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: Characterization of an Irish CCF for purposes of the Act
Position: A contractual arrangement between the investors and the manager of the CCF
Reasons: The investors maintain an undivided co-ownership interest in the property held by the CCF
XXXXXXXXXX , 2010
Dear XXXXXXXXXX :
Re: Advance Income Tax Ruling Request
This is in response to your XXXXXXXXXX request for an advance income tax ruling on behalf of Canco and the trusts that hold and administer the registered pension plans on behalf of Canco and companies related to Canco.
To the best of your knowledge and that of Canco and the trusts, none of the issues included in this ruling is:
(i) dealt with in an earlier return of Canco or any persons related to Canco,
(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of Canco or any persons related to Canco,
(iii) under objection by Canco or any persons related to Canco, or
(iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired.
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 the purpose 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.
(a) "Administrator" means XXXXXXXXXX ;
(b) "Canco" means XXXXXXXXXX ;
(c) "Common Contractual Fund" or "CCF" means a common contractual fund authorised by the Financial Regulator under the Investment Funds, Companies and Miscellaneous Provisions Act 2005 (Ireland), as amended, supplemented or consolidated from time to time, and meeting the conditions set out in Section 739I of the Taxes Consolidation Act (Ireland);
(d) "CRA" means the Canada Revenue Agency;
(e) "Custodian" XXXXXXXXXX or any successor thereto approved by the Financial Regulator as custodian of the Fund or its Sub-Funds;
(f) "Custody Agreement" means the agreement to be entered into between the Manager and the Custodian as amended, supplemented or otherwise modified from time to time in accordance with the requirements of the Financial Regulator;
(g) "Deed of Constitution" means the contract entered into between the Manager and the Custodian providing for the constitution of the Fund;
(h) XXXXXXXXXX ;
(i) "Financial Regulator" means the Irish Financial Services Regulatory Authority or any successor regulatory authority with responsibility for authorising and supervising CCFs;
(j) "Foreign Countries" means the XXXXXXXXXX ;
(k) "Foreign Country" means the XXXXXXXXXX ;
(l) "Foreign Jurisdiction" means XXXXXXXXXX ;
(m) "Foreign Parent" means XXXXXXXXXX ;
(n) "Fund" means the XXXXXXXXXX ;
(o) "Investors" means pension funds of Parent or companies related to Parent;
(p) "Manager" means XXXXXXXXXX or any successor thereto duly appointed with the prior approval of the Financial Regulator as manager of the Fund and each Sub-Fund;
(q) "non-resident" has the meaning assigned by subsection 248(1) of the Act;
(r) "Parent" means XXXXXXXXXX ;
(s) "Portfolio" means XXXXXXXXXX ;
(t) "Predecessor" means XXXXXXXXXX ;
(u) "Principal Money Manager" means XXXXXXXXXX ;
(v) "Prospectus" means the prospectus pursuant to which a Unitholder will acquire their units in the Fund or a Sub-Fund;
(w) "Regulations" means the Income Tax Regulations, C.R.C., c. 95, as amended;
(x) "Subco" means XXXXXXXXXX ;
(y) "Sub-Fund(s)" means each of, or all of, the Portfolios that will be established by the Manager in accordance with section XXXXXXXXXX of the Deed of Constitution;
(z) "Sub-Fund Unit(s)" or "Unit(s)" means a unit of account, representing a proportionate undivided co-ownership interest in the assets of a Sub-Fund, as tenants in common with the other Unitholders, and includes any fraction of a Unit. Sub-Fund Units may be further divided into different classes. Sub-Fund Units serve to identify the proportion of the property of a Sub-Fund which each Unitholder owns;
(aa) "Tax Treaty" has the meaning assigned by subsection 248(1) of the Act;
(bb) "TCA" means the Taxes Consolidation Act (Ireland), 1997 as amended;
(cc) "TLCA" means the Trust and Loan Companies Act (Canada); and
(dd) "Unitholder(s)" means any person holding units of a Sub-Fund or, where appropriate, holding a particular class of Sub-Fund Units, including any person who is a joint holder of a Sub-Fund Unit, as long as that person is legally entitled to an undivided co-ownership interest with the other holder in the property of the Sub-Fund.
1. Parent is a corporation formed under the laws of the Foreign Country. Parent provides XXXXXXXXXX services. The shares of Parent trade on the XXXXXXXXXX .
2. Canco is a company formed upon the amalgamation of Predecessor and Canco and continued thereafter under the laws of the TLCA. All of the issued and outstanding shares of Canco are indirectly owned by Parent. Canco provides XXXXXXXXXX services to its clients.
3. CCFs are governed by Irish law Statutory Instrument dated 29 May, 2003 S.I. No. 211 of 2003, the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2003 and The Investment Funds, Companies and Miscellaneous Act, 2005 (the "Regulations"). This legislation provides that a CCF is a collective investment undertaking that is not a corporate entity or a trust but rather a contractual arrangement under which the unitholders of the CCF participate in the co-ownership of property.
4. A CCF is established by a deed of constitution that must be approved by and filed with the Financial Regulator. The provisions of the deed of constitution are considered to have been accepted by unitholders of the CCF as a term of the acquisition of the units. Irish law sets out the basic provisions which must be included in the deed of constitution.
5. Subsection 739I of the TCA, as amended by the Finance Act 2003 (Ireland), governs the taxation of CCFs. In particular, income, gains and losses in relation to the investment undertaking shall be treated as arising or accruing to each unitholder of the CCF in proportion to the property of the CCF that is owned by the unitholder.
6. The Fund is an umbrella CCF constituted on XXXXXXXXXX by the Deed of Constitution. XXXXXXXXXX . To date, no units have been issued in respect of the Fund or a Sub-Fund and no property has been acquired by the Fund or a Sub-Fund. Neither the Fund nor any of the Sub-Funds have separate legal personality.
7. The Manager was incorporated in Ireland as a limited liability company on XXXXXXXXXX and is a non-resident. The registered office of the Manager is located in XXXXXXXXXX . Foreign Parent indirectly owns all of the issued and outstanding shares of the Manager. The main business activity of the Manager is the provision of XXXXXXXXXX services.
8. The Manager has delegated the day-to-day administration of the Fund and each Sub-Fund to the Administrator, has appointed the Principal Money Manager to advise on the purchase, sale and exchange of the investments held by each Sub-Fund and has delegated the custody of the assets of each Sub-Fund to the Custodian.
9. The Principal Money Manager is a corporation formed in the Foreign Jurisdiction. All of the issued and outstanding shares of the Principal Money Manager are indirectly owned by Foreign Parent. The Principal Money Manager will select and appoint a money manager for each Sub-Fund. The Principal Money Manager will monitor and review on a regular basis each Sub-Fund's capitalisation, distributions, geographic allocation, currency exposure, portfolio duration and maturity and other key risk measures.
10. The Administrator was incorporated in Ireland as a limited liability company and is a non-resident. All of the issued and outstanding shares of the Administrator are indirectly owned by Parent. The Administrator is responsible for the day-to-day administration of the Fund and the Sub-Funds, the provision of fund accounting for the Fund and each of the Sub-Funds, the computation of net asset value and net asset value per unit for each of the Sub-Funds and related services to the Manager.
11. The Custodian was incorporated in Ireland as a private liability company and is a non-resident. The registered office of the Custodian is located in XXXXXXXXXX . All of the issued and outstanding shares of the Custodian are indirectly owned by Parent.
12. The Unitholders will include the Investors, other pension funds and institutional investors.
13. Each Sub-Fund of the Fund is a separate portfolio of assets invested in accordance with the investment objectives and policies of the Sub-Fund and to which all liabilities, income and expenditures attributable or allocated to such Sub-Fund will be applied. Sub-Fund Units will be issued in respect of each Sub-Fund and each Sub-Fund Unit will represent a proportionate undivided co-ownership interest in the property of the Sub-Fund.
