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ARTICLE · 07 DECEMBER 2004

Cross-Border Securities Lending — Still Problematic

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The ability to borrow and lend securities without significant tax consequences is essential to various capital markets activities including repo financings and hedging the obligations created by certain derivative products. U.S.-based securities lenders have traditionally faced difficulties in lending to Canadian-based securities borrowers because of potential withholding tax on payments made as compensation for dividend or interest payments on the borrowed securities.

CanadaTax
Blake, Cassels & Graydon LLP
Blake, Cassels & Graydon LLP
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Article by Chris Van Loan, Blake, Cassels & Graydon LLP

This article was originally published in Blakes Bulletin on Cross-Border Taxation - November 2004

The ability to borrow and lend securities without significant tax consequences is essential to various capital markets activities including repo financings and hedging the obligations created by certain derivative products. U.S.-based securities lenders have traditionally faced difficulties in lending to Canadian-based securities borrowers because of potential withholding tax on payments made as compensation for dividend or interest payments on the borrowed securities. U.S.-based borrowers must be concerned with the application of withholding tax on interest paid on cash collateral and the reluctance of certain Canadian securities lenders to lend Canadian equities because of concerns with respect to the Canadian tax characterization of compensation payments.

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