2009 Ruling 2009-0307001R3 - Carrying on Business in Canada

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 Canco's provision of the XXXXXXXXXX services will result in the Partnership being considered to be carrying on business in Canada.

Position: No.

XXXXXXXXXX 							2009-030700

XXXXXXXXXX , 2009

Dear XXXXXXXXXX :

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in response to your XXXXXXXXXX request for an advance income tax ruling on behalf of the above. We acknowledge receipt of the additional information provided to us in your XXXXXXXXXX e-mails and in our various telephone conversations (XXXXXXXXXX ).

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 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 purpose of the proposed transactions is as follows:

Definitions

(a) "Partnership" means XXXXXXXXXX ;

(b) "Parent" means XXXXXXXXXX .;

(c) "Canco" means the newly formed Canadian subsidiary of Parent described in paragraph 3 below;

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

(e) "Foreign Country 1" means XXXXXXXXXX ;

(f) "Foreign Country 2" means the XXXXXXXXXX ;

(g) "Foreign Countries" means XXXXXXXXXX ;

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

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

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

Facts

1. The Partnership was formed as a partnership in Foreign Country 1 and carries on business as a XXXXXXXXXX . The Partnership provides XXXXXXXXXX services in respect of the XXXXXXXXXX Foreign Countries, XXXXXXXXXX . The Partnership does not have any offices or employees in Canada, does not sign or negotiate any of its contracts in Canada, does not solicit or offer anything for sale in Canada and does not engage in any other profit-producing activity in Canada.

2. Parent is a holding company incorporated under the laws of Foreign Country 2. All of the issued and outstanding shares of Parent are owned indirectly by the Partnership. Parent does not carry on business in Canada.

Proposed Transactions

3. Parent will incorporate Canco. Canco will be a taxable Canadian corporation and a subsidiary wholly-owned corporation of Parent. Canco will carry on a XXXXXXXXXX business in Canada.

4. Although the Partnership and its direct and indirect affiliates located outside of Canada will have XXXXXXXXXX in other countries, the Partnership will use Canco to set up its main XXXXXXXXXX in Canada. The Partnership will then enter into a XXXXXXXXXX agreement with Canco. Pursuant to the XXXXXXXXXX agreement, Canco will provide XXXXXXXXXX services to the Partnership and its direct and indirect affiliates located outside of Canada including XXXXXXXXXX (the "XXXXXXXXXX Services"). Canco will receive a commercially reasonable fee for the XXXXXXXXXX Services it provides.

5. The Partnership will initially send some of its employees to Canada for a short period of time (approximately XXXXXXXXXX weeks) to facilitate the start-up of the operations of Canco. Once the operations of Canco are put into place, no employees of the Partnership will remain in Canada or be involved in the day-to-day activities of Canco. Canco will thereafter employ Canadian residents to perform the XXXXXXXXXX Services. Canco will hire a resident of Canada to be its manager. The manager of Canco will have full responsibility for the Partnership's XXXXXXXXXX operations and will report directly to the Partnership. The manager will attend management team meetings in Foreign Country 1 and be involved in management discussions by telephone from Canada. The manager will have no involvement in the business decisions of the Partnership.

6. The Partnership will not:

• sign or negotiate any contracts in Canada;
• engage in any profit-producing activity in Canada;
• have an agent present in Canada who has the authority to conclude contracts on its behalf;
• solicit or offer anything for sale in Canada through Canco;
• use the offices of Canco to conduct any business in Canada; or
• appoint Canco as its agent.

7. Canco will generate its own profits and will not:

• offer anything for sale in Canada on behalf of the Partnership;
• undertake any marketing activities in Canada on behalf of the Partnership; or
• be an agent of the Partnership.

8. To the best of your knowledge and that of Parent and the Partnership, none of the issues involved in this ruling letter:

(i) is in an earlier return of any related persons of Parent,

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

(iii) is under objection by any related persons of Parent, 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.

Purpose of the Proposed Transactions

9. Canco's use of Canada's XXXXXXXXXX will enable the Partnership and its direct and indirect affiliates located outside of Canada to realize significant simplification in its worldwide XXXXXXXXXX and the management thereof.

Rulings

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

A. Canco's provision of the XXXXXXXXXX Services, in and by itself, will not cause the Partnership to be carrying on business in Canada for the purposes of paragraph 2(3)(b) or subsection 115(1) of the Act.

This ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R5, issued by the CRA on May 17, 2002, and is binding on the CRA provided that the proposed transactions are commenced 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. For greater certainty, nothing in this ruling should be construed as implying that the CRA:

(a) has reviewed, or agreed to, the reasonableness of the fees that will be paid by the Partnership to Canco with respect to the XXXXXXXXXX Services described in paragraph 4 above; or

(b) has reviewed, or agreed to, the application of section 247 of the Act to the fees that will be paid by the Partnership to Canco with respect to the XXXXXXXXXX Services described in paragraph 4 above.

The above-noted ruling is based on the Act in its present form and does not take into account any proposed amendments to the Act which, if enacted, could have an effect on the ruling provided herein.

Yours truly,

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