2008 Ruling 2008-0280791R3 - Entity Classification

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 proposed XXXXXXXXXX cooperative will be treated as a corporation for purposes of the Act.

Position: Yes.

Reasons: The provisions of the foreign legislation and the articles creating the cooperative support the conclusion that this cooperative will be treated as a corporation for purposes of the Act.

XXXXXXXXXX 								2008-028079

XXXXXXXXXX , 2008

Dear XXXXXXXXXX :

Re: Advance Income Tax Ruling
XXXXXXXXXX
XXXXXXXXXX

This is in response to your XXXXXXXXXX request for an advance income tax ruling on behalf of the above taxpayers. We acknowledge receipt of the additional information provided to us in various telephone conversations (XXXXXXXXXX ). In accordance with our conversations, this advance income tax ruling request is restricted to the proposed formation of DC. The remainder of the proposed transactions described in your advance income tax ruling request will be considered in the context of a separate advance income tax ruling request.

Unless otherwise stated, all statutory references herein are to the Income Tax Act, R.S.C. 1985, c.1, (5th Supplement) (the "Act"), as amended to the date of this advance income tax ruling.

The rulings given herein are based solely on the facts, proposed transactions and purposes of the proposed transactions described below. Facts and proposed transactions described in the documents submitted with your request that are not set out below do not form part of the facts and proposed transactions on which this ruling is based and any reference to these documents is provided solely for the convenience of the reader.

Our understanding of the facts, proposed transactions and the purposes of the proposed transactions is as follows:

Definitions

(a) "Parent" means XXXXXXXXXX ;

(b) "Canco" means XXXXXXXXXX .;

(c) "Holdco" means XXXXXXXXXX ;

(d) "Subco" means XXXXXXXXXX .;

(e) "DC" means XXXXXXXXXX .;

(f) "Group" means Parent, Holdco, Subco, Canco, all of the foreign affiliates and controlled foreign affiliates of Parent, Holdco, Subco and Canco and the Partnership;

(g) "Partnership" means the XXXXXXXXXX ;

(h) "Articles" means the articles, described in paragraph 8 below, attached to the notarial deed creating DC;

(i) "CRA" means the Canada Revenue Agency;

(j) "CBCA" means the Canada Business Corporations Act;

(k) XXXXXXXXXX

(l) "Exchanges" means the XXXXXXXXXX ;

(m) "Foreign Country" means XXXXXXXXXX ;

(n) "Foreign Legislation" means the XXXXXXXXXX ;

(o) "controlled foreign affiliate" has the meaning assigned by subsection 95(1) of the Act;

(p) "corporation" has the meaning assigned by subsection 248(1) of the Act;

(q) "foreign affiliate" has the meaning assigned by subsection 95(1) of the Act;

(r) "paid-up capital" has the meaning assigned by subsection 89(1) of the Act;

(s) "public corporation" has the meaning assigned by subsection 89(1) of the Act;

(t) "related persons" has the meaning assigned by subsection 251(2) of the Act;

(u) "share" has the meaning assigned by subsection 248(1) of the Act;

(v) "subsidiary wholly-owned corporation" has the meaning assigned by subsection 248(1) of the Act; and

(w) "taxable Canadian corporation" has the meaning assigned by subsection 89(1) of the Act.

Facts

1. Parent is a taxable Canadian corporation incorporated pursuant to the provisions of the CBCA. Parent is a public corporation whose shares are listed and trade on the Exchanges. Parent's business consists of the XXXXXXXXXX . Parent carries on an active business in Canada and outside of Canada through directly and indirectly owned subsidiaries. Parent's tax affairs are administered by the XXXXXXXXXX Tax Services Office and it files its tax returns at the XXXXXXXXXX Taxation Centre under Business Account Number XXXXXXXXXX .

2. Holdco is a corporation incorporated pursuant to the provisions of the CBCA. Holdco is a subsidiary wholly-owned corporation of Parent and a taxable Canadian corporation. Holdco's business consists of the XXXXXXXXXX . Holdco also owns the shares of certain foreign affiliates and controlled foreign affiliates within the Group. Holdco's tax affairs are administered by the XXXXXXXXXX Tax Services Office and it files its tax returns at the XXXXXXXXXX Taxation Centre under Business Account Number XXXXXXXXXX .

3. Canco is a corporation incorporated pursuant to the provisions of the XXXXXXXXXX . Canco is a subsidiary wholly-owned corporation of Parent and a taxable Canadian corporation. Canco is a holding company that owns the shares of certain foreign affiliates and controlled foreign affiliates within the Group.

