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.
Principal Issues: Whether a non-resident investment fund (the Fund) and non-resident service provider are carrying on business in Canada through a Canco, a company related to the non-resident service provider, that provides accounting, valuation and investment services in Canada to the Fund when the non-resident service provider has contracted with the Fund to provide the services and then sub-contracted Canco to provide the services in Canada.
Position: No
Reasons: A business is carried on where the profit producing activity takes place and the profit producing activity of the Fund and the non-resident service provider are not in Canada.
XXXXXXXXXX 2004-008266
XXXXXXXXXX, 2004
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling (the "Ruling") - XXXXXXXXXX ("C Limited") and XXXXXXXXXX (the "Fund")
We are writing in response to your letters dated XXXXXXXXXX wherein you requested this Ruling on behalf of XXXXXXXXXX, C Limited and the Fund. To the best of your knowledge, and that of XXXXXXXXXX, C Limited and the Fund, none of the issues contained herein is:
i) in an earlier income tax return of XXXXXXXXXX, C Limited, the Fund or a related person;
ii) being considered by a Tax Services Office or Taxation Centre in connection with a previously filed income tax return of XXXXXXXXXX, C Limited, the Fund or a related person;
iii) under objection by XXXXXXXXXX, C Limited, the Fund or a related person;
iv) before any Court; and
v) the subject of a ruling previously considered by the Income Tax Rulings Directorate.
Definitions
1. In this Ruling, unless otherwise specified:
(a) "A&V Delegation Agreement" has the meaning stated in paragraph 21;
(b) "Accounting and Valuation Services" means those services described in paragraph 9;
(c) "Act" means the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended. All statutory references herein are to provisions of the Act unless otherwise specified;
(d) "Administration Agreement" has the meaning stated in paragraph 15;
(e) "Canco" means the Canadian corporation to be formed as described in paragraph 18;
(f) XXXXXXXXXX;
(g) "Investor Services" means those services described in paragraph 10;
(h) "IS Delegation Agreement" has the meaning stated in paragraph 20; and
(i) "N Limited" means XXXXXXXXXX.
Facts
2. XXXXXXXXXX is a corporation governed by the laws of XXXXXXXXXX with its head office in XXXXXXXXXX is not resident in Canada and does not have an office in Canada.
3. XXXXXXXXXX.
4. C Limited is a XXXXXXXXXX company and is a wholly-owned subsidiary of XXXXXXXXXX. It has an office in XXXXXXXXXX. C Limited is not resident in Canada for purposes of the Act. None of the directors of C Limited are resident in Canada for purposes of the Act, no meetings of the board of directors of C Limited are held in Canada and C Limited has no office or physical presence in Canada.
5. N Limited is XXXXXXXXXX company incorporated under the laws of XXXXXXXXXX and is a wholly-owned subsidiary of XXXXXXXXXX. It has an office in XXXXXXXXXX.
6. XXXXXXXXXX directly and indirectly through its subsidiaries carries on four principal businesses, being XXXXXXXXXX has operations in XXXXXXXXXX countries and territories.
7. The XXXXXXXXXX business is the largest of XXXXXXXXXX's businesses, XXXXXXXXXX. The XXXXXXXXXX business includes the provision of the following services to investment funds: XXXXXXXXXX accounting and valuation, XXXXXXXXXX investor services XXXXXXXXXX.
8. In the XXXXXXXXXX business, XXXXXXXXXX and its subsidiaries currently provide XXXXXXXXXX services to many different types of investment funds, XXXXXXXXXX. These funds are typically formed in offshore XXXXXXXXXX jurisdictions. XXXXXXXXXX.
9. Accounting and Valuation Services include the following:
(a) preparing and maintaining all customary financial and accounting books in accordance with the established accounting principles applicable to the fund;
(b) making books and records available to auditors and answering questions with respect thereto;
(c) preparing interim and annual financial statements for the fund;
(d) computing the market value of the assets and net asset value of the fund held by the fund each month;
(e) calculating proceeds for the redemption of shares or other interests of the fund;
(f) calculating the amount of dividends or distributions that may be paid by the fund in accordance with guidelines provided by the fund;
(g) calculating the fees payable by the fund;
(h) preparing monthly reports containing statements of net assets and liabilities, operations, changes in net assets and subsidiary or detailed reports, as may be requested by the fund;
(i) calculating and accounting for all necessary allocations of a fund such as profit and loss allocations, incentive fee allocations and management fee allocations; and
(j) any other accounting and accounting related functions incidental to the foregoing.
10. Investor Services include the following:
(a) creating and maintaining the register of investors of the fund;
(b) processing subscriptions, redemptions and transfer requests for shares or interests in the fund;
(c) monitoring compliance with anti-money laundering rules,
(d) maintaining capital accounts for the general and limited partners for funds which are limited partnerships based on information provided by the fund; and
(e) mailing or electronically delivering notices and statements to investors in the fund.
11. The Fund is an XXXXXXXXXX incorporated in XXXXXXXXXX under the laws of the XXXXXXXXXX. The registered office of the Fund is in XXXXXXXXXX. The Fund is not resident in Canada for purposes of the Act. The Fund is an investment fund the objective of which is to achieve returns primarily through investments in XXXXXXXXXX.
12. The board of directors of the Fund has the general authority to operate the business of the Fund. The board of directors of the Fund is comprised of XXXXXXXXXX directors. XXXXXXXXXX of the directors are resident in XXXXXXXXXX. None of the directors of the Fund are resident in Canada for purposes of the Act, no meetings of the board of directors of the Fund are held in Canada and the Fund has no office or physical presence in Canada.
13. Shares of the Fund are offered in XXXXXXXXXX and subscribers must meet certain suitability requirements. The minimum initial investment is XXXXXXXXXX $XXXXXXXXXX, subject to increase or decrease by the board of directors in its discretion. Shares of the Fund are redeemable on a XXXXXXXXXX basis. While the Fund was not formed for the purposes of marketing to Canadian investors nor does it specifically target Canadian investors, there are some Canadian investors who hold shares of the Fund.
14. The Fund has retained XXXXXXXXXX, as investment adviser XXXXXXXXXX is not resident in Canada for purposes of the Act. None of the directors of XXXXXXXXXX is resident in Canada for purposes of the Act, no meetings of the board of directors of XXXXXXXXXX are held in Canada and XXXXXXXXXX has no office or physical presence in Canada.
15. Pursuant to an administration agreement dated XXXXXXXXXX between the Fund and C Limited (the "Administration Agreement") (a copy of which was provided to us), the Fund retained C Limited to provide XXXXXXXXXX certain administrative services to the Fund, including, but not restricted to, Accounting and Valuation Services and Investor Services. Under the Administration Agreement, C Limited is to be paid fees for its services XXXXXXXXXX. In addition, C Limited is entitled to be reimbursed for all reasonable out-of-pocket expenses incurred by it in carrying out its duties under the Administration Agreement. Under the Administration Agreement, C Limited is permitted to delegate its duties under the Administration Agreement to others, including to companies with which it is associated.
16. Pursuant to a delegation agreement dated XXXXXXXXXX between C Limited and XXXXXXXXXX (the "XXXXXXXXXX Delegation Agreement") (a copy of which was provided to us), C Limited delegated to XXXXXXXXXX, and XXXXXXXXXX agreed to provide to the Fund, the Investor Services that C Limited is required to provide under the Administration Agreement. The XXXXXXXXXX Delegation Agreement can be terminated in certain circumstances including by either party giving to the other not less than XXXXXXXXXX days' notice in writing (or such shorter notice as the parties agree).
17. Pursuant to a delegation agreement dated XXXXXXXXXX between C Limited and N Limited (the "N Delegation Agreement") (a copy of which was provided to us), C Limited delegated to N Limited, and N Limited agreed to provide to the Fund, the Accounting and Valuation Services that C Limited is required to provide under the Administration Agreement. The N Delegation Agreement can be terminated in certain circumstances including by either party giving to the other not less than XXXXXXXXXX days' notice in writing (or such shorter notice as the parties agree).
