Dear Mr. Thornton,
Re: Svenska Cellulosa Aktiebolaget SCA (pupl) – Spin-off of Common Shares of Essity Aktiebolag (pupl)
I am replying to your submission of December 11, 2017 to the Canada Revenue Agency (the "CRA") concerning your request on behalf of Svenska Cellulosa Aktiebolaget SCA (pupl) ("SCA") and the follow-up emails of February 16 and 26, 2018 by you and Mary Thompson of PwC to Kerry Harnish of Department of Finance. You ask that SCA's distribution of common shares of Essity Aktiebolag (pupl) ("Essity") to SCA's common shareholders be "prescribed" for the purpose of the foreign spin-off tax-deferral rules in section 86.1 of the Income Tax Act.
The CRA has confirmed to the Department of Finance that SCA's pro rata distribution of Class A and Class B common shares of Essity to SCA's Class A and Class B common shareholders, respectively, satisfies the technical requirements of the foreign spin-off rules in section 86.1 of the Income Tax Act.
The Department of Finance understands that SCA's common shares were widely held and actively traded on the NASDAQ Stockholm Exchange at the time of the distribution, that SCA distributed all of its shares of Essity immediately before the distribution, and that SCA's distribution of common shares of Essity occurred on June 15, 2017. We note that the Swedish Tax Agency Notice indicates that the distribution is not taxable under Swedish law.
Based on our understanding of the information referred to above, we are prepared to recommend to the Minister of Finance that SCA's pro rata distribution to its shareholders of the common shares of Essity on June 15, 2017 be a prescribed distribution for the purpose of section 86.1 of the Income Tax Act. While we cannot offer any assurance that our recommendation will be accepted, we trust that this information is of assistance.
As per the separate written authorizations we received from SCA and Essity on March 21, 2018, the Government of Canada intends to release this letter under the Access to Information Act without redacting the names of the parties given that Canadian shareholders who held common shares of SCA at the time of the distribution may be interested in knowing the content of this letter.
Yours sincerely,
Brian Ernewein
General Director – Legislation
Tax Policy Branch
c.c.: Ian Charpentier
International Tax Auditor
International and Large Business Directorate
Eastern Quebec Tax Services Office
Canada Revenue Agency
2575 Ste Anne boul.,
Québec, QC G1J 1Y5
