Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Whether a trust which was treated as a partnership under the Internal Revenue Code was resident in the United States for the purposes of the Canada - US Income Tax Convention.
Position: The trust was a resident of the United States for the purposes of the Convention.
Reasons: Trusts may be considered resident in a contracting state under the Convention only to the extent their income is liable to tax either in the hands of the trust or its beneficiaries in that state. All of the beneficiaries of the trust in this case were persons who were residents of the United States for the purposes of the Convention. As the trust would be treated as a partnership under the income tax law of the United States, the beneficiaries would be liable to tax in the United States on all the income of the trust.
XXXXXXXXXX 991775
Attention: XXXXXXXXXX
XXXXXXXXXX, 1999
Dear Sirs:
Re: XXXXXXXXXX
Advance Income Tax Ruling
This is in reply to your letter dated XXXXXXXXXX requesting an advance income tax ruling on behalf of the above referenced taxpayers. We also acknowledge your subsequent correspondence dated XXXXXXXXXX and our telephone conversations.
Definitions
In this letter the following terms have the meanings specified:
a) "Act" means the Income Tax Act R.S.C. 1985 c.1 (5th Supp.), as amended to the date hereof, and unless otherwise stated, every reference herein to a Part, section, subsection, paragraph or subparagraph is a reference to the relevant provisions of the Act.
b) "Parentco" means XXXXXXXXXX.
c) "Forco 1" means XXXXXXXXXX.
d) "Forco 2" means XXXXXXXXXX.
e) "Forco 3" means XXXXXXXXXX.
f) "Canco" means XXXXXXXXXX.
g) "Otherco" means XXXXXXXXXX.
h) "Opco" means XXXXXXXXXX.
Facts
1. To the best of your knowledge and that of the taxpayers involved, none of the issues involved with this request:
a) is involved in an earlier return of the taxpayer or a related person,
b) is being considered by a tax services office or a taxation centre in connection with a tax return already filed by the taxpayer or a related person,
c) is under objection, or
d) is before the courts or, if a judgement has been issued, the time limit for appeal has not expired.
2. Parentco is a non-resident corporation incorporated under the laws of XXXXXXXXXX.
3. Forco 1 and Forco 2 are wholly-owned subsidiaries of Parentco. Forco 1 and Forco 2 are non-resident corporations incorporated under the laws of XXXXXXXXXX.
4. Forco 3 is a non-resident corporation incorporated under the laws of XXXXXXXXXX. All of the common shares of Forco 3 are held by wholly-owned subsidiaries of Parentco. Such common shares carry XXXXXXXXXX% of the votes in an election of directors of Forco 3. Forco 3 has issued preferred shares to arm's length holders; these preferred shares carry XXXXXXXXXX% of the votes in an election of directors of Forco 3.
5. Each of Parentco, Forco 1, Forco 2 and Forco 3 is a resident of the United States within the meaning and for purposes of the Canada-U.S. Income Tax Convention (1980) (the "Convention").
6. Canco, Opco and Otherco are corporations incorporated and resident in Canada.
7. On XXXXXXXXXX, Forco 1 subscribed for and acquired XXXXXXXXXX Class XXXXXXXXXX Shares (the "Class XXXXXXXXXX Shares") in the capital of Canco. The Class XXXXXXXXXX Shares constitute XXXXXXXXXX% of the issued and outstanding shares, and XXXXXXXXXX% of the voting shares, of Canco. Otherco owns Class XXXXXXXXXX Shares in the capital of Canco constituting the remaining XXXXXXXXXX% of the issued and outstanding shares, and XXXXXXXXXX% of the voting shares, of Canco. Canco owns all of the issued and outstanding common shares of Opco.
8. On XXXXXXXXXX, Forco 1 agreed with Forco 2 and Forco 3 to sell its Class XXXXXXXXXX Shares to an entity such as a trust to be established by Forco 2 and Forco 3.
Proposed Transactions
9. It is proposed that Forco 1 will dispose of the beneficial interest in the Class XXXXXXXXXX Shares it owns to a trust (the "Trust") established as such under the laws of XXXXXXXXXX. Forco 1 will be the trustee of the Trust and will retain legal title to the Class XXXXXXXXXX shares in that capacity. Forco 2 and Forco 3 will be the only beneficiaries of the Trust. Forco 2 and Forco 3 will acquire their beneficial interests in the Trust by contributing receivables they own representing indebtedness of other subsidiaries of Parentco. The purchase price for the Class XXXXXXXXXX Shares will be satisfied by the Trust delivering XXXXXXXXXX. Forco 1 as the trustee of the Trust will manage and control the assets of the Trust including the Class XXXXXXXXXX Shares in the United States.
10. The purchase price to be paid to Forco 1 by the Trust for the disposition to it of the Class XXXXXXXXXX Shares will be XXXXXXXXXX.
11. Forco 1 as vendor of the shares will comply with the provisions of section 116 by obtaining a certificate in prescribed form with an appropriate certificate limit from the XXXXXXXXXX Taxation Services Office prior to completing the proposed disposition of shares of Canco.
12. Pursuant to the provisions of Treasury Regulation 301.7701-3 under the Internal Revenue Code of the United States (the "Code"), the Trust will be treated as a partnership for purposes of the Code. As a result of being treated as a partnership for purposes of the Code, all of the income of the Trust will for United States federal income tax purposes, be allocated to Forco 2 and Forco 3 as their income liable to taxation pursuant to the provisions of the Code.
Purpose of Proposed Transactions
13. Parentco has determined that it would be preferable that the Class XXXXXXXXXX Shares be held by the Trust. The purpose of the proposed transfer XXXXXXXXXX.
Ruling Given
Provided the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and purpose of the proposed transactions, and provided the proposed transactions are completed in the manner described above, our rulings are as follows:
A. Provided that Forco 2 and Forco 3 remain the only beneficiaries of the Trust, the Trust will be considered to be a resident of the United States within the meaning and for purposes of the Convention, and will be entitled to the benefit of the provisions of the Convention, according to their terms, that reduce or eliminate what would otherwise be its liability for tax under the Act.
The above ruling is given subject to the general limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996, and is binding on Revenue Canada provided that the proposed transactions are completed by XXXXXXXXXX.
This ruling is based on the Act in its present form and does not take into account amendments to the Act which, if enacted into law, could have an effect on the ruling provided herein.
The shares of Canco represent taxable Canadian property for the purposes of paragraph 115(1)(b). Accordingly, any gain realized on the disposition of the shares of Canco by Forco 1 to the Trust, and thereafter, by the Trust to another person will in the absence of an exemption under the Convention, be subject to tax under the Act. In addition, if more than 50% of the fair market value of the capital interests in the Trust is derived directly or indirectly from one or any combination of real property situated in Canada, Canadian resource properties, and timber resource properties, the capital interests of Forco 2 and Forco 3 in the Trust will be taxable Canadian property for the purposes of paragraph 115(1)(b) and any gain realized on a future disposition of such capital interests by Forco 2 and/or Forco 3 will be subject to tax under the Act. It is unlikely in such case that the Convention would exempt such gain.
Nothing in this letter should be construed as implying that Revenue Canada has agreed to any other tax consequences relating to any facts or proposed transactions referred to herein other than those as specifically described in the ruling given above.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1999
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1999
Email this Content