2016-0642031C6 IFA 2016 Q.11: PLOI late-filed penalties

Principal Issues: Where an intercompany account between a CRIC and a related non-resident contains multiple accounts receivable, for the purposes of the penalty calculations under subsections 15(2.13) and 212.3(13) for a late filed PLOI election, whether the CRA would accept that there was one accumulated “amount” for a year (or some other period within the year) or whether the CRA considers that an “amount” arises from each intercompany transaction.

Position: Each transaction would result in a separate amount. However, an administrative position to aggregate the amounts is currently being reviewed by the International, Large Business and Investigations Branch.

Reasons: The wording of the relevant provisions of the Act and our previous interpretations.

Author: Tu, Grace
Section: 15(2), 15(2.11), 15(2.12), 15(2.13), 212.3(10)(c)(i), 212.3(11), 212.3(12), 212.3(13)

2016 International Fiscal Association Conference
CRA Roundtable

Question 11 - PLOIs – Multiple amounts receivable and late-filing penalties

A corporation resident in Canada (“CRIC”) sold products and/or provided services to customers both within and outside Canada. The CRIC’s customers included related non-resident companies within a multinational group. The CRIC did not collect certain related company amounts receivable on a timely basis, such that within the past two taxation years either subsection 15(2) or paragraph 212.3(10)(c) became applicable (depending on the relationship with the related non-resident purchaser). The CRIC’s accounts receivable report indicates that some year-end balances were the accumulation of hundreds of sales/invoices. The CRIC did not make timely pertinent loan or indebtedness (“PLOI”) elections.

Subsections 15(2.11) and 212.3(11) allow a CRIC to file a PLOI election in respect of “an amount owing to” the CRIC. The CRA has indicated (2014-0534541I7) that a PLOI election is required for each amount owing and that a single written communication for various amounts owing would constitute a unique election for each amount owing described therein. The PLOI election may be late-filed up to three years provided a late-filing penalty is paid by the CRIC pursuant to subsection 15(2.13) or 212.3(13), as applicable. The penalty is calculated based on the number of months the election is late.

Does the CRA consider that, as a technical matter, an “amount” arises for each intercompany sale/invoice? If so, would the CRA be prepared to administratively accept that there was one accumulated “amount” for the year, or some other period within the year (e.g., each quarter or each month), for the purposes of the late-filing penalty?

CRA Response

In interpreting the term “amount” in relation to a loan or an indebtedness and consistent with the CRA’s historic view, each intercompany transaction resulting in a receivable in the situation described above, and therefore, each incremental increase in the total accounts receivable balance should be treated as a unique amount of indebtedness. 

As a result, the PLOI election will have to be made in respect of each such amount, notwithstanding that a taxpayer may prepare and file a single written communication for the various amounts owing. It follows then that, based on the language of subsections 15(2.13) and 212.3(13), the penalty calculations should also be done separately for each such amount.

We appreciate that such calculations could result in significant penalties compared to the amounts of indebtedness.  We have consulted with the International, Large Business and Investigations Branch (formerly the Compliance Programs Branch) to determine whether an administrative position could be taken in the situation described above to aggregate certain amounts receivable for purposes of the PLOI elections penalty calculation and, if so, whether such aggregation should be made on an annual, quarterly, or monthly basis.

The possibility of providing administrative relief in this regard is currently under review.

Grace Tu
Vitaliy Anissimov
2016-064203
May 26, 2016

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