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.
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Attention: xxxxxxxxxx
XXXXXXXXXX, 1999
Dear Sirs:
Re XXXXXXXXXX Advance Income Tax Ruling
This is in reply to your letter dated XXXXXXXXXX requesting an advance income tax ruling on behalf of the above referenced taxpayer. We also acknowledge your subsequent correspondence dated XXXXXXXXXX and our telephone conversations.
XXXXXXXXXX files its income tax returns with the XXXXXXXXXX Tax Services Office under Business Number XXXXXXXXXX and has a XXXXXXXXXX taxation year end.
To the best of your knowledge and that of the taxpayer involved, none of the issues involved with this request:
a) is involved in an earlier return of the taxpayer or a related person,
b) is being considered by a tax services office or a taxation centre in connection with a tax return already filed by the taxpayer or a relatedperson,
c) is under objection, or
d) is before the courts or, if a judgement has been issued, the time limit for appeal has not expired.
Definitions
In this letter the following terms have the meanings specified:
a) "Act" means the Income Tax Act R.S.C. 1985, c.1 (5th Supp.), as amended to the date hereof, and unless otherwise stated, every reference herein to a Part, section, subsection, paragraph or subparagraph is a reference to the relevant provisions of the Act. References herein to the "Regulations" are references to the Income Tax Regulations.
b) "Parentco" means XXXXXXXXXX.
c) "Cansub 1" means XXXXXXXXXX files its income tax returns with the XXXXXXXXXX Tax Services Office under Business Number XXXXXXXXXX and also has a XXXXXXXXXX taxation year end.
d) "Cansub 2" means XXXXXXXXXX.
e) "FA Holdco" means XXXXXXXXXX. The taxation year of XXXXXXXXXX ends on XXXXXXXXXX.
f) "FA Opco" means XXXXXXXXXX. The taxation year of XXXXXXXXXX also ends on XXXXXXXXXX.
g) "Country X" means the XXXXXXXXXX. h) "Partnership" means XXXXXXXXXX. Facts
1. Parentco is a taxable Canadian corporation and a public corporation the shares of which are listed on the XXXXXXXXXX stock exchanges. Parentco is an XXXXXXXXXX. Headquartered in XXXXXXXXXX, Parentco employs xxxxxxxxxx people and operates XXXXXXXXXX offices in XXXXXXXXXX countries.
2. Cansub 1 is a taxable Canadian corporation incorporated under and subject to the Canada Business Corporations Act. All of the issued and outstanding shares of Cansub 1 are owned by Parentco and a corporation resident in Canada controlled by Parentco. The principal purpose of Cansub 1 is the investment in Cansub 2 and certain foreign corporations within the group of corporations controlled by Parentco.
3. Cansub 2 is a taxable Canadian corporation all the of the issued and outstanding shares of which are owned by Cansub 1.
4. FA Holdco is a corporation incorporated under the laws of Country X which is not a designated treaty country as that term is defined in subsections 5907(11) and (11.1) of the Regulations. FA Holdco is a resident of Country X and is not a resident of Canada for purposes of the Act. All of the issued and outstanding shares of FA Holdco are owned by Cansub 1. FA Holdco is therefore a foreign affiliate of Cansub 1 and a controlled foreign affiliate of Cansub 1, The principal purpose of FA Holdco is to own the shares of FA Opco and several other foreign subsidiary corporations within the group of companies controlled by Parentco.
5. FA Opco is a corporation incorporated under the laws of Country X. FA Opco is a resident of Country X and is not a resident of Canada for purposes of the Act. All of the issued and outstanding shares of FA Opco are owned by FA Holdco. FA Opco is therefore a foreign affiliate of Cansub 1 and a controlled foreign affiliate of Cansub 1. FA Opco carries on the business of XXXXXXXXXX and employs more than XXXXXXXXXX employees full time in the active conduct of this business. The business is conducted principally with persons with whom FA Opco deals at arm's length.
6. Partnership is a limited partnership in which substantially all the interests are owned by Parentco and Cansub 2 or by one or more other limited partnerships in which Parentco or Cansub 2 has an interest.
7. FA Opco's assets as at XXXXXXXXXX include accounts receivable from, and loans or cash advances to, related parties as follows:
Debtor Amount
Partnership CDN'XXXXXXXXXX
Partnership US$ XXXXXXXXXX
Cansub 2 US$ XXXXXXXXXX
FA Holdco US$ XXXXXXXXXX
FA Holdco US$ XXXXXXXXXX
Total - U.S. dollar denominated amounts US$ XXXXXXXXXX
The loans and advances owing by related parties do not qualify as excluded property of FA Opco as that term is defined in subsection 95(1).
Proposed Transactions
8. FA Opco will lend $XXXXXXXXXX to Parentco (the "Loan") on the following basis.
a) The Loan will be made in Canadian dollars and will be repayable in Canadian dollars. The Loan will be evidenced in writing. Where the actual advance is made in a currency other than Canadian dollars, the principal amount of the Loan will be recorded in an amount equal to the Canadian dollar equivalent using the applicable spot exchange rate on the date the Loan is made.
b) The Loan will not bear interest.
c) All or any portion of the principal amount of the Loan will be repayable by Parentco on demand by FA Opco for repayment. Parentco will also be able to repay all or any portion of the principal amount of the Loan at any time without penalty.
9. The source of the Loan, at least to the extent of $XXXXXXXXXX, will be amounts realized from FA Opco's business including cash received from the collection of accounts receivable XXXXXXXXXX and up to $XXXXXXXXXX of cash received from the collection of the loans and advances described in paragraph 7 above.
Purpose of the Proposed Transactions
10. The primary objective of the Proposed Transactions is to enable Parentco to access the excess funds of FA Opco.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our rulings are as follows.
A. Neither Parentco nor Cansub 1 will be treated as realizing a benefit under subsections 15(1), 56(2) or 246(1) as a result of FA Opco lending amounts to Parentco on the basis described in paragraph 8 above.
B. Neither subsection 15(2) nor section 80.4 will apply to Parentco in respect of the Loan.
C. Subsection 245(2) will not be applied to redetermine the tax consequences thereof as a result of the completion of the Proposed Transactions, in and by themselves.
D. Foreign exchange gains and/or losses, if any, arising on the collection of loans and advances receivable by FA Opco from related parties will be computed in Canadian dollars and included in the computation of the foreign accrual property income of FA Opco.
The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996, and are binding on Revenue Canada provided the proposed transactions are completed by XXXXXXXXXX.
These rulings 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.
Nothing in this letter should be construed as confirmation that Revenue Canada has reviewed or accepted any tax consequences arising from the facts or proposed transactions described herein other than those specifically confirmed in the rulings given.
Yours truly,
for Director
Reorganisations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch