21 December 2007 External T.I. 2006-0181021E5 - Meaning of disposition

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 the conversion of a French Société à responsabilité limitée into a French Société par actions simplifiée will result in a disposition of its shares held by a Canadian taxpayer.

Position: Depends on whether the conversion results in a "disposition" within the meaning assigned by subsection 248(1) or within the general meaning of that term.

Reasons: The law

								2006 - 018102
XXXXXXXXXX 							D. Zhang
(613) 957-2104
December 21, 2007

Dear XXXXXXXXXX:

Re: Conversion of a French corporation

We are writing in response to your letter of April 7, 2006 in which you requested our comments on whether the conversion of a French Société à responsabilité limitée ("SARL") into a French Société par actions simplifiée ("SAS") will result in the disposition of its shares held by a Canadian taxpayer. We apologize for the delay in replying.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Ruling", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the Internet at http://www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office, a list of which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following general comments.

The term "disposition" is defined in subsection 248(1) of the Income Tax Act (Canada) to include (except as expressly otherwise provided) any transaction or event by which a share is redeemed in whole or in part or is cancelled.¹ In addition, as discussed in Interpretation Bulletin IT-448, "Dispositions - Changes in Terms of Securities", various changes in the terms attached to a share may give rise to a disposition of the share.

As you noted in your letter, we have previously opined that the conversion of a French Société anonyme into a French SAS would not result in a disposition of the shares of the converted entity held by a Canadian taxpayer (see documents E 2005-0109741 and E 2002-0132163).

The conversion of a SARL into an SAS would result in the disposition of the shares held by the SARL shareholders if the conversion results in a "disposition" of those shares as that term as defined in subsection 248(1) or if the rights attached to the SARL shares are modified as a consequence of the conversion. To determine if a disposition occurs, we would require more information on the conversion process and the legal implications of the conversion to the SARL shareholders. In this respect, we would be pleased to address this issue in the context of an advance income tax ruling wherein we would be able to assess all of the relevant information, including the provisions of the law under which the conversion occurs. Information Circular 70-6R5 explains, among other things, how to apply for an advance income tax ruling.

We trust that these comments are of assistance.

Yours truly,

Daryl Boychuk
For Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
ENDNOTES

¹ Under proposed amendments to the definition "disposition" (applicable after December 23, 1998) a disposition of a share would be considered to occur (except as expressly otherwise provided) if the share is "in whole or in part redeemed, acquired or cancelled".