Principal Issues: 1. Is a Liechtenstein Foundation considered a corporation or a trust for the purposes of the Income Tax Act?
2. Would the Foundation be a controlled foreign affiliate ("CFA") of the taxpayer as defined in subsection 95(1) of the Income Tax Act?
Position: 1. A Liechtenstein Foundation is considered a trust for the purposes of the Income Tax Act
2. No.
Reasons: 1. Technical interpretation 2008-0266251 I7 dated April 15, 2008 found that a Liechtenstein Foundation should be classified as a trust for Canadian income tax purposes as it more closely resembles a Canadian trust under our common law.
2. Due to the fact that we now consider a Liechtenstein Foundation to be a trust, the entity would not meet the definitions of a foreign affiliate or a controlled foreign affiliate in subsection 95(1) of the Act. Therefore, the FAPI rules would not apply to the Foundation.
March 7, 2011
Canada Revenue Agency HEADQUARTERS Vancouver Tax Services Office Income Tax Rulings Aggressive Tax Planning Directorate 757 W. Hastings Street M. Gauthier Vancouver BC V3T 5E1 (613) 948-1143
Attention: Shannon Tani 2010-038861
Foreign Entity Classification of a Liechtenstein Stiftung
We are writing in reply to your memo dated November 25, 2010 concerning the entity classification of a Liechtenstein Foundation (Stiftung) for Canadian Income Tax purposes.
Questions:
1. Is a Liechtenstein Foundation considered a corporation or a trust for the purposes of the Income Tax Act (the "Act")?
2. Would the Foundation be a controlled foreign affiliate ("CFA") of the taxpayer as defined in subsection 95(1) of the Act, and will the rules in subsection 91(1) dealing with "foreign accrual property income" ("FAPI") apply?
Comments:
1. Is a Liechtenstein Foundation considered a corporation or a trust for the purposes of the Income Tax Act (the "Act")?
As you are aware, technical interpretation 2008-0266251 I7 dated April 15, 2008 concluded that a Liechtenstein Foundation should be classified as a trust for Canadian income tax purposes as it more closely resembles a Canadian trust under our common law. This represented a change from our previous position documented in technical interpretation 2003-0018027, in which we had considered a Liechtenstein Foundation to be a corporation for Canadian income tax purposes.
Although the new position was dated April 15, 2008, there is no basis to preclude CRA from considering a Liechtenstein Foundation to be a trust in years prior to 2008. As presented in technical interpretation 2008-0266251 I7, the approach to foreign entity classification has evolved since technical interpretation 2003-0018027 was written.
2. Would the Foundation be a controlled foreign affiliate ("CFA") of the taxpayer as defined in subsection 95(1) of the Act, and will the rules in subsection 91(1) dealing with "foreign accrual property income" ("FAPI") apply?
A "foreign affiliate", as defined in subsection 95(1), must be a non-resident corporation. Due to the fact that we now consider a Liechtenstein Foundation to be a trust, the entity would not meet the definitions of a foreign affiliate or a controlled foreign affiliate. Therefore, the FAPI rules would not apply to the Foundation. Please note however that the Liechtenstein Foundation may be subject to subsections 75(2) and 94(1) of the Act.
We hope this information is of assistance to you.
Yours truly,
Alain Godin
Section Manager for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
Canada Revenue Agency