1999 Ruling 9925733 - WAIVER OF DIVIDEND

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: Application of 15(1), 56(2), 246(1) and 245(2) to waiver of dividend by U.S. corporation on exchangeable shares.

Position: N/A

Reasons: Benefit provisions N/A on their words. GAAR N/A because no "misuse or abuse".

XXXXXXXXXX 3-992573

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re:

XXXXXXXXXX
Advance Income Tax Ruling Request

This is in reply to your letter of XXXXXXXXXX in which you requested various advance income tax rulings on behalf of the above-noted taxpayer. We also acknowledge the additional information in your letters of XXXXXXXXXX.

We understand that, to the best of your knowledge and that of the taxpayers involved, none of the issues involved in the requested rulings:

(i) is in an earlier return of XXXXXXXXXX or a related person;

(ii) is being considered by a tax services office or taxation centre in connection with a previously filed tax return of XXXXXXXXXX or a related person;

(iii) is under objection or appeal by XXXXXXXXXX or a related person; or

(iv) is the subject of a ruling previously issued by the Income Tax Rulings and Interpretations Directorate of Revenue Canada.

DEFINITIONS

In this letter the following terms have the meanings specified.

Non-Statutory Terms

"Arrangement" means the arrangement involving XXXXXXXXXX as described in the Circular;

"Automatic Redemption Date" means the date for the automatic redemption of the Exchangeable Shares as described in the Circular;

"Circular" means the Joint Management Information Circular dated XXXXXXXXXX describing the transactions involved in the Arrangement;

XXXXXXXXXX.

"XXXXXXXXXX Common Stock" means the shares of common stock of XXXXXXXXXX, with a par value of U.S. $XXXXXXXXXX per share having voting rights of one vote per share;

"XXXXXXXXXX Liquidation Event" means: (i) any determination by the XXXXXXXXXX board of directors, or any committee therof acting within its authority, to institute voluntary liquidation, dissolution, or winding-up proceedings with respect to XXXXXXXXXX or to effect any other distribution of assets of XXXXXXXXXX among its stockholders for the purpose of winding-up its affairs; or (ii) the earlier of: (A) receipt by XXXXXXXXXX of notice of; and (B) XXXXXXXXXX otherwise becoming aware of, any threatened or instituted claim, suit, petition or other proceedings, with respect to the involuntary liquidation, dissolution or winding-up of XXXXXXXXXX or to effect any other distribution of assets of XXXXXXXXXX among its stockholders for the purposes of winding-up its affairs; provided that a reference to XXXXXXXXXX should be read as a reference to XXXXXXXXXX following the XXXXXXXXXX merger;

"Exchangeable Shares" means the exchangeable shares of XXXXXXXXXX which were issued as part of the Arrangement and described in the Circular;

XXXXXXXXXX.

"Paragraph" refers to a numbered paragraph in this letter;

"XXXXXXXXXX Merger" means the merger transaction completed on or about XXXXXXXXXX whereby: (i) XXXXXXXXXX became a wholly-owned subsidiary of XXXXXXXXXX; (ii) XXXXXXXXXX was merged into XXXXXXXXXX; and (iii) shareholders of XXXXXXXXXX and XXXXXXXXXX received shares of XXXXXXXXXX; and

"Proposed Transactions" means the transactions described in Paragraph 7.

Statutory Terms

XXXXXXXXXX.

"Act" means the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof. All statutory references in this letter are to the Act, unless stated otherwise;

"non-resident has the meaning assigned by subsection 248(1);

"prescribed stock exchange" has the meaning assigned by section 3200 of the Regulations;

"principal-business corporation" has the meaning assigned by subsection 66(15);

"public corporation" has the meaning assigned in subsection 89(1);

"Regulations" refers to the Income Tax Regulations;

"related person" has the meaning assigned by section 251;

"series of transactions or events" includes the meaning assigned by subsection 248(10);

"taxable Canadian corporation" has the meaning assigned by subsection 89(1); and

"taxable dividend" has the meaning assigned by subsection 89(1).

FACTS

1. XXXXXXXXXX is a corporation formed under the XXXXXXXXXX is a taxable Canadian corporation, a public corporation and a principal-business corporation. The Exchangeable Shares are listed and posted for trading on the XXXXXXXXXX Stock Exchange and trade under the symbol "XXXXXXXXXX". XXXXXXXXXX is engaged in XXXXXXXXXX business. The Tax Services Office and Taxation Centre responsible for XXXXXXXXXX are the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Taxation Centre. XXXXXXXXXX business number is XXXXXXXXXX.

2. XXXXXXXXXX is a corporation formed under the laws of the State of XXXXXXXXXX is a non-resident. All of the issued and outstanding shares of XXXXXXXXXX are held by XXXXXXXXXX a non-resident. The common shares of XXXXXXXXXX are listed and posted for trading on the XXXXXXXXXX Stock Exchange and trade under the symbol "XXXXXXXXXX".

