Ronal Canada Ltd. is a Canadian subsidiary of Ronal Inc., a U.S. multinational public corporation. You are the tax manager responsible for reviewing the corporate tax return and tax provision for the Canadian company for its December 31 taxation year-end. During your review, you ask for a detailed summary of the intercompany receivable balance of $6,500,000 on the company's financial statements. The controller has provided you with the following information:
Receivable from Ronal Argentina Ltd.....................$4,100,000
Receivable from Ronal Germany Ltd..........................540,000
Receivable from Ronal Switzerland Ltd.....................1,860,000
Total intercompany receivable...............................$6,500,000
The receivable from Ronal Argentina Ltd. relates to a 2% loan made by Ronal Canada Ltd. to Ronal Argentina Ltd. October 1, 2005. The loan was repaid in January 2009. Ronal Argentina Ltd. is a wholly owned subsidiary of Ronal Inc.
The receivable from Ronal Germany Ltd. is a trade receivable related to the sale of goods by Ronal Canada Ltd. to Ronal Germany Ltd. in November 2008. Ronal Germany Ltd. usually pays its trade payable within 90 days of receiving an invoice. Ronal Canada Ltd. sells goods to related companies under the same terms as sales to its regular customers. Ronal Germany Ltd. is a wholly owned subsidiary of Ronal Inc.
The receivable from Ronal Switzerland Ltd. relates to a sale of a piece of equipment to Ronal Switzerland Ltd. December 1, 2007 to be used in its ongoing manufacturing operations in Zurich. Ronal Switzerland is not required to pay interest on the payable to Ronal Canada Ltd. Ronal Switzerland Ltd. is a wholly owned subsidiary of Ronal Canada Ltd.
The controller indicated that, on January 15, 2007, Ronal Canada Ltd. had used excess cash of $5 million to invest in common shares of a subsidiary of Ronal Inc., Ronal Luxembourg Ltd. Ronal Luxembourg used the funds to make a non-interest-bearing loan to Ronal Germany Ltd. on that same day.
REQUIRED
(a) Does subsection 15(2) and/or 80.4(2) apply to the receivable from Ronal Argentina? If so, how will this impact Ronal Canada Ltd.'s tax provision? Consider the application of subsection 227(6.1) in your response.
(b) Does subsection 17(1) apply to the receivable from Ronal Argentina? If so, how will this impact Ronal Ltd.'s tax provision?
(c) Does subsection 15(2) and/or 80.4(2) apply to the receivable from Ronal Germany Ltd.? Does subsection 17(1) apply to this loan? If so, how will this impact Ronal Ltd.'s tax provision?
(d) Does subsection 15(2) and/or 80.4(2) apply to the receivable from Ronal Switzerland Ltd.? Does subsection 17(1) apply to this loan? If so, how will this impact Ronal Ltd.'s tax provision?
(e) Does subsection 17(1) apply to the investment in Ronal Luxembourg? If so, what advice could you provide to the client?