Current structure
Canco1 and Canco2 are wholly-owned subsidiaries of USco5 (a qualifying person under the Canada-U.S. Treaty and an indirect subsidiary of U.S. public company) who are the general and limited partners, respectively of LP1, which is atop five stacked Canadian subsidiaries (Canco 3 down to Canco7. Canco5 has public exchangeable shareholders. Canco7 is the sole limited partner of LP2, whose general partner (Canco8) is wholly-owned by Canco7. Canco7, Canco8 and LP2 are all the general partners of GP. GP is the sole general partner of FA1, which is a limited liability partnership and a non-resident corporation under the ITA, and FA1’s limited partner is a wholly-owned Canadian subsidiary of GP (Canco9). FA1 wholly owns FA2, which wholly owns FA3, which wholly owns FA4.
Proposed transactions
- USco5 will finance a subscription by GP and Canco9 for units of FA1, by subscribing for preferred shares of Canco1 and 2, with those proceeds cascading down the stack of intervening partnerships and Canadian corporations through successive preferred unit and preferred share subscriptions.
- FA1 will use such funds to either subscribe for ordinary shares of FA2 or lend the funds to FA2.
- FA2 will lend the funds in the same amount to FA4.
- FA1 will make a distribution (the “Distribution”) (deemed to be a dividend by s. 90(2)) proportionately to Canco9 and GP, within X months of FA4 receiving the loan from FA2.
Purpose
To ensure adequate funds are made available to FA4 to fund its pension plan and to repatriate excess cash from FA1.
Rulings
- Canco1 and Canco2 will each be considered to be a qualifying substitute corporation as defined in s. 212.3(4).
- The Distribution will be considered to be received as a dividend in respect of a class of shares of capital stock of FA1 by the Taxpayers (Canco7, 8 and 9) for the purposes of s. 212.3(9)(b)(ii) – A(B).