Corporation

Table of Contents

See Also

Anson v. HMRC, [2015] UKSC 44

profits of LLC earned directly by members

Lord Reed found that that the profits of a Delaware LLC belonged to the members as they arose, so that a UK member was taxed on the "same" income in both countries. See summary under Art. 24.

Locations of other summaries Wordcount
Tax Topics - Treaties - Article 24 UK LLC member had a personal (non-proprietary) entitlement to his share of LLC profits as they arose 465
Tax Topics - Treaties - Article 3 scheme in Treaty article for allocating income between jurisdictions amounted to a definition of "source" 76
Tax Topics - Treaties - Article 4 pragmatic approach to determining "same" - also appearing in IV,7(b) of Cda-US Treaty 130

HMRC v. Anson, [2013] EWCA Civ 63, rev'd supra

LLC not fiscally transparent

The taxpayer, who was resident in the UK, paid US income taxes on his share of the profits of an LLC of which he was a member, and also paid UK income taxes on income remitted to the UK including such share of the LLC's profits. He would have been entitled to relief under Art. 23 of the UK-US Double Tax Convention from UK tax on such profits if the UK tax was "computed by reference to the same profits or income by reference to which the United States tax [was] computed."

In finding that this requirement was not satisfied, given that the distribution of the profits to the taxpayer (so as to attract UK tax) was distinct from the earning of the profits by the LLC in the first place (resulting in the US tax), i.e., the LLC was fiscally transparent for US but not UK purposes, Lady Justice Arden stated (at para. 57):

If profit is earned by an entity, and the source of the profit to the taxpayer as a member of that entity is a contract as between him and other members, then in the usual case it follows that the source of his income must be a different source of income from that of the entity itself. The fact that there is a contract generally suggests that there is a disposition of a right to the profits from one person to another. That result can be avoided if the member had a proprietary right to the profits as they arose. This would as I see it generally be the case where income accrues to a trust under which an income beneficiary has an interest in possession, or to a unit trust or collective investment scheme, if the investors have a beneficial interest in the assets that are subject to the unit trust or scheme.

In the case of the LLC, there was was "nothing to suggest that it did not have unqualified ownership of its assets or that its members had any interest in those assets" (para. 77). She furher stated (at para. 64):

It would be unusual but not impossible for an entity with a separate legal personality, such as a company, to be tax transparent for English law purposes. One example would be the Scottish partnership where the partnership is a separate legal entity and holds the assets of the business, but the partners have an (indirect) interest in the assets and carry on business in common: this has been held by this court to be tax transparent....

Locations of other summaries Wordcount
Tax Topics - Treaties - Article 24 LLC not transparent 421

Hague v. Cancer Relief & Research Institute, [1939] 4 DLR 191 (Man. K.B.)

corporation has separate legal personality

In finding that an institute which section 2 of the Cancer Relief Act, 1930 (Manitoba) purported to make a "body corporate" was not, in fact, a corporation because there were no natural persons to compose or to constitute the corporation, Dysart J. stated (pp. 193-194):

"What is a corporation? According to our system of law, a corporation is a group or series of persons which by a legal fiction is regarded and treated as a person itself. It is a legal entity composed of persons. In law 'a person' is any being that is capable of having rights and duties, and is confined to that. Persons are of two classes only - natural persons and legal persons. A natural person is a human being that has the capacity for rights or duties. A legal person is anything to which the law gives a legal or fictitious existence and personality, with the capacity for rights and duties. The only legal person known to our law is the corporation - the body corporate."

Words and Phrases
corporation person

Administrative Policy

10 June 2016 STEP Roundtable, Q.8

perhaps potential flexibility in applying the transition of LLPs from partnerships to corporations

CRA largely repeated its position immediately below in 2016 IFA Roundtable, Q. 1 (as well as indicating that Anson has not changed its views on LLCs). One change was that after listing the four conditions respecting when it will continue respecting an LLP or LLLP as a partnership, CRA added that “where some but not all of those conditions are met, those cases may be dealt with on a facts and circumstance basis.”

