17 November 2005 External T.I. 2004-0069741E5 - Reporting entity - Foreign affiliate

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.

Principal Issues: 1. Whether a foreign entity is a partnership?

2. What are the reporting requirements in respect of a foreign affiliate or a controlled foreign affiliate included in the assets of a partnership?

Position: 1. No definitive position.

2. If the Canadian-resident partners are entitled to more than 10% of the partnership's income or loss, the partnership will have to produce a prescribed form under section 233.4 of the Act in respect of its foreign affiliate or its controlled foreign affiliate.

Reasons: 1. We would need a detailed description of the characteristics of the foreign entity.

2. Subsection 233.4(1) of the Act and the presumptions of subsection 233.4(2) of the Act.

XXXXXXXXXX Sylvie Labarre, CA
2004-006974
November 17, 2005

Dear XXXXXXXXXX:

Re: Reporting Forms 1134-A and 1134-B

We are writing in response to your letter of March 29, 2004 wherein you requested information concerning the application of section 233.4 of the Income Tax Act (the "Act").

A resident of Canada owns an interest in a German entity, which is described as XXXXXXXXXX. The assets of the GmBH & CO KG include shares of a foreign affiliate or of a controlled foreign affiliate.

Your understanding is that a GmBH is a limited liability company. You think that a GmBH & CO KG is a limited partnership and you want to know if we agree with your view.

If a GmBH & CO KG is a limited partnership, you request our view on how to report foreign affiliate or controlled foreign affiliate included in the assets of the partnership.

Our comments

Written confirmation of the tax implications inherent in real transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5. However, we are prepared to provide you with the following general comments.

We cannot take a definitive position on the characterization of a foreign entity on the basis of its name. We would need to be provided with a detailed description of its characteristics. However, in the past, German entities that were GmBH & CO KG were represented to us as limited partnership entities and we did not dispute that categorization.

Section 233.4 of the Act provides that certain taxpayers and certain partnerships must file a return in prescribed form in respect of each foreign affiliate. For the purposes of section 233.4 of the Act, in determining whether a non-resident corporation or trust is a foreign affiliate or controlled foreign affiliate of a taxpayer resident in Canada or of a partnership, there are presumptions in subsection 233.4(2) of the Act that a partnership is a person or a taxpayer resident in Canada. Because of these presumptions, the shares of a foreign affiliate or of a controlled foreign affiliate included in the assets of the partnership would not be considered a foreign affiliate or a controlled foreign affiliate of the partner and that partner would not have to report it on form 1134-A or 1134-B.

However, the partnership (even if it is a foreign partnership) will have to produce a prescribed form under section 233.4 of the Act if Canadian-resident partners are entitled to more than 10% of the partnership's income or loss.

We trust the above has been of some assistance and we regret the delay in responding..

Yours truly,

Alain Godin, Manager
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch