Principal Issues: Whether US LLC that elected to be taxed as an S Corporation after it elected to be taxable as a corporation under the Internal Revenue Code is entitled to claim benefits under the Canada-United States Income Tax Convention?
Position: Yes
Reasons: US LLC as described is a person that under the laws of the US is liable to tax by reason of any other criterion similar to the place of incorporation.
XXXXXXXXXX 2004-006476
XXXXXXXXXX, 2004
Dear XXXXXXXXXX:
Re: XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX, subsequent correspondence and telephone conversation (XXXXXXXXXX) in which you ask for an advance income tax ruling on behalf of the above taxpayer.
Definitions
In this letter, the following terms have the meanings specified:
(a) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1 as amended to the date hereof.
(b) all statutory references herein are to provisions of the Act unless otherwise specified.
(c) "LLC" means XXXXXXXXXX.
(d) "Code" means the United States Internal Revenue Code, as amended to the date hereof.
(e) "Convention" means the Canada-United States Income Tax Convention (1980), as amended by subsequent protocols to the date hereof.
Facts
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
1. LLC is a United States limited liability company formed under the laws of XXXXXXXXXX.
2. LLC conducts active business in the manufacture and sale of XXXXXXXXXX and has its place of business in XXXXXXXXXX.
3. The members of LLC are comprised solely of individuals that are resident in the United States for the purposes of the Convention.
4. As a consequence of an election made by the members of LLC on XXXXXXXXXX pursuant to section 1362 of the Code, LLC is subject to taxation under the Code as an S Corporation. Accordingly, the income of the LLC is taxed in the hands of its members for purposes of the Code.
5. Prior to the election made by LLC on XXXXXXXXXX as stated in paragraph 4 above, LLC had elected under the entity classification regulations of the Code to be taxed as an association taxable as a corporation for purposes of the Code and XXXXXXXXXX income tax.
6. Since XXXXXXXXXX, LLC has been filing in the United States, a 'US Income Tax Return for an S Corporation', Form 1120S.
7. As of the date of this ruling letter, LLC has not filed a return of income under the provisions of paragraph 150(1)(a), in respect of any taxation year.
Proposed Transactions
8. LLC recently began to carry on business in Canada.
Purpose of the Proposed Transactions
The purpose of the proposed transactions is for LLC to expand its business operations.
Other Information
To the best of your knowledge, none of the issues involved in this advance income tax ruling is:
a. in an earlier Canadian return of a person related to LLC;
b. being considered or under assessment by a Canadian tax services office or taxation centre in connection with a previously filed Canadian tax return of a person related to LLC;
c. under objection by LLC or a person related to LLC; or
d. before the courts, and no judgment has been issued which may be under appeal.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts and proposed transactions and purpose of the proposed transactions, our rulings are as follows:
A. LLC is a corporation for purposes of the Act.
B. LLC is a resident of the United States for purposes of the Convention.
These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 and are based on the Act in its present form and do not take into account amendments to the Act which, if enacted into law, could have an effect on the rulings provided herein.
Comment
Nothing in this letter should be construed as implying that Canada Revenue Agency ("CRA") has reviewed, accepted or agreed to any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above. In particular, the CRA gives no assurance on the issue of whether or not LLC has or will have a permanent establishment in Canada for the purpose of Article VII of the Convention.
Yours truly
XXXXXXXXXX
Section Manager
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch