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13.2.6. What Constitutes Debt

Debt for thin-capitalization purposes includes amounts that are deemed to be debt by virtue of the application of the prescribed tests in the tax law, according to which an interest will be treated as a debt interest if all of the following criteria are met:

  • there is a scheme (defined to cover any scheme or arrangement, plan, proposal, action, course of action or course of conduct);
  • the scheme is a financing arrangement (i.e. involves a contribution to the capital of an entity, excluding payments made to an insurance company in the course of the latter’s ordinary course of business);
  • a financial benefit (e.g. as specified in the agreement governing the arrangement) is received by the issuing entity under the scheme;
  • the issuing entity or a connected entity thereof has an effectively non-contingent obligation to provide a future financial benefit; and
  • it is substantially more likely than not that the value of the financial benefit that will be provided by the issuer will at least be equal to or exceed the financial benefit it receives.