A Canadian appeals court allowed General Electric Capital Canada, Inc. to deduct C$136.4 million that the company paid its US parent company to guarantee debt of the Canadian subsidiary.

The Canadian subsidiary paid the US parent a fee of 1% of the guaranteed amount. The appeals court said the fee paid was reasonable after concluding that an explicit guarantee by the US parent lowered the borrowing cost of the subsidiary by 183 basis points. The Canadian tax agency had argued that the guarantee added no value.

The court released its decision in mid-December. The case is The Queen v. General Electric Capital Canada Inc. The government has 60 days to appeal.

Keith Martin