash pooling description (p.345)
[W]e will examine a typical cash-pooling arrangement involving a Canadian subsidiary of a multinational group. Under such an arrangement, each member of the pool, including the Canadian subsidiary ("Canco"), transfers funds to, and/or receives funds from, a group member that is designated as the pool head, in this case a foreign subsidiary ("Forco") of the foreign parent corporation, resulting in intragroup payables and receivables between the pool members, including Canco and the pool head.
Primacy of specific provisions per IC 87-2R (p. 346)
[T]he transfer pricing provisions of the Act should not generally apply if the more specific provisions of the Act apply….
The CRA has interpreted that statement as meaning that the more specific provisions should be applied first before considering the application of §247. [fn 6: …2003-0033891E5] This statement is not to be taken to mean that there is an automatic exemption from the transfer pricing rules because of the mere existence of a specific provision that targets certain intra-group financing arrangements in a cross-border context; rather, the more specific provisions should be applied first and, if they do not apply, the application of the transfer pricing rules should be considered. For example, the CRA was of the view that §247(2) could apply to an outbound loan to which §17(1) did not apply by virtue of the fact that the indebtedness was not outstanding for more than one year.
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