2002 Ruling 2001-0112133 - Article XIII of Canada-XXXXXXXXXX Convention

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: Whether a XXXXXXXXXX is a "property, other than rental property, in which the business of the company ... is carried on" for purposes of paragraph 3 of Article XIII of the Canada-XXXXXXXXXX Income Tax Convention.

Position: Yes.

Reasons: The XXXXXXXXXX property can be said to be property "in which the business is carried on": see our previous rulings and interpretations. The XXXXXXXXXX property is not a rental property.

XXXXXXXXXX 2001-011213

XXXXXXXXXX, 2002

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX ("Parentco")
XXXXXXXXXX ("Subco")

This is in reply to your letter of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-referenced taxpayers, with respect to the restructuring of the multinational corporate group of which the taxpayers are members.

To the best of your knowledge, and that of the taxpayers named herein, none of the issues involved in this advance income tax ruling request is under objection or appeal or is being considered by any tax services office or taxation centre of the Canada Customs and Revenue Agency in connection with any income tax return already filed.

DEFINITIONS

In this letter, the following terms have the meanings specified:

(a) "Act" means the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.), as amended, and all references to a statute are to the Act, unless otherwise indicated;

(b) "Agency" means the Canada Customs and Revenue Agency;

(c) "arm's length" has the meaning assigned by Section 251;

(d) "disposition" has the meaning assigned by section 248(1) of the Act;

(e) "Forco1" refers to XXXXXXXXXX;

(f) "Forco2" refers to XXXXXXXXXX;

(g) "Forco3" refers to XXXXXXXXXX;

(h) "FMV" means fair market value;

(i) "Holdco" refers to XXXXXXXXXX;

(j) "Forco4" refers to XXXXXXXXXX;

(k) "Opco" refers to XXXXXXXXXX;

(l) "Parentco" refers to XXXXXXXXXX;

(m) "Subco" refers to XXXXXXXXXX;

(n) "taxable Canadian corporation" has the meaning assigned by subsection 248(1) (which refers to subsection 89(1));

(o) XXXXXXXXXX;

(p) "Treaty" refers to the Canada-XXXXXXXXXX Tax Convention.

FACTS

1. Parentco, Subco and Forco1 are corporations resident in, and duly constituted under, the laws of XXXXXXXXXX. Parentco and Subco own XXXXXXXXXX% and XXXXXXXXXX% respectively of all the issued and outstanding shares of Forco1.

2. Parentco owns all the issued and outstanding shares of Subco.

3. Forco4 is a corporation resident in and duly constituted under the laws of the XXXXXXXXXX. Forco4 owns XXXXXXXXXX% of all the issued and outstanding shares of Forco1.

4. Forco4 deals at arm's length with Subco, Parentco and Forco1.

5. Forco1 owns all the issued and outstanding shares of Forco2, a corporation resident in and duly constituted under the laws of XXXXXXXXXX.

6. Forco2 owns all the issued and outstanding shares in Forco3, a corporation resident in and duly constituted under the laws of the XXXXXXXXXX.

7. Forco3 owns XXXXXXXXXX% of Holdco, a taxable Canadian corporation incorporated under the laws of XXXXXXXXXX. The remaining shares of Holdco are held by XXXXXXXXXX, a corporation listed on the XXXXXXXXXX Stock Exchange which deals at arm's length with Forco4, Parentco, Subco, Forco1, Forco2 and Forco3.

8. Holdco owns all the issued and outstanding shares of Opco, a taxable Canadian corporation incorporated under the laws of XXXXXXXXXX (collectively, the "XXXXXXXXXX Assets").

9. Holdco was originally incorporated on XXXXXXXXXX, under the name XXXXXXXXXX.

10. The principal business of Holdco is the ownership of Opco and, through Opco, the XXXXXXXXXX.

11. XXXXXXXXXX.

12. The fair market value of the shares of Opco is primarily attributable to the XXXXXXXXXX Assets.

13. The only assets of Forco2 are the shares of Forco3.

14. The only assets of Forco3 are the shares of Holdco.

15. The only assets of Holdco are the shares of Opco and a loan receivable from Opco.

16. The value of the shares of Holdco, Forco3, Forco2 and Forco1 is primarily attributable to the XXXXXXXXXX Assets.

PROPOSED TRANSACTIONS

17. Subco will transfer all the issued and outstanding shares it owns in Forco1 to Parentco for FMV. The consideration for the transfer will be cash.

18. Parentco immediately after the transfer described in paragraph 17 will contribute all the issued and outstanding shares it holds in Forco1 to a wholly owned subsidiary, a XXXXXXXXXX corporation, for FMV. The consideration will be the shares of such subsidiary. For the purposes of this ruling, the transfers of the Forco1 shares described in this paragraph and paragraph 17 will be referred to collectively as the "Transfers" and individually as a "Transfer". Forco1 shares transferred in accordance with this paragraph and paragraph 17 will be referred to as the "Transferred Shares".

19. The Transfers described in paragraphs 17 and 18 will occur on consecutive days.

20. The Transfers will be dispositions for the purposes of the Act.

21. The Transfers will, for the purposes of section 115 of the Act, result in dispositions of taxable Canadian property as defined in paragraph (e) of the definition of "taxable Canadian Property" in subsection 248(1) of the Act.

22. The provisions of section 116 of the Act will apply to the Transfers.

PURPOSE OF THE PROPOSED TRANSACTIONS

23. The purpose of the Transfers is two-fold. The Transfer by Subco to Parentco will unify Forco1 in a single Parentco entity, and the Transfer by Parentco will establish a subsidiary focused solely and specifically on direct and indirect ownership of XXXXXXXXXX.

RULINGS GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and the purposes of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our rulings are as follows:

A. For purposes of subparagraph 3(a) of Article XIII of the Treaty, the property of Forco1 does not consist principally of immovable property situated in Canada by virtue of the XXXXXXXXXX Assets being property in which the business of Opco is carried on.

B. Paragraph 4 of Article XIII of the Treaty will apply such that any gain arising as a result of the Transfers will not be subject to Canadian income tax.

The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R4 dated January 29, 2001, and are binding on the CCRA provided that the proposed transactions are completed by XXXXXXXXXX.

These rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which, if enacted into law, could have an effect on the rulings provided herein. Similarly, these rulings are based on the Treaty in its present form and do not take into account any future amendments to the Treaty which, if enacted into law, could have an effect on the rulings provided herein.

Comments

Nothing in this ruling should be construed as implying that the CCRA has agreed to or reviewed the determination of the fair market value, adjusted cost base, or paid up capital of the Transferred Shares, or any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.

Yours truly,

for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch