Revenue Canada Revenu Canada Taxation Impôt
Head Office Bureau principal
Your file Votre reference Our file Notre reference R.C. O'Byrne (613) 957-2126
OCT 13 1988
Dear Sirs:
Re: U.S.S.R. Joint Ventures ---------------------------
This is in reply to your letter of June 27, 1988 in which you asked for our views as to whether or not U.S.S.R. Joint Ventures ("joint ventures") would be considered to be corporations for the purposes of the definition of "foreign affiliate" contained in paragraph 95(1)(d) of the Income Tax Act (the "Act").
We have reviewed the copies of the Decrees of the Presidium of the U.S.S.R. Supreme Soviet and of the U.S.S.R. Council of Ministers which you provided us with and note that these joint ventures have the following principle attributes:
1. The joint ventures are legal entities under Soviet law. The joint ventures may, in their own name, contract, acquire proprietary and non-proprietary personal rights, undertake obligations, and may sue and be sued in courts of justice and in arbitration tribunals.
2. The participants in a joint venture have the right to assign, by common consent, their shares in the joint venture fully or partially to third parties.
3. The participants in a joint venture are not liable for the liabilities of the joint venture, per se. The joint venture is liable for its obligations up to the extent of its property. The joint venture is not liable for the obligations of its participants.
4. Joint ventures are subject to a regime of taxation in the Soviet Union which is separate and apart from the taxation of other foreign entities or Soviet citizens.
Based on the two Decrees you submitted and in particular the attributes listed above it is our view that:
1. The joint ventures meet the criteria outlined in Interpretation Bulletin IT-343R and would be considered to be corporations for purposes of the foreign affiliate rules in the Act.
2. As pointed out in Interpretation Bulletin IT-392 each Canadian participant would be considered to own a number of shares proportionate to his beneficial interest in the joint venture (i.e. if a Canadian participant has a 49% interest in the joint venture he will be considered to hold 49 of the 100 shares in the joint venture for the purpose of the foreign affiliate rules in the Act).
We trust this will be of assistance to you.
for Chief Corporate Reorganizations II Section Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch