Principal Issues: Y Co. owns all the shares of two corporations that own commercial real estates in Canada which are fully leased to arm's length lessees. X Co. disposed of the shares of Y Co. Are Y Co. shares shares the value of which is derived principally from immovable property situated in Canada for the purposes of Article 13(4) of the Canada-Luxembourg tax convention?
Position: To determine whether the value of Y Co. shares is derived principally from immovable property, a consolidated basis approach would be used. Therefore the immovable properties held by the subsidiaries of Y Co. would be taken into account even if only held indirectly by Y Co.
Reasons: The look-through provision using the expression "derived from" is broader than the look-through provision using the expression "consist of", the latter expression referring to the assets being held directly by the corporation. The use by Canada of an expanded definition of immovable property to include specifically the shares of a company, the underlying value of which is derived from immovable property in some of its tax conventions is for greater certainty purposes.