Paul Stepak When a Canadian subsidiary of a multinational business borrows money from third parties, the borrowing is often guaranteed by a foreign parent (or another affiliate). Certainly there are good commercial reasons why such guarantees are provided, namely to improve the credit quality of the indebtedness thereby reducing the third-party financing costs for the Canadian subsidiary. It seems reasonable to expect that the parent might charge a guarantee fee in such circumstances and that under the domestic transfer pricing rules in the parent's jurisdiction such a fee (set at arm's length terms) might be required (or deemed to be paid).
September 30 2007