Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
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.
TEI Conference
December 7, 1999
Question XXX
Effect of the Parthenon Decision on the Definition of Control
In Parthenon Investments, Limited v. the Minister of National Revenue, 97 DTC 5343 (FCA 1997) the court held that control of a subsidiary rests with the ultimate parent company. In order to clarify the application of the court's decision, TEI invites Revenue Canada's views about the following:
ParentCo, a Canadian company, is engaged solely in a manufacturing business. Subsidiary A is 100 percent directly held by ParentCo, is in the business of lending money, and is a restricted financial institution (RFI) within the meaning of paragraph (e) of subsection 248(1). Subsidiary B is 100 percent directly held by Subsidiary A and is engaged solely in the business of manufacturing.
1. Is Subsidiary B, by virtue of Subsidiary A's direct ownership interest, also deemed an RFI pursuant to paragraph (f) of the definition of an RFI in subsection 248(1)?
2. Alternatively, does the Parthenon decision stand for the proposition that Subsidiary B is not an RFI since ParentCo has ultimate control of Subsidiary B, i.e., one looks through intermediate owners to the ultimate parent?
Agency's Position
Subsidiary B will be an RFI by virtue of Subsidiary A's direct control. In our view, the decision in Parthenon is only applicable in the context of determining if a corporation is a Canadian-controlled private corporation in a situation similar to that described in Parthenon. It should be noted that new subsections 256(6.1) and (6.2) of the Legislative Proposals released by the Department of Finance on November 30, 1999 contain provisions which, in essence, provide that, for the purposes of the Act, a corporation will be considered to be controlled by any corporation by which it is directly or indirectly controlled.
Author: David Palamar
Division: Income Tax Rulings Directorate
Phone Number: 957-2127
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