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 81-100 - Section 96 facts and circustances test respecting transition of LLPs to corporation status 153

2015 Ruling 2014-0541951R3 - Foreign Affiliate Debt Dumping

proportionate distribution by LLP treated as dividend

A (presumably U.S.) limited liability partnership (FA1) will pay a distribution proportionately to its partners who directly comprise (i) a limited partner corporation (Canco9), and (ii) a general partner which is a general partnership - whose partners on a s. 212.3(25) look-through basis are two other Canadian corporations in the same group (Canco7 and Canco8). The CRA ruling letter described FA1 as a (non-resident) subject corporation rather than as a Canadian partnership, described the proportionate distribution as being deemed by s. 90(2) to be a dividend and provided a ruling that the distribution will be considered to be received as a dividend in respect of a single class of shares of capital stock of FA1 by Canco7, 8 and 9 for the purposes of s. 212.3(9)(b)(ii) – A(B).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 201-220 - Section 212.3 - Subsection 212.3(9) - Paragraph 212.3(9)(b) - Subparagraph 212.3(9)(b)(ii) s. 212.3(9)(b)(ii) PUC restoration for upper-tier QSCs on the payment by a U.S. LLP of a proportionate “dividend” to lower tier CRIC partners 306
Tax Topics - Income Tax Act - 81-100 - Section 90 - Subsection 90(2) proportionate LLP distribution to three direct or indirect general or limited partners treated as dividend on single class of shares 108
Tax Topics - Income Tax Act - 201-220 - Section 212.3 - Subsection 212.3(3) two Canadian corporate partners immediately beneath the U.S. border are QSCs respecting investments made by lower-tier CRICs in a U.S. LLP 230

26 May 2016 IFA Roundtable Q. 1, 2016-0642051C6 - Classification of U.S. LLPs & LLLPs

Delaware and Florida LLPs and LLLPs as corporations

CRA indicated that it has finalized its view that Florida and Delaware limited liability partnerships and limited liability limited partnerships are corporations for ITA purposes in light inter alia of their separate legal personality and limited liability for all members (and noted that "we see little substantive difference between LLPs, LLLPs and LLCs governed by the laws of the states of Florida and Delaware." However, CRA is prepared as an administrative matter to continue accepting that an existing LLP or LLLP (that had been formed from scratch, rather than being converted from an LLC) is a partnership if it is clear that the members are carrying on business in common with a view to profit, they intended for the entity to be a partnership, all members and the entity itself have been treating the entity for ITA purposes as a partnership, and the LLP or LLLP converts to an entity recognized by CRA as a partnership before 2018.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 81-100 - Section 96 LLPs and LLLPs treated as corporations 301

4 October 2010 Memorandum 2008-0289461I7 - Netherlands Antilles private foundation

Netherlands Antilles private foundation qualifies as a trust notwithstanding its separate legal personality

Although a Netherlands Antilles private foundation had separate legal personality (including a separate legal entity clause in the governing legislation) and capacity to acquire rights and liabilities (with no beneficiary liability), CRA nonetheless considered it to be a trust rather than a corporation given that it did not issue shares, the beneficiaries did not pay for their interests in the foundation, they could not transfer their beneficial interests and they did not have a right to participate in any decisions of the foundation. Although it was still quite dissimilar to a common law trust, it was sufficient that it was somewhat similar to a civil law trust.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-120 - Section 104 - Subsection 104(1) Netherlands Antilles private foundation qualifies as trust notwithstanding separate legal personality 384

24 November CTF Annual Roundtable, Q.7

Delaware and Florida LLPs and LLLPs likely are corporations/LLCs generally are corporations

CRA was "heavily leaning" towards characterizing Florida limited liability partnerships (LLPs) and Florida limited liability limited partnerships (LLLPs) as corporations, and was a few weeks away from reaching a definitive conclusion on this point. Its preliminary view was that the equivalents under Delaware law also are corporations.

Anson has not changed CRA's view that an LLC (at least under the statutes CRA has examined) is a corporation for purposes of the Act.

20 August 2015 T.I. 2015-0581681E5 F - Non-resident trust rules

Liechtenstein Foundation a trust

CRA affirmed its position that a Liechtenstein Foundation "generally will be considered to be a trust for purposes of the Act." See summary under s. 94(1) - connected contributor.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 81-100 - Section 94 - new - Connected Contributor Liechtenstein Foundation with Canadian-resident beneficiary not subject to s. 94(3) 329

[U.K] Revenue and Customs Brief 15 (2015): HMRC response to the Supreme Court decision in George Anson v HMRC (2015) UKSC 44 25 September 2015

Anson specific to its facts

…[T]he [Anson] decision is specific to the facts found in the case. This means that where US LLCs have been treated as companies within a group structure HMRC will continue to treat the US LLCs as companies, and where a US LLC has itself been treated as carrying on a trade or business, HMRC will continue to treat the US LLC as carrying on a trade or business.