Proposed Transactions
18. One of the direct or indirect subsidiaries of XXXXXXXXXX will incorporate a Canadian corporation ("Canco"). XXXXXXXXXX. Canco will have an office in XXXXXXXXXX and is initially expected to employ approximately XXXXXXXXXX people, all of whom will be situated in the XXXXXXXXXX office.
19. The business of Canco will initially be to provide Investor Services to XXXXXXXXXX investment funds which are clients of XXXXXXXXXX. It is intended that Canco's business will also include the provision of Accounting and Valuation Services to XXXXXXXXXX investment funds. In addition, Canco may in the future provide Investor Services and Accounting and Valuation Services to investment funds that are resident in XXXXXXXXXX. Canco will provide all such services on its own behalf (and not as an agent of XXXXXXXXXX or any of its affiliates) pursuant to either (i) contracts entered into directly with an investment fund or (ii) delegation agreements as described in paragraphs 20 and 21 below.
20. C Limited will provide XXXXXXXXXX with notice of termination of XXXXXXXXXX Delegation Agreement pursuant to the terms of that agreement. As of the date of such termination, C Limited will enter into a delegation agreement with Canco (the "IS Delegation Agreement"), on terms similar to those in the XXXXXXXXXX Delegation Agreement, pursuant to which Canco will agree to provide Investor Services to the Fund. Pursuant to the IS Delegation Agreement, Canco will have no right to directly affect the legal relations of C Limited as regards to other persons and will have no authority to make contracts on behalf of C Limited. For its services, Canco will be paid by C Limited a fee for its services XXXXXXXXXX.
21. XXXXXXXXXX, C Limited will provide N Limited with notice of termination of the N Delegation Agreement pursuant to the terms of that agreement. As of the date of such termination, C Limited will enter into a delegation agreement with Canco (the A&V Delegation Agreement"), on terms similar to those in the N Delegation Agreement, pursuant to which Canco will agree to provide Accounting and Valuation Services to the Fund. Pursuant to the A&V Delegation Agreement, Canco will have no right to directly affect the legal relations of C Limited as regards to other persons and will have no authority to make contracts on behalf of C Limited. For its services, Canco will be paid by C Limited a fee for its services XXXXXXXXXX .
Purpose of Proposed Transactions
22. The purpose of the proposed transactions is to enable XXXXXXXXXX, through Canco, a Canadian subsidiary, to provide Investor Services and, XXXXXXXXXX, Accounting and Valuation Services to non-Canadian clients (although such services might later be provided by Canco directly to XXXXXXXXXX has experienced XXXXXXXXXX in connection with the provision of Investor Services. XXXXXXXXXX and XXXXXXXXXX have determined that XXXXXXXXXX, is a large source of Canadian individuals who are knowledgeable and experienced in the industry, and desire to establish Canco, with an office and employees in XXXXXXXXXX, to provide some of the Investor Services that XXXXXXXXXX and its affiliates would otherwise provide, and some of the Accounting and Valuation Services that would otherwise be provided by XXXXXXXXXX.
Ruling Given
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions, and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, we rule that the provision of Investor Services and Accounting and Valuation Services by Canco to the Fund under the IS Delegation Agreement and the A&V Delegation Agreement will not, in and by itself, cause the Fund or C Limited to be carrying on business in Canada for the purposes of paragraph 2(3)(b), subsection 115(1) or Part XIV of the Act.
The ruling is given subject to the general limitations and qualifications stated in Information Circular 70-6R5 dated May 17, 2002, and is binding on the CRA provided that the proposed transactions are completed by XXXXXXXXXX. The above ruling is based on the Act in its present form and does not take into account any proposed amendments to the Act.
Nothing in this Ruling should be construed as implying that the CRA has agreed to or reviewed any tax consequences relating to the facts and proposed transactions other than those specifically set out in the Ruling Given. Specifically, nothing in this Ruling should be construed as implying that the CRA has agreed to or reviewed any of XXXXXXXXXX, or more particularly, the application of section 247 of the Act.
Yours truly,
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2004
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2004
Email this Content