Principal Issues: Whether a limited partnership (“the Partnership”) will continue to be treated as a partnership for purposes of the Act after the continuation. Whether the continuation will result in the partners to have a disposition of their Units. Whether the continuation will result in a disposition of properties by the Partnership.
Position: Yes. No. No.
Reasons: After the continuation, the characteristics of the Partnership more closely resemble partnerships formed in Canada than any other form of business entity or arrangement. The continuation will not result in a disposition given that the Partnership will continue being the same partnership following the continuation from both a Bermuda and Delaware law perspective, and there will be no significant change in the rights and obligations of the partners.
XXXXXXXXXX 2022-095046
Attention: XXXXXXXXXX
XXXXXXXXXX, 2023
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX in which you request an Advance Income Tax Ruling on behalf of the above named taxpayer. We also acknowledge our subsequent correspondence concerning your request.
We understand that, to the best of your knowledge and that of the taxpayers involved, none of the Proposed Transaction or issues involved in this ruling are the same as or substantially similar to transactions or issues that are:
(i) in a previously filed tax return of the taxpayer or a related person and:
(a) being considered by the Canada Revenue Agency in connection with such return;
(b) under objection by the taxpayer or a related person; or
(c) the subject of a current or completed court process involving the taxpayer or a related person; or
(ii) the subject of a Ruling request previously considered by the Income Tax Rulings Directorate.
Unless otherwise stated:
i. all references to a statute are to the relevant provision of the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, as amended, (the “Act”), or, where appropriate, the Income Tax Regulations, C.R.C., c. 945, as amended (the “Regulations”);
ii. all terms and conditions used in this ruling request that are defined in the Act (or in the Regulations) have the meaning given in such definition;
iii. any references to monetary amounts are in Canadian dollars; and
iv. the singular should be read as plural and vice versa where the circumstances so require.
DEFINITIONS
The following abbreviations, terms and expressions have the meanings specified, and the relevant parties to the Proposed Transaction (as defined below) will be referred to as follows:
“Bermuda EPA” means the Exempted Partnership Act 1992 (Bermuda);
“Bermuda LPA” means the Limited Partnership Act 1883 (Bermuda);
“Bermuda PA” means the Partnership Act 1902 (Bermuda);
“Bermuda Partnership Statutes” means collectively the Bermuda PA, Bermuda LPA and the Bermuda EPA;
“Canco” means XXXXXXXXXX, a corporation organized under the laws of the XXXXXXXXXX;
“CRA” means the Canada Revenue Agency;
“DRULPA” means the Delaware Revised Uniform Limited Partnership Act (Title 6, Subtitle II, Chapter 17 of the Delaware Code);
“DRUPA” means the Delaware Revised Uniform Partnership Act (Title 6, Subtitle II, Chapter 15 of the Delaware Code);
“Forco” means XXXXXXXXXX;
“Limited Partners” means Canco and each person who owns Units (other than General Partner Units) of XXXXXXXXXX;
“Partners” means Forco and the Limited Partners;
“Partnership” means XXXXXXXXXX, an entity formed as an exempted limited partnership under the laws of XXXXXXXXXX, pursuant to the XXXXXXXXXX;
“Partnership Agreement” means the XXXXXXXXXX partnership agreement of XXXXXXXXXX;
“Property” means the issued and outstanding shares of the Subsidiaries;
“Subsidiaries” means XXXXXXXXXX; and
“Units” means the Class A-1, Class A-2, Class A-3, Class B and the General Partner Units of the Partnership owned by the Partners.
Our understanding of the facts, proposed transactions, additional information and the purpose of the proposed transactions is as follows:
FACTS
1. The Partnership is an exempted limited partnership under the laws of Bermuda, pursuant to the Bermuda Partnership Statutes. The Partnership is governed by the Partnership Agreement. Ownership interests in the Partnership are reflected by Units which represent any and all benefits to which the holder of such Units is entitled under the Partnership Agreement.
2. The Partnership has not made an election under the Bermuda Partnership Statutes to have legal personality.
3. Forco owns one General Partner Unit and is the general partner of the Partnership. Forco is a non-resident of Canada for purposes of the Act.
4. Canco owns Class A-1, Class A-2, Class A-3 Units of the Partnership. Canco is a “taxable Canadian corporation” for purposes of the Act. As of XXXXXXXXXX, Canco owns XXXXXXXXXX Class A-1 Units, XXXXXXXXXX Class A-2 Units, and XXXXXXXXXX Class A-3 Units. The Limited Partners other than Canco own XXXXXXXXXX Class A-3 Units and XXXXXXXXXX Class B Units and are all either non-residents of Canada for purposes of the Act (some of the Limited Partners are residents of the United States) or partnerships other than “Canadian partnerships” for purposes of the Act.
5. The Partnership owns the Property, namely all of the issued and outstanding shares of the Subsidiaries. The Subsidiaries, amongst other things, indirectly carry-on the XXXXXXXXXX businesses XXXXXXXXXX, as well as XXXXXXXXXX business, in Canada and the United States. The Partnership has no other assets other than the shares of the Subsidiaries and has no material liabilities. The Partnership does not carry-on business in Canada for purposes of the Act.
PROPOSED TRANSACTION
6. The Partnership will change its governing law and become governed (or, “domesticated”) as a limited partnership under the State of Delaware pursuant to §17-215 of the DRULPA (herein the “Proposed Transaction”). The specific steps will be undertaken pursuant to the statutory provisions described in paragraphs 8 to 10 below, and will occur in the next 6 months in the following order:
a) The Partnership will de-register under the Bermuda LPA and the Bermuda EPA. This deregistering is undertaken by filing the applicable statement or declaration and obtaining certificates of de-registration under section 26 of the Bermuda LPA and section 13(B) of the Bermuda EPA.
b) The Partnership will file in accordance with §17-215(b) of the DRULPA (i) a certificate of limited partnership domestication that is executed in accordance with §17-204 of that statute; and (ii) a certificate of limited partnership that complies with §17-201 and has been executed in accordance with §17-204 of that statute.
c) All other terms and conditions under the Partnership Agreement will remain unamended.
ADDITIONAL INFORMATION
7. The Partnership activity was carried on in common with a view to a profit and the Partnership was considered a partnership for purposes of the Act prior to the Proposed Transaction.
8. Section 13(B) of the Bermuda EPA and section 26 of the Bermuda LPA provides that a partnership created under these acts may de-register and continue under the laws of a foreign jurisdiction. Specially, both governing statutes provide that the de-registration shall not create a new legal entity, prejudice or affect the continuity of the partnership, or affect the property previously acquired by or on behalf of the partnership.
9. §17-215 of the DRULPA provides that a foreign limited partnership may become domesticated as a limited partnership in the State of Delaware. Paragraph (i) of the section provides that the limited partnership shall be deemed to be the same “entity” as the domesticating non-United States “entity” and the domestication shall constitute a continuation of the existence of the domesticating non-United States “entity” in the form of a domestic limited partnership. Paragraph (i) also provides that the domesticating non-United States “entity” shall not be required to wind up its affairs or pay its liabilities and distribute its assets, and the domestication shall not be deemed to constitute a dissolution of such non-United States “entity”.
10. From a Bermuda and Delaware law perspective, the Partnership will be governed by different laws but will continue to be the same partnership as it was following the Proposed Transaction and there will not be a dissolution of the Partnership under the laws of either jurisdiction.
11. Following the Proposed Transaction, the Partnership will be a separate legal entity pursuant to §17-201(b) of the DRULPA.
12. There will be no significant changes in the rights and obligations of the Partners following the Proposed Transaction, including:
a) there will be no change to the contributed capital accounts of any of the Partners;
b) there will be no difference in the percentage interest in the Partnership of any of the Partners;
c) the name and identity of the Partners will not change;
d) the activities of the Partnership will not change;
e) the percentage of interest of each Partner in the profits will not change;
f) the percentage of liability for losses of each Partner will not change; and
g) there will be no change in the rights, obligations or liability of the Partners, there continues to be a limitation of liability for the Limited Partners and Forco will continue to have unlimited liability.
PURPOSE OF THE PROPOSED TRANSACTION
The purpose of the Proposed Transaction is to ease the administrative burden to Forco in respect of on-going compliance matters under the Bermuda Partnership Statutes and under the Internal Revenue Code in respect of future distributions to the Partnership.
RULINGS
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, additional information and purpose of the proposed transactions, and provided further that the Proposed Transaction is completed in the manner described above, we rule as follows, in reliance on such statements and subject to the comments below:
A. Following the Proposed Transaction, the Partnership will be treated as a partnership for purposes of the Act.
B. The Proposed Transaction will not, in and of itself, cause the Partners to have a “disposition” of their Units within the meaning of subsection 248(1) of the Act.
C. The Proposed Transaction will not, in and of itself, cause the Partnership to have a “disposition” of the Property within the meaning of subsection 248(1) of the Act.
The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R12, Advance Income Tax Rulings and Technical Interpretations, and are binding on the CRA provided that the Proposed Transaction is completed within six months of the date of this letter. Our rulings are based on the law as it currently reads and do not take into account any proposed amendments to the Act or Regulations which, if enacted, could have an effect on the Rulings provided herein.
Other Comments:
Nothing in this letter should be construed as implying that the CRA has agreed to, reviewed or made any determination in respect of any tax consequences in respect of:
(a) the fair market value or adjusted cost base of any property or the paid-up capital of any shares referred to herein;
(b) the tax residency of any entity;
(c) any foreign income tax consequences, including whether a rollover provision applies under a foreign act; and
(d) any other tax consequences relating to the facts, Proposed Transaction and additional information described herein, other than those specifically described in the Rulings given above.
An invoice for our fees in connection with this Ruling request will be sent to you under separate cover.
Your truly,
XXXXXXXXXX
Manager
For Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