[It is understood from a U.K. correspondent that the "treating" is by HMRC, who have long regarded US LLCs as "opaque" (see INTM180030 below) and are effectively saying they will continue to do so.]

Locations of other summaries Wordcount
Tax Topics - Treaties - Article 24 Anson specific to its facts 112

INTM180030 - "Foreign entity classification for UK tax purposes: List of Classifications of Foreign Entities for UK tax purposes"

Country-by-country listing of entities as transparent or opaque for U.K. income tax purposes.

28 May 2015 IFA Roundtable Q. 3, 2015-0581511C6 - IFA 2015 Q.3: Entity Classification

Florida LLLPs potentially corporations

CRA indicated that Florida limited liability limited partnerships and limited liability partnerships potentially may be corporations for purposes of the Act given that "they seem to have both legal personality and full, or at least very extensive, limited liability for all members," i.e., liability protection which "seems to go beyond the type of limitation of liability applicable to partnerships governed by the laws of the Canadian provinces," and invited submissions on this issue.

CRA also noted (before release of Anson) that it accepts that LLC are corporations. See summary under s. 96.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 81-100 - Section 96 status of LLLPs as partnerships or corporations 384

30 October 2012 Ontario CTF Roundtable, 2012-0463021C6 - Directorate policy - entity classification

entity classification rulings: resumed

[The] Directorate has reconsidered its 2010 decision [to cease giving entity classification rulings]....Taxpayers wishing to request an advance income tax ruling on...classification...should include with their request a complete description of the characteristics of the entity, their analysis as to its proper classification, and a translated copy of both the legislation under which the entity was created and its organizational documents.

15 July 2011 Memorandum 2010-0388621I7

anstalt a corp

a Liechtenstein anstalt possessed most of the hallmarks of a corporation aside from issuing shares, and was to be treated as a corporation. Furthermore, although it did not issue shares within the meaning of s. 248(1), as there was only one beneficiary, a division of the capital of the anstalt into shares was unnecessary so that it was reasonable to consider that the Canadian resident beneficiary's interest was the equivalent of a share. "For Canadian tax purposes, it should suffice that the interest is what accords him the same rights as are normally conveyed by a share."

28 September 2009 Memorandum 2008-030051

anstalt a corp

In light of its characteristics, a Liechtenstein anstalt could be treated for Canadian purposes as either a trust or a corporation depending on the specific facts of the particular situation. However, CRA would not change its published position that an anstalt is a corporation without a public announcement to that effect which would only have prospective effect.

Income Tax Technical News, No. 38, 22 September 2008 under "Foreign Entity Classification"

discussion of CRA's two-step approach to entity classification (determine its characteristics under the foreign law; and compare those characteristics with those of a recognized category of business association under Canadian law).

14 August 2008 T.I. 2004-010469

Del. LP a partnership

application of CRA's two-step approach to entity classification to find that a Delaware LLC governed by the Delaware Limited Liability Company Act that is converted into a limited partnership pursuant to s. 17-217 of the Limited Partnership Act will be considered to have become a partnership for Canadian income tax purposes, so that there is a disposition of the property of the LLC and of the shares in the LLC.

5 October 2004 T.I. 2004-006186

Madagascar LLC

A limited liability company organized in Madagascar would be considered to be a corporation for purposes of the Act given that it has several characteristics of a corporation, including separate legal personality.

9 September 2002 Memorandum 2002-014395

anstalt a corp

A Leichtenstein establishment (i.e., a Leichtenstein anstalt) is a corporation for purposes of the Act.

29 January 2002 T.I. 2001-008584

List of states for which CCRA has provided an opinion that a limited liability company formed under the laws of that state is a corporation for Canadian tax purposes.

10 February 1999 T.I. 982987

A Hungarian korlatolt feleossegu tarsasag is a corporation for purposes of the Act because it has legal personality and existence apart from its members. "This would be our view whether or not the Articles of Association of the particular Kft provided that members may be liable for losses of the Kft in excess of their initial capital contributions."

24 September 1997 T.I. 964219

A Tennessee limited liability company is a corporation for purposes of the Act.

