In 2013-0496401I7 (recently released), the CRA Rulings Directorate advised a local Tax Services Office that a US company (USco) controlled by a third-country parent could potentially access full treaty benefits under the Canada-US treaty, in relation to interest income received on a loan (the Loan) that USco made to a Canadian company in the group (Canco). Canco had used the Loan proceeds to indirectly acquire a foreign target company. The issue was whether USco’s interest income fell within the "active trade or business exception" in the Limitation on Benefits provisions of the treaty; more particularly, whether the interest income was derived by USco from Canada “in connection with” a US active business carried on by USco or a related person. The CRA confirmed that the test could be met on the facts described if the interest payments on the Loan were funded out of net cash flow from a business Canco carried on in Canada that was upstream, downstream or parallel to the US active business. The CRA further said that if any part of the interest payments were instead made from dividends that Canco received from its foreign affiliates, the active trade or business exception would not be available (see bottom of page 3).