Principal Issues: Is a Burkina Faso SARL a corporation for purposes of the Act?
Position: Yes, a Burkina Faso SARL should generally be considered to be a corporation for purposes of the Act.
Reasons: The characteristics of a Burkina Faso SARL generally compare more to those of a corporation than a partnership.
December 21, 2022
Ian Charpentier, Headquarters Team Leader, Offshore Compliance, International Operations Division Canada Revenue Agency, XXXXXXXXXX Yves Grondin, LL.L. M. Fisc.
2019-082641
Subject: Classification of a Burkina Faso limited liability company (SARL)
This is in response to your request for an interpretation dated October 8, 2019 in which you asked how a Burkina Faso limited liability company (S.A.R.L.) should be classified for the purposes of the Income Tax Act (the "Act").
Facts and Foreign Law
XXXXXXXXXX ("Foreign Company") is a limited liability company incorporated in XXXXXXXXXX and whose articles of association were amended and restated in XXXXXXXXXX.
Under the 2014 Burkina Faso Uniform Act on Commercial Companies and the Economic Interest Group (the "Uniform Act"), a commercial company in Burkina Faso (including a S.A.R.L.) is created by one or more persons that agree, through an agreement, to contribute to an activity cash, or in-kind or services assets (e.g., technical knowledge or services) for the purpose of sharing profits or enjoying revenues that may derive therefrom. The commercial company is created in the common interest of members (Article 4 of the Uniform Act).
Although certain commercial companies in Burkina Faso must be formed by at least two persons, a limited liability company may be formed by a natural person or legal entity, or by two or more natural persons or legal entities (Articles 4, 5 and 309 of the Uniform Act).
Every commercial company in Burkina Faso has a duration which must be stated in its articles of association. The term of the company may not exceed ninety-nine (99) years (Article 28 of the Uniform Act). The duration of the company’s existence in Burkina Faso may be extended one or several times (Article 32 of the Uniform Act).
All companies (including a private limited company) in Burkina Faso obtain legal personality from the date of registration with the registry of commerce and securities (Article 98 of the Uniform Act).
A SARL is a company in which members are liable for the company debts only proportionally to their contributions and whose rights are represented by equity interests (Article 309 of the Uniform Act).
The shares of a commercial company (including a SARL) in Burkina Faso confer on the holders:
- a right to profits made by the company whenever their distribution has been determined;
- a right to net assets of the company on their distribution, pursuant to the dissolution of the company or in connection with the reduction of its capital;
- where applicable, the obligation to contribute to company losses under the conditions laid down for each type of company;
- the right to participate in and vote on the members’ collective decisions, unless otherwise provided for in the Uniform Act for certain categories of securities. (Article 53 of the Uniform Act).
After approving the summary financial statements and recording the existence of distributable funds, the general meeting of shareholders of a commercial company in Burkina Faso shall determine the amount of profits to distribute to shares or equity interests; the portion of profits attributable to each share or equity interest is called a dividend (Article 144 of the Uniform Act).
Your Question
Is a limited liability company incorporated in Burkina Faso, such as a foreign company, a corporation for the purposes of the Act?
Our Comments
Unless otherwise indicated, all legislative references herein are to the provisions of the Act.
The status of a foreign entity or arrangement for Canadian tax purposes is generally determined by the CRA using the following two-step approach: the characteristics of the foreign entity or arrangement under foreign law are determined and then compared with the categories of entities or arrangements recognized under Canadian law in order to classify that foreign entity or arrangement under one of those categories for purposes of the Act. This classification involves an analysis of the relevant sources, which in this case includes the relevant provisions of the Uniform Act and the articles of the SARL.
A SARL incorporated in Burkina Faso (a civil law jurisdiction) has a number of features in common with a company incorporated under Canadian law: it has legal personality separate from that of its members; it owns its own property; it has its own obligations; and the liability of its members is limited since they are liable for the SARL’s corporate debts only up to the amount of their contributions. However, it has certain features that also resemble those of a partnership established in Canada. For example, the Uniform Act provides that it is created by (one or more) persons that agree, through an agreement, to contribute, to an activity, cash, or in-kind or services assets for the purpose of sharing profits or enjoying revenues that may derive therefrom.
On considering the totality of the attributes of a SARL incorporated in Burkina Faso, we are of the view that they are generally more similar to those of a Canadian corporation than to those of a partnership. In this case, after examining the articles of the foreign company and the Burkina Faso Uniform Act, we are of the view that it is a corporation for the purposes of the Act.
Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the CRA’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of the taxpayer. The taxpayer may ask for a version that has been severed in applying the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca. A copy will be sent to you for delivery to the taxpayer.
We hope you find our comments useful and that they answer any questions you may have.
Best regards,
Yves A. Grondin
Team Leader i.
for the Director
International Operations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs