CRA finds that the s. 95(2)(c) rollover is available on the drop-down of shares into a Dutch cooperative in consideration for a credit to the membership account

In 2016 IFA Roundtable Q. 10, CRA indicated that s. 95(2)(c) could apply to the drop-down of shares by a foreign affiliate to a another foreign affiliate (FA3) which was a non-share corporation even though no membership interests were issued by FA3, provided that the fair market value of the membership interest in FA3 increased by the FMV of the contributed shares. CRA has now published a somewhat similar ruling, respecting the contribution of shares of a Netherlands private limited liability company to a newly-formed Dutch cooperative (DC) in consideration for a credit to the membership accounts of the contributing foreign affiliates equal to the FMV of the contribution, in which it ruled that the s. 95(2)(c) rollover was available. (The wording of this ruling seems to imply that any increase in the FMV of the membership interest as a result of the drop-down would have been sufficient.)

CRA also explicitly ruled that DC was a corporation, on the basis of a much more detailed description than in 2015-0581151I7. The description notes that DC had separate legal personality, that under the Dutch Civil Code, “a Dutch cooperative may, by its articles of association, exclude or limit to a maximum, any liability of its members or former members to contribute to a deficit,” and that such a limitation was contained in DC’s articles. This flexibility under the Dutch Civil Code may suggest that it might be possible for some Dutch cooperatives to be considered to be partnerships.

Neal Armstrong. Summaries of 2015-0571441R3 under s. 95(2)(c) and s. 248(1) – corporation.