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 Open Market segment of the Frankfurt Stock Exchange is considered to be a designated stock exchange for purposes of the Act?
Position: No. The unofficial exchange-regulated markets operated by several European stock exchanges, such as the Open Market of the Frankfurt Stock Exchange, do not qualify as a designated stock exchange. Only EU-regulated markets qualify as a designated stock exchange, provided that the exchange is included in the list of designated stock exchanges published on the Department of Finance website.
Reasons: Exchange-regulated markets are not recognized as an official market segment under European Union (EU) and Member State law. These unofficial markets are only regulated by the exchange, which places no or minimal transparency requirements on issuers. In contrast, EU-regulated markets are governed by EU Directives and Member State law, which provide stringent transparency requirements and investor protection regulations.
XXXXXXXXXX 2010-035925
D. Wurtele
July 13, 2010
Dear XXXXXXXXXX :
Re: Frankfurt Stock Exchange
This letter is in reply to your fax of March 4, 2010 concerning whether the unofficial exchange-regulated market operated by Frankfurt Stock Exchanges is a designated stock exchange for purposes of the Income Tax Act (the "Act").
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 Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at 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. We are, however, prepared to offer the following general comments which may be of assistance.
Our comments
The expression "designated stock exchange" is defined in subsection 248(1) of the Act as "a stock exchange, or that part of a stock exchange, for which a designation by the Minister of Finance under section 262 is in effect". Section 262 of the Act sets out the mechanism for designating stock exchanges for this purpose. The list of designated stock exchanges is published on the Department of Finance website and includes the Frankfurt Stock Exchange.
The Frankfurt Stock Exchange operates two market segments - the Regulated Market and the Open Market. The Regulated Market is an official market under German and European law and is subject to stringent transparency requirements and investor protection regulation. In contrast, the Open Market is not recognized as an official market. It is regulated only by the exchange and is subject to minimal transparency requirements. Under European law, the Regulated Market qualifies as an EU-regulated market and the Open Market is considered to be an exchange-regulated market.
It is our view that the Open Market of the Frankfurt Stock Exchange, as well as other unofficial exchange-regulated markets in the European Union, would not qualify as a designated stock exchange for Canadian income tax purposes on the basis that such markets are not recognized as official markets under European law and are not subject to stringent transparency requirements and investor protection regulations. Only official EU-regulated markets qualify as a designated stock exchange, provided that the exchange is included in the list published on the Department of Finance website.
We trust that our comments will be of assistance to you.
Yours truly,
Mary Pat Baldwin, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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