14. Initially, the Fund will have XXXXXXXXXX Sub-Funds: XXXXXXXXXX .
15. Sub-Fund Units will be issued pursuant to the Prospectus and are not transferable. The Deed of Constitution provides that the Unitholders are legally entitled to participate and share in the property of each Sub-Fund, including without limitation, income arising thereon and profits derived therefrom, as co-owners and accordingly, income and profits accrue to Unitholders as they arise. The Manager has the authority to distribute such income and profits to the Unitholders as "gross income payments" as set out in section XXXXXXXXXX of the Deed of Constitution.
16. The Units will not have any voting rights (except the right, on written notice signed by Unitholders holding XXXXXXXXXX % of the Units of all of the Sub-Funds, to require the Manager to resign). Neither the Unitholders, nor their heirs and successors, will have any rights with respect to the representation or management of the Fund or any Sub-Fund. The failure or insolvency of a Unitholder will have no effect on the existence of the Fund or any Sub-Fund.
17. The liability of each Unitholder is limited to the issue price of the Units subscribed to by a Unitholder in a particular Sub-Fund.
18. Pursuant to the Deed of Constitution and the Custody Agreement, the Custodian will be responsible for the safe-keeping of all of the assets of the Fund and the Sub-Funds. The Custodian will also be obliged to enquire as to the conduct of the Manager and each Sub-Fund in each financial year and to report thereon to the Unitholders. The Custodian must also ensure that the Fund and each of the Sub-Funds complies with the Regulations in its investment decisions and in the administration of the Sub-Funds.
19. The Custodian's safekeeping responsibilities include the responsibility to ensure that the appropriate amount of withholding tax is deducted and remitted to the relevant tax authorities and that any requirements under Part II of the Regulations, in respect of investment income earned by Unitholders resident in Canada, are fully complied with. The Custodian will withhold and remit amounts on behalf of the Unitholders in respect of their Part XIII tax liabilities. The Custodian will determine the amount of Part XIII tax to withhold, on amounts paid or credited on a particular day, based on the percentage of Unitholders that are resident in a country other than Canada. The Custodian will then apply that percentage to the aggregate amount of a Sub-Fund's Canadian source receipts that are taxable under Part XIII of the Act to determine the amounts received by non-residents. The Custodian will then apply the provisions of any relevant Tax Treaty to determine the amount of tax to withhold in respect of the amounts received by a Unitholder. At the end of each month the Custodian will compute the total amount withheld on behalf of all of the Unitholders for that month as determined above and remit that amount to the CRA by the 15th day of the following month. Within the time limits prescribed by the Regulations, the Custodian will provide each Unitholder with an NR4 Supplementary form reporting the total amount of Part XIII tax withheld and remitted on their behalf and will forward to the CRA a copy of the NR4 Supplementary issued by the Fund and a NR4 Summary for the year.
The Custodian will also determine, for each Sub-Fund, the percentage of its Unitholders that are resident in Canada. The Custodian will then apply that percentage to the aggregate amount of a Sub-Fund's Canadian source receipts to determine the amount received by each Canadian resident Unitholder (the "T5 Amount"). Within the time limits prescribed by the Regulations, the Custodian will provide a T5 Supplementary form reporting the T5 Amount to each Unitholder that is resident in Canada and will forward to the CRA a copy of the T5 Supplementary issued to the Unitholders as well as a T5 Summary for the year.
Purpose of the Proposed Transactions
20. The purpose of the proposed transactions is to create an asset pooling vehicle for the Investors, other pension funds and institutional investors whereby they will own a proportionate undivided co-ownership interest in assets producing dividends, interest and other income sourced in various countries, including Canada.
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 rulings are as follows:
A. Neither the Fund nor any of the Sub-Funds will be considered to be a trust to which subsection 94(1) of the Act applies.
B. Each Unitholder in a Sub-Fund that owns a direct and undivided interest in each property of that Sub-Fund will, for purposes of the Act, be treated as directly earning or realizing, as the case may be, its proportionate share of income, losses, capital gains and capital losses from the property of that Sub-Fund and the character, source and timing of income, losses, capital gains and capital losses earned or realized by each Unitholder of a Sub-Fund will not be affected by the fact that the property is being administered by the Manager of the Sub-Fund.
C. Any distribution made to a Unitholder of a Sub-Fund by the Manager, as described in paragraph 15 above, will not be treated as income to the Unitholder.
D. Provided that a non-resident Unitholder's ownership of Sub-Fund Units is not considered to be the carrying on of a business in Canada, for the purposes of applying Parts XIII and XIII.2 of the Act, any amount paid or credited to the Custodian by a payer resident in Canada, in respect of the property of a Sub-Fund, will be an amount paid or credited to each Unitholder in proportion to the particular Unitholder's ownership of the property of the Sub-Fund.
E. For the purposes of computing any capital gain or capital loss under Part I of the Act by a Unitholder of a Sub-Fund, the redemption of Sub-Fund Units by the Unitholder will be considered to result in a disposition of the Unitholder's proportionate undivided interest in the property of the Sub-Fund.
F. Provided that a non-resident Unitholder's ownership of Sub-Fund Units is not considered to be the carrying on of a business in Canada, a non-resident Unitholder that is a resident of a Tax Treaty jurisdiction and eligible for benefits under the relevant Tax Treaty will be entitled to the benefits of that Tax Treaty in respect of the Unitholder's proportionate undivided interest in the property of a Sub-Fund to the extent such income qualifies for relief under the provisions of that Tax Treaty.
G. To the extent that the Custodian withholds and remits tax under Part XIII or Part XIII.2 of the Act on behalf of a non-resident Unitholder, any amount remitted by the Custodian in respect of a non-resident Unitholder's Part XIII or Part XIII.2 tax liability will be considered as being paid on behalf of such Unitholder and in respect of such Unitholder's Part XIII or Part XIII.2 tax liability.
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 entered into before XXXXXXXXXX .
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.
Nothing in this ruling should be construed as implying that the CRA has considered, examined, agreed to or ruled on:
(a) whether any Unitholder is a resident of a country with which Canada has entered into a Tax Treaty;
(b) whether any income referred to herein is taxable under Part I of the Act;
(c) the manner in which any article of a Tax Treaty applies to any Unitholder; or
(d) any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.
Without restricting the generality of the preceding, nothing in this letter should be interpreted as confirming, either expressly or implicitly, that the CRA has reviewed or made any determinations in respect of the compliance of any Canadian payer, otherwise than as specifically provided in the above rulings, concerning its duties and obligations under Part XIII in respect of any amount paid or credited to a Unitholder.
For the purposes of the Act, if a Sub-Fund redeems Units held by a Unitholder:
- The Unitholder will, for purposes of calculating any income, losses, capital gains and capital losses, dispose of a proportionate interest in the properties held by the Sub-Fund.
- The remaining Unitholders will acquire that proportionate interest in the properties disposed of by the Unitholder.
- The remaining Unitholders will dispose of a proportionate interest in any property used to redeem such Units and will calculate any income, losses, capital gains and capital losses on such disposition.
For the purposes of the Act, if a Sub-Fund issues additional Units to any Unitholder(s):
- The existing Unitholders will dispose of a proportionate interest in the properties owned by the Sub-Fund and will calculate any income, losses, capital gains and capital losses on such disposition.
- The Unitholders that acquire such additional Units will acquire a proportionate interest in the properties disposed of by the existing Unitholders.
- The existing Unitholders will acquire a proportionate interest in any property contributed to the Sub-Fund as a result of the issuance of the additional Units.
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs 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, 2010
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, 2010