3. Pursuant to the Arrangement, on XXXXXXXXXX acquired control of XXXXXXXXXX and the XXXXXXXXXX common shares were exchanged for Exchangeable Shares on the basis of XXXXXXXXXX Exchangeable Shares for each XXXXXXXXXX common share. The Exchangeable Shares are shares in the share capital of XXXXXXXXXX. However, as discussed in the Circular (as modified by the XXXXXXXXXX Merger), the Exchangeable Shares are structured to be the economic equivalent of XXXXXXXXXX Common Stock, and the holders of Exchangeable Shares have the following rights:

(i) the right to exchange such shares for shares of XXXXXXXXXX Common Stock on a one-for-one basis (with an adjustment for the "Dividend Amount", as defined in the Circular, if any);

(ii) the right to receive dividends, on a per share equivalent basis, in amounts (or property in the case of non-cash dividends) which are the same as, and which are payable at the same time as, dividends declared on XXXXXXXXXX Common Stock;

(iii) the right to vote, on a per share equivalent basis, at all stockholder meetings at which shares of XXXXXXXXXX Common Stock are entitled to vote; and

(iv) the right to participate upon a XXXXXXXXXX Liquidation Event, on a pro rata basis with the holders of XXXXXXXXXX Common Stock in the distribution of assets of XXXXXXXXXX, through the mandatory exchange of Exchangeable Shares for shares of XXXXXXXXXX Common Stock.

4. Immediately following the Arrangement, approximately XXXXXXXXXX Exchangeable Shares were issued and outstanding. As at XXXXXXXXXX Exchangeable Shares have been exchanged with the result that XXXXXXXXXX of such shares are presently held by shareholders other than XXXXXXXXXX deal at arm's length with the other holders of Exchangeable Shares.

5. Historically, XXXXXXXXXX did not pay dividends on its common shares. XXXXXXXXXX commenced the payment of regular dividends on its common shares in XXXXXXXXXX and since XXXXXXXXXX quarterly dividends have been paid at the rate of U.S.$XXXXXXXXXX per share. On XXXXXXXXXX paid its regular quarterly dividends, and, on XXXXXXXXXX paid its regularly quarterly dividend, and pursuant to the terms of the Exchangeable Shares and the agreements related thereto, XXXXXXXXXX paid quarterly dividends of U.S.$XXXXXXXXXX per Exchangeable Share. XXXXXXXXXX waived its right to receive the XXXXXXXXXX dividends on the Exchangeable Shares held by it. XXXXXXXXXX anticipates it will continue to pay regular quarterly dividends on its common shares and therefore identical dividends will be paid on Exchangeable Shares.

6. XXXXXXXXXX requires funding for its proposed capital expenditures and in the event any dividends are received by XXXXXXXXXX on Exchangeable Shares such funds will be reinvested by XXXXXXXXXX in shares or notes of XXXXXXXXXX.

PROPOSED TRANSACTIONS

7. XXXXXXXXXX will give written notification to XXXXXXXXXX of its intention to waive dividends which may become payable on Exchangeable Shares held by it. Such waiver will be for a term extending until the Automatic Redemption Date and will be revocable by XXXXXXXXXX at any time.

For accounting purposes, there will be no entries made by either XXXXXXXXXX in respect of the waived dividend. The dividend payable or paid by XXXXXXXXXX will not include the amount of the waived dividend and XXXXXXXXXX will not book any receivable from XXXXXXXXXX in respect of the waived dividend.

PURPOSE OF THE PROPOSED TRANSACTIONS

The purpose of the Proposed Transactions is to avoid the circular flow of funds with respect to the payment to XXXXXXXXXX and subsequent reinvestment by XXXXXXXXXX of funds representing dividends on the Exchangeable Shares held by XXXXXXXXXX.

RULINGS

Provided that the above statements are accurate and constitute complete disclosure of all of the relevant facts, proposed transactions and purposes of the Proposed Transactions, we confirm the following:

A. The provisions of subsections 15(1), 56(2) and 246(1) will not apply to the proposed waiver of dividends by XXXXXXXXXX.

B. No taxes under Part XIII will be payable by XXXXXXXXXX in respect of the waived dividends on the Exchangeable Shares held by XXXXXXXXXX.

C. No taxes under Part VI.l will be payable by XXXXXXXXXX in respect of the waived dividends on the Exchangeable Shares held by XXXXXXXXXX.

D. The provisions of section 80 will not apply in respect of the waived dividends on the Exchangeable Shares held by XXXXXXXXXX.

E. Subsection 245(2) will not be applied, as a result of the Proposed Transactions, in and of themselves, to redetermine the tax consequences confirmed in the rulings given above.

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996 provided that the written notification described in Paragraph 7 is given by XXXXXXXXXX.

These rulings are based on the Act as it currently reads and do not take into account any future amendments, whether currently proposed or not, to the Act.

Nothing in this letter should be construed as confirmation of the tax consequences of any of the transactions described in this letter other than as specifically described.

Yours truly,

Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch