Section 218.2 — Income Tax Act: Branch interest tax

Every authorized foreign bank shall pay a tax under this Part for each taxation year equal to 25% of its taxable interest expense for the year. The taxable interest expense of an authorized foreign bank for a taxation year is 15% of the amount, if any, by which the total of all amounts on account of interest that are deducted under section 20.2 in computing the bank’s income for the year from its Canadian banking business exceeds the total of all amounts that are included in paragraph (a) and that are in respect of a liability of the bank to another person or partnership. No tax is payable under this Part for a taxation year by an authorized foreign bank if the bank is resident in a country with which Canada has a tax treaty at the end of the year;

and no tax similar to the tax under this Part would be payable in that country for the year by a bank resident in Canada carrying on business in that country during the year. Notwithstanding any other provision of this Act, the reference in subsection (1) to 25% shall, in respect of a taxation year of an authorized foreign bank that is resident in a country with which Canada has a tax treaty on the last day of the year, be read as a reference to, if the treaty specifies the maximum rate of tax that Canada may impose under this Part for the year on residents of that country, that rate; if the treaty does not specify a maximum rate as described in paragraph (a) but does specify the maximum rate of tax that Canada may impose on a payment of interest in the year by a person resident in Canada to a related person resident in that country, that rate;

and in any other case, 25%. Sections 150 to 152, 158, 159, 160.1 and 161 to 167 and Division J of Part I apply to this Part with any modifications that the circumstances require.