Principal Issues:
Does an American Depositary Receipt retain the character of the securities it represents for the purposes of paragraph 181.2(4)(a)?
Position:
None.
Reasons:
Question of law and fact.
CAPITAL TAX ROUNDTABLE
APFF - INTERPROVINCIAL TAXATION & CAPITAL TAX SYMPOSIUM
Question 1
American Depositary Receipt
Could the CRA confirm that an American Depositary Receipt will be treated for Part I.3 purposes depending on the nature of the securities it represents? Thus, if a certificate represents shares of a corporation, will that certificate qualify for the investment allowance under paragraph 181.2(4)(a)?
CRA Response
Where an expression in Part I.3 is derived primarily from the accounting nomenclature, the accounting treatment of the item in question will be used to decide whether the item is covered by the provisions of that Part. Otherwise, the legal nature of the item takes precedence.
Whether a particular security constitutes a share eligible for the investment allowance pursuant to paragraph 181.2(4)(a) depends on the legal character of the security in question. In our view, it must be determined whether the holder of an American Depositary Receipt actually owns the shares that the receipt represents. Such a determination must be made through an analysis of all of the facts and documents relating to a particular situation.
Black's Law Dictionary defines an American Depositary Receipt as follows:
A receipt issued by an American bank as a substitute for stock shares in a foreign-based corporation. ADRs are the most common method by which foreign companies secure American shareholders. Companies that offer ADRs maintain a stock listing in their domestic market in their domestic currency, while ADRs are held in U.S. dollars and listed on a U.S. stock exchange.
A share is a bundle of rights and privileges accorded by the articles of incorporation or directors under the relevant legislation. It must therefore be determined whether the holder of an American Depositary Receipt has all the attributes of ownership of the shares that the certificate represents in order to deduct the amount of the investment in the American Depositary Receipt.
Louise J. Roy
2005-011869
May 11 and 12, 2005