28 January 1997 T.I. 962501

A Russian joint stock company would be a corporation for purposes of the Act (including the foreign affiliate definition), as it is a distinct legal entity, separate from its shareholders, directors and officers.

30 July 1996 T.I. 962459 (C.T.O. "Kazackhstan Limited Liability Partnerships")

Kazackhstan Limited Liability Partnerships normally will be considered to be corporations given that they have the status of a legal entity under Kazackh Law, their property belongs to them and the participants are not held liable for the partnership's obligations - although it is possible for a particular partnership to possess certain important attributes which are not indicative of a corporate entity, for example, being formed for only a very brief period of time.

30 August 1995 T.I. 950304 (C.T.O. "Corporate Status-Dutch BV with Unlimited Liability")

The fact that a private company with limited liability incorporated under, and governed by the Netherlands Civil Code may not have an unlimited life or that the shareholders have agreed to assume liability for its liabilities, does not generally affect the determination that it qualifies as a corporation.

13 July 1995 T.I. 951809 (C.T.O. "6363-1 Foreign Affiliates - Def'n of Corporation")

RC stated on the basis of its review of the New York Limited Liability Company Law that it was of the opinion "that a company formed under the NYLLCL would be a corporation for the purposes of the Act notwithstanding that all of its members are liable in their capacity as members for all its debts, obligations or liabilities as a result of a statement to such effect in the articles of organization thereof."

25 October 1994 T.I. 941925 (C.T.O. "Partnership or Corporation")

A German offene Handelsgesellschaft ("OHG"), as described by the writer, would be considered a partnership for Canadian tax purposes.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 81-100 - Section 96 19

25 October 1994 T.I. 941750

A limited liability company organized under the applicable legislation of Florida, Wyoming, Delaware or Indiana will be considered to be a corporation rather than a partnership for Canadian tax purposes.

27 June 1994 T.I. 940600 (C.T.O. "Corporate Status of a Delaware LLC (4093-U5-100-4)")

A limited liability company formed under Chapter 18, Subtitle II of Title 6 of the laws of Delaware will be treated as a corporation for purposes of the Act.

27 June 1994 T.I. 940819 (C.T.O. "Corporate Status of a Nova Scotia Co. (H.A.A. 6363-1)")

An unlimited liability company incorporated under the Nova Scotia Companies Act is a corporation within the meaning of s. 248 of the Act.

17 February 1994 T.I. 932790 (C.T.O. "Barbadian Limited Liability Company (Barbados Treaty)")

Assuming that the proposed Barbadian Societies Restricted Liability Act is enacted in its proposed form, a foreign entity created under that legislation should qualify as a corporation for purposes of the Act.

93 C.M.TC - Q. 12

The limited liability companies for the two states that RC has reviewed (Wyoming and Florida) are considered to be corporations rather than partnerships.

4 October 1990 T.I. (Tax Window, Prelim. No. 1, p. 20, ¶1022)

A foreign unlimited liability company is a "corporation" and therefore may qualify as a foreign affiliate.

IT-343R "Meaning of the Term Corporation"

Articles

Joel Nitikman, "Is an LLP a Corporation for Canadian Tax Purposes? A Reply to the CRA", Tax Topics (Wolters Kluwer), No. 2313, July 7, 2016, p.1.

Conclusion that an LLLP or LLP is a partnership for ITA purposes given that has the following hallmarks of partnership:

(a) it has at least two members;

(b) its members are carrying on business with a view to profit; and

(c) there is in force a contractual agreement, express or implied, in writing orally, or by conduct, between or among its members to carry on the business with a view to profit.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 81-100 - Section 96 345

Nathan Boidman, "Anson and U.S. LLCs: A Canadian Perspective", Tax Notes International, August 3, 2015, p. 439.

Effect of Anson on fiscally opaque status of LLCs (p. 439)

[T]he consistent treatment of LLCs in Canada as corporations (i.e., opaque) [raises] the obvious question as to whether Anson will disturb that status quo.

The short answer appears to be — no….

