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: Availability of bump in situation where non-resident purchaser incorporates Canadian Acquisitionco to purchase Canco. Canco is wound up and shares of Canco's subsidiary are bumped and distributed to non-resident purchaser.
Position: Bump is available.
Reasons: Technical requirements are met. GAAR is n/a.
XXXXXXXXXX
XXXXXXXXXX 2000-002344
XXXXXXXXXX XXXXXXXXXX
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 2000
Dear Sirs:
Re:
XXXXXXXXXX ("Buyco")
XXXXXXXXXX ("Target")
Advance Income Tax Ruling Request
This is in reply to your letter of XXXXXXXXXX in which you requested various advance income tax rulings on behalf of Buyco. We also acknowledge the additional information in your letters of XXXXXXXXXX.
We understand that, to the best of your knowledge and that of the directors and officers of Buyco, none of the issues raised in this ruling request is (i) in an earlier return of the taxpayer or a related person, (ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person, (iii) under objection by the taxpayer or a related person, (iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, or (v) the subject of a ruling previously issued by us.
Buyco is incorporated under the laws of XXXXXXXXXX and does not carry on business in Canada. Accordingly, it does not have a business number and does not file tax returns in Canada. Target's business number is XXXXXXXXXX, its tax services office is XXXXXXXXXX and it files its income tax return with the XXXXXXXXXX Taxation Centre.
Unless otherwise noted, all statutory references are to the Income Tax Act (Canada) (the "Act").
FACTS
1. Target is a corporation incorporated under the Business Corporations Act (XXXXXXXXXX). It is a "taxable Canadian corporation" and "public corporation", as defined in subsection 89(1).
2. The authorized capital of Target consists of an unlimited number of common shares. The common shares of Target are listed for trading on the XXXXXXXXXX Stock Exchange. As at the date hereof, approximately XXXXXXXXXX shares are issued and outstanding. As a result of the exercise of stock options, approximately XXXXXXXXXX shares will be issued and outstanding immediately before the transactions described below are completed.
3. Target is a holding company and the sole shareholdder of XXXXXXXXXX (Barbco"), a corporation incorporated under the laws of XXXXXXXXXX. The Barbco shares held by Target are capital property within the meaning of that term as it is defined in the Act. Barbco, in turn, directly and indirectly owns the shares of a number of XXXXXXXXXX corporations which carry on XXXXXXXXXX (the "XXXXXXXXXX Subsidiaries"). Target does not own any other significant assets.
4. Buyco is a corporation incorporated under the laws of XXXXXXXXXX where it carries on business as a XXXXXXXXXX company. Its shares are listed on the XXXXXXXXXX Stock Exchange.
5. On XXXXXXXXXX, Buyco and Target entered into an agreement in principle concerning a possible business combination between them. The parties agreed to work towards signing definitive agreements and implementing the transactions described below. Effective XXXXXXXXXX, a definitive agreement (the "Arrangement Agreement") between Target, Buyco and Holdco (defined below) governing the terms and conditions of the transactions, and stipulating certain conditions precedent to the completion of the transactions, was concluded. In addition, lock-up agreements (which the parties called "Voting Agreements") were entered into at various times on or before XXXXXXXXXX between (i) Buyco and Holdco, and (ii) XXXXXXXXXX shareholders and/or optionholders of Target who, in the aggregate, hold approximately XXXXXXXXXX % of the shares of Target, but none of whom individually owns, directly or indirectly, or exercises control over, more than 10% of the common shares of Target. Under the terms of the lock-up agreements the XXXXXXXXXX shareholders and/or option holders will commit themselves to vote their shares of Target in favour of the continuance and plan of arrangement referred to below.
6. Buyco has recently incorporated a wholly-owned subsidiary ("Holdco") under the Business Corporations Act XXXXXXXXXX.
7. As a condition of receiving the consent of the XXXXXXXXXX to the export of the XXXXXXXXXX currency required to complete the transaction, Buyco has agreed to the "delisting/deregistering of Target's offshore entities" within XXXXXXXXXX after completion of the transactions. Accordingly, the XXXXXXXXXX Subsidiaries will be distributed to Buyco within XXXXXXXXXX after completion of the transaction.
PROPOSED TRANSACTIONS
8. The funds Holdco requires to effect its acquisition of the shares of Target will be advanced by Buyco to Holdco by way of an interest-free demand loan (the "Demand Loan") denominated in Canadian dollars. The total amount of funds advanced by Buyco to Holdco by way of the Demand Loan will be equal to the cash purchase price to be paid by Holdco to the shareholders of Target for each share of Target multiplied by the number of issued and outstanding shares of Target (the "Share Purchase Price") immediately before the plan of arrangement described below (the "Plan") becomes effective, plus certain estimated transaction costs.
9. Subject to requisite shareholder approval, Target will file articles of continuance under the XXXXXXXXXX.
10. Subject to requisite shareholder and court approval, Holdco and Target will enter into a plan of arrangement under the XXXXXXXXXX pursuant to which:
(a) Holdco will acquire all of the issued and outstanding shares of Target from its shareholders for the Share Purchase Price; and
(b) Dissenting Target shareholders will be deemed to have transferred the Target shares held by them to Holdco at the same time as the non-dissenting shareholders transfer their shares to Holdco, in consideration for a payment from Holdco equal to the fair market value of such shares.
11. Immediately after the Plan becomes effective, Target will be wound-up into Holdco pursuant to XXXXXXXXXX and all of Target's assets will be distributed to Holdco.
12. In its tax return for its taxation year in which Target was wound-up, Holdco will designate in respect of each share of Barbco acquired by it on the winding-up (and owned by Target at the time that Holdco acquired control of Target), an amount not exceeding the amount permitted by paragraph 88(1)(d).
13. Holdco will subsequently distribute the shares of Barbco to Buyco as repayment of the Demand Loan.
PURPOSE OF PROPOSED TRANSACTIONS
The general purpose of the proposed transactions is to allow Buyco to acquire the shares of the XXXXXXXXXX Subsidiaries and their assets in order to expand their business operations in XXXXXXXXXX.
More specifically, the purpose of the proposed transactions is to eliminate the offshore chain of ownership of the XXXXXXXXXX Subsidiaries. This is mandated by the XXXXXXXXXX, which, as mentioned, as a condition of allowing XXXXXXXXXX funds to be exported has required the elimination of the offshore holding company chain within XXXXXXXXXX after Target is acquired.
RULINGS
Provided that the above statements are accurate and constitute complete disclosure of all of the relevant facts, proposed transactions and purposes of the proposed transactions, we confirm the following:
(a) the cost to Holdco of the shares of Barbco acquired on the winding-up will be deemed by paragraph 88(1)(c) of the Act to be the cost amount of such shares plus the amount designated by Holdco under paragraph 88(1)(d) of the Act in respect of such Barbco shares as described in paragraph 12 hereof; and
(b) Subsection 245(2) will not be applied, as a result of the proposed transactions, in and of themselves, to redetermine the tax consequences as described in the rulings given.
These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996 and are binding provided that the proposed transactions are completed by XXXXXXXXXX.
These rulings are based on the Act as it currently reads and do not take into account any future amendments, whether currently proposed or not, to the Act. Nothing in this letter should be construed as confirmation of the tax consequences of any of the transactions described in this letter other than as specifically described.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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