Cash pooling is a powerful treasury management tool. However, Canadian multi-national enterprises and foreign multi-nationals with Canadian subsidiaries (MNEs) are unable to take full advantage of this tool due to restrictive Canadian tax rules, leading to sub-optimal treasury management practices. Cash pooling arrangements have become the focus of many global tax authorities, with each taking a different approach.
The Canada Revenue Agency (CRA) has recently issued a technical interpretation relating to the application of the shareholder loan rules to cross-border cash pooling arrangements, and is significantly increasing its audit activities on these arrangements. In Canada, these arrangements could, among others, be subject to the shareholder loan rules in subsection 15(2) of the Income Tax Act (the Act), unless the arrangement qualifies for an exception to the rules.1 If any of the exceptions are not met, the Canadian entity’s intercompany receivable balances with related non-resident corporations (as part of a cash pooling arrangement) will be deemed a dividend and subject to withholding tax.
The attached Tax Insight addresses recent developments relating to cross-border cash pooling arrangements. It also discusses PwC’s Cross-Border Cash Pooling Coalition, a new collaborative coalition that will engage with the Department of Finance and the CRA to help find workable solutions for these arrangements in Canada.
For more information, please speak to your usual PwC adviser.