Misinterpretation of effect of LLC Agreement (p. 439)

First, with respect, the decision — that section 4.2 of the LLC agreement (together with certain provisions of the Delaware LLC Act) that required that profits be allocated to LLC owner capital accounts immediately vested those profits in the owners — seems to be wrong. This is because the judgment did not deny that the assets garnered by the LLC from those profits remained those of the LLC, to the entire exclusion of the owners, until actually distributed (and that the LLC was in no way acting as an agent or trustee with respect to those assets) and because of the interrelated fact that nowhere did the judgment consider or discuss that because no owner of an LLC is liable for its debts, creditor claims could interrupt the owner's ultimate access to those assets, underlying the profits.

No double taxation of distributed LLC profits (p. 439)

In Anson, it certainly wouldn't have been fair for the U.K. resident to suffer double tax…[H]ad Anson been a Canadian resident, the same issue would not have arisen assuming distributions in the year of LLC earnings because Canada's foreign tax credit rules do not require that the foreign tax be on the foreign income taxed in Canada, only that the same country be involved for both.

Courts and Finance implicitly have endorsed opaque status (pp. 439-440)

Third, as seen in TD Securities LLC, not only has the Canada Revenue Agency and the tax community consistently treated LLCs as corporations, the income of which is their own, but the courts have not sought to disturb that understanding.

Fourth and finally, the Department of Finance, which drafts Canada's tax laws for Parliament's consideration, has clearly endorsed the notion that U.S. LLCs are to be treated as corporations, the income of which is their own….[T]he department issues [Explanatory Notes] with new legislation, and the courts have increasingly been looking to those notes in deciding tax cases.

Matias Milet, "Hybrid Foreign Entities, Uncertain Domestic Categories: Treaty Interpretation Beyond Familiar Boundaries", 2011 Canadian Tax Journal, Vol 59, p. 25

Wittgenstein family resemblance approach

When categorizing foreign entities so as to apply the relevant entity-based Canadian rules, it likely is preferable to utilize the Wittgenstein approach of identifying "family resemblances" rather than attempting to determine the "essential" or "fundamental" characteristics that all such entities (e.g., corporations or partnerships) share in common. Includes discussion of cases categorizing German silent partnership (Memec) or LLCs.

Gwendolyn Watson, Steven Baum, "U.S. LLCs as Corporations - a New Canada Revenue Agency Position?", International Tax Planning, 2011, p. 1136

Contrary to a CRA suggestion "there does not appear to be any Canadian authority requiring that a foreign entity 'issue capital stock' in order to be considered a 'corporation'...."

Jessica Fabbro, "What is an LLC?", CCH Tax Topics, No. 2067, 20 October 2011, p.1

Discussion of HMRC v. Anson, [2011] UKUT B21 (TCC) (reversing the finding in Swift v. HMRCI, [2010] UKFTT 88 (TC) that a US LLC was closer to a Scottish partnership than a UK company).

Jessica Fabbro, "Oh Say Can You (LL)C? A Case Comment on Boliden Westmin Ltd. v. British Columbia", CCH Tax Topics, No. 1836, 17 May 2007, p. 1: discussion of finding in that case that a Nevada LLC most closely resembled a corporation.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 81-100 - Section 96 0

Marc Damo, "Characterization of Foreign Business Associations", 2005 Canadian Tax Journal, No. 2

Proposed a two-stage approach to entity classification which now is accepted by CRA (see, for example, 2010-0388621I7.)

John R. Owen, "Foreign Entity Classification and the Character of Foreign Distributions", 2005 Conference Report, c. 20

Discussion of the essential characteristics of a corporation.

Andersen, Wilkie, "U.S. and Third-Country Limited Liability Companies Provide Opportunities for Canadian Multinationals", Tax Management International Journal, Vol. 25, No. 5, 10 May 1996, p. 291.

Hirsch, "Real Estate Issues: Traps and Opportunities", 1995 Corporate Management Tax Conference Report, c. 9

Discussion of use of Nova Scotia unlimited liability companies for real estate investments in Canada, and of U.S. limited liability companies for real estate investments in the United States.

Owen, "Using a Limited Liability Company to License Intellectual Property into the United States", Taxation Law Section Newsletter, Canadian Bar Association - Ontario, Vol. 5, No. 3, May 1995, p.1.

Bernstein, "U.S. Limited Liability Corporations", Tax Profile, February 1995, Vol. 4, No. 20., pp. 201, 205.

Lanthier, "Emerging Income Tax Issues: Public Service 2,000, International Finance Companies, and U.S. Limited Liability Companies", 1993 Conference Report, pp. 3:19 - 29

Discussion of U.S. limited liability companies.

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