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.
Principal Issues:
Paragraph 4 of Article 13 of the Canada-Netherlands Treaty - resource property
Position:
Resource property comes within the exclusion for property in which the business of the company is carried on if the property is actively exploited or held for future exploitation. The exception applies on a look-through basis.
Reasons:
See G. Arsenault's Position paper dated January 23, 1991 (9011711), and the 3 rulings: E9633803 - XXXXXXXXXX , 3-952821 - XXXXXXXXXX and E940304 - XXXXXXXXXX on same issue.
XXXXXXXXXX
XXXXXXXXXX 2000-001575
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 2000
Dear Sirs/Mesdames:
Re: XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Ruling
This is in reply to your letter dated XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above-referenced taxpayers. We also acknowledge the additional information you provided to us in your facsimile transmissions of XXXXXXXXXX.
All references herein to section or components thereof are to the Income Tax Act S.C. 1970-71-72, c.63 as amended consolidated to June 10, 1993 (the "Act") unless otherwise indicated, and all terms used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
Facts
1. XXXXXXXXXX is a taxable Canadian corporation incorporated on XXXXXXXXXX under the Business Corporations Act (Canada). XXXXXXXXXX is actively engaged in the acquisition, exploration and development of oil and gas properties in Canada.
2. XXXXXXXXXX is a wholly owned subsidiary of XXXXXXXXXX and was acquired by XXXXXXXXXX. is a corporation incorporated in The Netherlands on XXXXXXXXXX, and is resident in The Netherlands for purposes of the Canada-Netherlands Income Tax Convention (1986), as amended (the "Convention"). XXXXXXXXXX is wholly-owned by XXXXXXXXXX has its head office in XXXXXXXXXX does not carry on business in Canada nor does it have a permanent establishment in Canada for purposes of the Convention.
3. XXXXXXXXXX issued and outstanding share capital consists of XXXXXXXXXX common voting shares ("common shares"). The common shares have a paid up capital of $XXXXXXXXXX. The adjusted cost base to XXXXXXXXXX of the XXXXXXXXXX common shares is $XXXXXXXXXX holds the common shares of XXXXXXXXXX as capital property for purposes of the Act.
4.
XXXXXXXXXX
5. XXXXXXXXXX asset base, tax pools and liabilities have not changed significantly since XXXXXXXXXX, nor will there be any significant changes prior to the completion of the proposed transactions noted below.
6. XXXXXXXXXX anticipates that the fair market value of its shares in XXXXXXXXXX (that is, the selling price) will be about $XXXXXXXXXX.
7. XXXXXXXXXX is actively engaged in the exploitation of oil and gas and its oil and gas assets are actively exploited or kept for future exploitation. Approximately XXXXXXXXXX% of XXXXXXXXXX income is generated from oil and gas working interests and royalties. XXXXXXXXXX employs XXXXXXXXXX full-time employees and retains XXXXXXXXXX consultants in the carrying on of its oil and gas business in Canada.
8. As described in paragraph 4 above, more than XXXXXXXXXX% of the value of the XXXXXXXXXX common shares is derived principally from Canadian oil and gas properties, cash and term deposits and accounts receivable.
9. The value of any assets of XXXXXXXXXX that are leased or rented to third parties or related parties is immaterial to the issues dealt with in this ruling request. As well, the value of any assets of XXXXXXXXXX which are either redundant or in excess of current business requirements are immaterial to the issues dealt with in this ruling request.
10. To the best of the knowledge of XXXXXXXXXX and your knowledge, none of the issues involved in this ruling:
i. is in an earlier return of XXXXXXXXXX or a related person;
ii. is being considered by a tax services office or taxation centre in connection with a previously filed tax return of XXXXXXXXXX of a related person;
iii. is under objection by XXXXXXXXXX or a related person; or
iv. is before the courts or, if a judgement has been issued, the time limit for appeal to a higher court has not expired.
Proposed Transactions
11. XXXXXXXXXX proposes to dispose of all of the shares of XXXXXXXXXX to a successful bidder. Prospective purchasers will be entitled to submit bids to XXXXXXXXXX for the acquisition of the shares of XXXXXXXXXX until approximately XXXXXXXXXX. It is anticipated that a purchaser will be selected by XXXXXXXXXX for a possible closing date for the share sale of XXXXXXXXXX.
12. The requirements of section 116 will be complied with by XXXXXXXXXX.
Purpose of Proposed Transactions
XXXXXXXXXX wishes to divest itself of its Canadian interests which consist of its shareholdings in XXXXXXXXXX.
Ruling Given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and the purpose of the proposed transactions and provided that the proposed transactions are completed in the manner described above, the following ruling is given:
A. For the purposes of paragraph 4 of Article 13 of the Convention, the Canadian oil and gas properties owned by XXXXXXXXXX are property (other than rental property) in which the business of XXXXXXXXXX is carried on. Therefore, provided that the value of those assets and other assets in which the business of XXXXXXXXXX is carried on is more than 50% of the value of the total assets of XXXXXXXXXX, the common shares of XXXXXXXXXX do not constitute immoveable property situated in Canada under paragraph 4(a) of the Convention and consequently, XXXXXXXXXX will not be subject to Canadian income tax on the disposition of the common shares of XXXXXXXXXX.
The above ruling is given subject to the general limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996, and is binding on the Canada Customs and Revenue Agency (the "Agency") provided that the proposed transaction is completed by XXXXXXXXXX.
This ruling is based on the Act in its present form and does not take into account any proposed amendments to the Act which, if enacted into law, could have an effect on the ruling provided herein.
Nothing in this ruling should be construed as implying that the Agency has agreed to or reviewed any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the ruling given above. In particular, we are not commenting on:
(i) the determination of the fair market value of any property referred to herein, or
(ii) the adjusted cost base or PUC of any shares referred to herein.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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