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.
960915
XXXXXXXXXX XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: XXXXXXXXXX
Advance Income Tax Ruling
We are writing in response to your letter of XXXXXXXXXX, 1996 wherein you requested an advance income tax ruling on behalf of the above-referenced taxpayer. In your letters of XXXXXXXXXX you provided additional information in respect of the facts and proposed transactions described in your original letter. We also acknowledge the information provided during our various telephone conversations (XXXXXXXXXX/XXXXXXXXXX).
To the best of your knowledge and that of the taxpayers involved:
(i)none of the issues involved in the requested rulings is being considered by a Tax Services Office or a Taxation Centre in connection with a tax return already filed, and
(ii)none of the issues involved in the requested rulings is the subject of any notice of objection or is under appeal.
Unless otherwise stated all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act").
In this letter, the following terms have the meanings specified:
(a)"adjusted cost base" ("ACB") has the meaning assigned to that term in section 54 of the Act;
(b)"CBCA" means the Canada Business Corporations Act and, where applicable, its predecessor statutes;
(c)"capital property" has the meaning assigned to that term in section 54 of the Act;
(d)"Convention" means the Canada-Netherlands Income Tax Convention, 1986, as amended by the second Protocol signed on March 4, 1993;
(e) XXXXXXXXXX;
(f)"paid-up capital" ("PUC") has the meaning assigned by subsection 89(1) of the Act; and
(g)"taxable Canadian corporation" ("TCC") has the meaning assigned to that term in subsection 89(1) of the Act.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
FACTS
1.XXXXXXXXXX is a corporation resident in The Netherlands and a wholly-owned subsidiary of XXXXXXXXXX does not carry on business in Canada nor does it have a permanent establishment in Canada for purposes of the Convention. XXXXXXXXXX head office is XXXXXXXXXX owns all of the shares of XXXXXXXXXX is a TCC.
2.The address and account number of XXXXXXXXXX is as follows:
XXXXXXXXXX.
The tax returns of XXXXXXXXXX are handled by the XXXXXXXXXX Taxation Centre and the XXXXXXXXXX Tax Services Office.
3.XXXXXXXXXX was incorporated under the XXXXXXXXXX Its issued share capital consists of XXXXXXXXXX Series XXXXXXXXXX preferred shares (XXXXXXXXXX), and XXXXXXXXXX common shares (XXXXXXXXXX).
The Series XXXXXXXXXX preferred shares were issued for $XXXXXXXXXX for cash consideration XXXXXXXXXX. The Series XXXXXXXXXX preferred shares are non-voting and are entitled to receive fixed, cumulative dividends at the rate of but not to exceed XXXXXXXXXX¢ per share when and as declared by the Board of Directors. The Series XXXXXXXXXX preferred Shares are redeemable at the option of the corporation at $XXXXXXXXXX per share, together with all cumulative dividends declared thereon and unpaid.
The common shares were created in XXXXXXXXXX.
4.On XXXXXXXXXX acquired from XXXXXXXXXX all of the issued and outstanding shares of XXXXXXXXXX namely XXXXXXXXXX which represented the fair market value of such shares at that particular time. The Series XXXXXXXXXX preferred shares of XXXXXXXXXX represent capital property to XXXXXXXXXX.
5.XXXXXXXXXX principal activities consist of
XXXXXXXXXX.
Since the date of acquisition of XXXXXXXXXX has continued to operate as before and no other XXXXXXXXXX properties or businesses have been acquired by XXXXXXXXXX.
6.XXXXXXXXXX holds direct investments in a number of Canadian subsidiaries. The relevant subsidiaries for the purpose of this ruling are XXXXXXXXXX.
7.XXXXXXXXXX was incorporated under the XXXXXXXXXX and the fair market value of its outstanding share capital is currently negligible.
8.XXXXXXXXXX was incorporated under the XXXXXXXXXX.
9.XXXXXXXXXX was incorporated under the XXXXXXXXXX is not operative and the fair market value of its outstanding share capital is currently negligible.
10.XXXXXXXXXX was incorporated under the XXXXXXXXXX and the fair market value of its outstanding share capital is currently negligible.
11.XXXXXXXXXX was incorporated under the XXXXXXXXXX.
12.Presently more than XXXXXXXXXX% of the fair market value of the shares of XXXXXXXXXX In this regard, the fair market value of XXXXXXXXXX shares in other corporations are nominal in comparison to the value of the XXXXXXXXXX.
13.Since XXXXXXXXXX as described in paragraph 4 above, XXXXXXXXXX has amassed significant excess cash as a result of its profits. XXXXXXXXXX.
XXXXXXXXXX.
14.The cumulative dividends undeclared on the Series XXXXXXXXXX preferred shares is approximately $XXXXXXXXXX It is not the intention of the Board of Directors to declare any of the dividends before the proposed transaction.
15.Any assets of XXXXXXXXXX or its subsidiaries that are either redundant or in excess of current business requirements are immaterial to the issues dealt with in this ruling request.
PROPOSED TRANSACTION
16.XXXXXXXXXX will redeem approximately XXXXXXXXXX of the Series XXXXXXXXXX preferred shares held by XXXXXXXXXX for their redemption amount.
PURPOSE OF THE PROPOSED TRANSACTION
17.The purpose of the proposed transaction is to distribute the excess cash of XXXXXXXXXX to its shareholder (XXXXXXXXXX) otherwise than by the payment of a dividend. This excess cash is the result of substantial profit earned by XXXXXXXXXX since its acquisition by XXXXXXXXXX.
RULINGS GIVEN
Provided that the above statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transaction and purpose of the proposed transaction, and that the proposed transaction is carried out as set forth herein, the following rulings are given:
A.For the purposes of paragraph 4 of Article 13 of the Convention, the XXXXXXXXXX are properties (other than rental properties) in which the business of the company is carried on and therefore do not constitute immovable property under paragraph 4(a) of Article 13.
B.Where the greater part of the value of the shares of XXXXXXXXXX is derived from the XXXXXXXXXX any gain from the disposition of these shares by XXXXXXXXXX will be exempt from taxation in Canada pursuant to paragraph 4 of Article 13 of the Convention.
The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990 and the Special Release thereto dated September 30, 1992, and are binding on Revenue Canada, Customs, Excise and Taxation provided that the proposed transactions are completed by XXXXXXXXXX.
The above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act which, if enacted into law, could have an effect on the rulings provided herein.
Nothing in this ruling should be construed as implying that Revenue Canada, Customs, Excise and Taxation has agreed to or reviewed:
(a)the determination of the fair market value or ACB of any particular asset or the PUC of any shares referred to herein, particularly the fair market value of the shares of XXXXXXXXXX at the date of acquisition by XXXXXXXXXX or
(b)any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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