4. Subco is a corporation incorporated pursuant to the provisions of the XXXXXXXXXX . Subco is a subsidiary wholly-owned corporation of Holdco and a taxable Canadian corporation.

5. To the best of your knowledge and that of Parent, Holdco, Canco and Subco, none of the issues involved in this ruling letter:

(i) is in an earlier return of Parent, Holdco, Canco or Subco or any related persons of Parent, Holdco, Canco or Subco,

(ii) is being considered by a tax services office or taxation centre in connection with a previously filed tax return of Parent, Holdco, Canco or Subco or any related persons of Parent, Holdco, Canco or Subco,

(iii) is under objection by Parent, Holdco, Canco or Subco or any related persons of Parent, Holdco, Canco or Subco, or

(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired.

Proposed Transactions

6. Parent and Subco will form DC as a cooperative pursuant to the provisions of the Foreign Legislation. DC will be established by a notarial deed pursuant to the Foreign Legislation and will be registered with the appropriate "commercial register" in the Foreign Country. Upon registration of the notarial deed with the "commercial register", the Foreign Legislation will recognize DC as a legal entity that exists separate and apart from Parent and Subco. Parent and Subco will each contribute a nominal amount as their initial capital contribution to DC.

7. Pursuant to the Foreign Legislation:

(a) with respect to the law of property, rights and interests, DC will be considered to be equivalent to a natural person;

(b) subject to the restrictions under its articles, the board of directors will be charged with the management of DC; and

(c) where the articles of DC so provide, the board of directors will have the authority to commit or otherwise bind DC to agreements and/or undertakings.

8. The Articles of DC will include the following:

(a) DC will carry on its business in its own name, for its own account and at its own risk.

(b) The members of DC will enter into a "Contribution Agreement" with DC and will make capital contributions to DC in accordance with the terms of the "Contribution Agreement". DC will maintain a separate capital account for each member. The capital account of a member may be repaid, in whole or in part, with the approval of all of the other members of DC.

(c) Admission of new members requires the unanimous consent of all existing members of DC and is subject to, and conditional upon, the new member entering into a "Contribution Agreement" with DC.

(d) Membership in DC is only transferable upon unanimous approval by all of the other members of DC. A notarial deed will be required to give effect to the transfer and written notification thereof must be provided to DC.

(e) The management of, and each director of, DC will have the authority to represent DC.

(f) All members, if not suspended, will be entitled to attend any general meeting of members and shall be entitled to vote thereat. The number of votes that a member may cast at a general meeting of members will be equal to the ownership percentage in DC held by such member.

(g) The retained profits of DC will be available to DC for its use unless the members, at a general meeting, vote to distribute all, or a portion of, such retained profits. Any distribution of retained profits will require a unanimous resolution by all members of DC. If a vote to distribute retained profits ends in a tie, there will be no distribution of retained profits. With the exception of retained profits that were allocated, but not paid, to former members, the distribution of any retained profits will be proportional to the ownership percentage of each member of DC at the time of such distribution.

(h) Members and former members of DC will not be liable for any debts or losses incurred by DC that are in excess of their required contributions to the capitalization of DC.

Purposes of the Proposed Transactions

9. The creation of DC will enable Parent and Holdco to re-structure and centralize their foreign business operations under a single holding company, being DC.

10. The utilization of DC as a holding company will facilitate a more tax-efficient repatriation of funds from DC to Parent and Subco as DC will not be required to withhold any tax in the Foreign Country on any dividends paid to Parent or Subco.

Rulings

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

A. DC, being formed in accordance with the Foreign Legislation and having as its articles the terms outlined in paragraph 8 above, will be treated as a corporation for purposes of the Act.

B. In accordance with the comments contained in paragraph 3 of Interpretation Bulletin IT-392, DC will be considered to have a capital stock of 100 issued shares. At the time of DC's formation, the number of shares that Parent and Subco will each be considered to own will be proportional to their beneficial interest in DC at that time.

C. By virtue of paragraph (b) of the definition of paid-up capital, the initial paid-up capital of the share capital of DC, as described in Ruling B, will be the amount, as described in paragraph 6 above, received by DC in respect of such share capital.

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5, issued by the CRA on May 17, 2002, and are binding on the CRA provided that the proposed transactions are completed before XXXXXXXXXX .

Except as expressly stated, this advance income tax ruling does not imply acceptance, approval or confirmation of any other income tax implications of the facts or proposed transactions described herein.

The above-noted 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, could have an effect on the rulings provided herein.

Yours truly,

XXXXXXXXXX
for Director
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch