28 February 2000 External T.I. 1999-0014365 - Foreign merger

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.

Principal Issues: Meaning of "foreign merger"

Position: Proposed merger qualifies as a foreign merger

Reasons: Satisfies requirements of subsection 87(8.1)

XXXXXXXXXX 1999-001436
D. Boychuk
Attention: XXXXXXXXXX

February 28, 2000

Dear Sirs:

Re: Foreign Merger

We are writing in response to your letter of December 10, 1999 wherein you requested our views on the application of subsections 87(8) and (8.1) of the Income Tax Act (Canada) in the following circumstances.

A public corporation ("Targetco") created under the laws of and resident in a country other than Canada (the "foreign jurisdiction") is acquired by another corporation ("Acquireco") created under the laws of and resident within the same foreign jurisdiction. The acquisition takes place by means of a reverse subsidiary merger (the "Merger"). Under the terms of the Merger, Acquireco causes a new subsidiary ("Subco") to be created under the laws of the foreign jurisdiction which is subsequently merged with Targetco. Under the law of the foreign jurisdiction, Targetco is considered to survive the Merger as the merged corporation ("Mergeco"). The shareholders of Targetco (which include one or more residents of Canada) receive shares of Mergeco and Acquisitionco according to exchange ratios established in connection with the Merger. Immediately following the Merger, Acquisitionco will control Mergeco. To the extent that shareholders of Targetco become entitled to receive a fraction of a share of either Mergeco or Parentco, they will receive a cash payment in lieu thereof.

Issue

You have requested our views on whether the Merger qualifies as a "foreign merger" within the meaning of subsection 87(8.1).

Our Comments

In your letter, you have outlined what may be an actual fact situation related to transactions and events which have taken place. The review of such situations is generally the responsibility of the local taxation services offices and, as outlined in paragraph 22 of Information Circular 70-6R3, it is not our practice to provide specific opinions on factual situations otherwise than in the context of an advance income tax ruling. In any event, a request for an advance income tax ruling cannot be considered where the transactions are completed or where the issues involved are primarily questions of fact.

Nevertheless, we are prepared to comment that, in our view, the Merger will not fail to qualify as a "foreign merger" as defined in subsection 87(8.1) solely on the basis that the shareholders of Targetco receive, in the course of, and as a result of the implementation of the Merger, shares of both Mergeco and Acquisitionco.

We trust that our response will be of assistance.

The above response represents our general views with respect to the subject matter of your letter and are provided in accordance with paragraph 22 of Information Circular 70-6R3.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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