2012 Ruling 2012-0452291R3 - XXXXXXXXXX - ATR

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: Will proposed 212.3(2) apply to the proposed transactions?

Position: XXXXXXXXXX.

Reasons: The exception provided for in subsection 212.3(16) may not be met here.

XXXXXXXXXX
2012-045229

Attention: XXXXXXXXXX

XXXXXXXXXX, 2012

Dear XXXXXXXXXX:

Re: XXXXXXXXXX ("Pubco")
Business Number XXXXXXXXXX
Advance Income Tax Ruling

We are writing in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-referenced taxpayer.

Pubco's tax affairs are administered by the XXXXXXXXXX Tax Services Office and it files its tax returns at the XXXXXXXXXX Taxation Centre.

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

Unless otherwise stated, all references to a statute are references to the provisions of the Income Tax Act, R.S.C. 1985 c.1 (5th Supp.) as amended to the date hereof (the "Act"), and every reference herein to a Part, section, subsection, paragraph, subparagraph or clause is a reference to the relevant provisions of the Act.

Definitions:

(a) XXXXXXXXXX;

(b) "Cansub" means XXXXXXXXXX, an entity incorporated under the laws of XXXXXXXXXX and a taxable Canadian corporation;

(c) "Certificate of Residence" means the certification provided by the tax authorities of Country 1 dated XXXXXXXXXX;

(d) "Corporation A" means XXXXXXXXXX, a XXXXXXXXXX company now based in Country 7, which is not related to Pubco;

(e) "Country 1" means XXXXXXXXXX;

(f) "Country 2" means XXXXXXXXXX;

(g) "Country 3" means XXXXXXXXXX;

(h) "Country 4" means XXXXXXXXXX;

(i) "Country 5" means XXXXXXXXXX;

(j) "Country 6" means XXXXXXXXXX;

(k) "Country 7" means XXXXXXXXXX;

(l) "CRA" means the Canada Revenue Agency, together with its predecessors, the Canada Customs and Revenue Agency and Revenue Canada;

(m) "Equity Investment A" means the proposed equity investment to be made by Pubco and/or Cansub in Forco1, as is referred to in paragraph 68(a), below;

(n) "Equity Investment B" means the proposed equity investment to be made by Forco1 in Forco2, as is referred to in paragraph 68(b), below;

(o) "Equity Investment C" means the proposed equity investment to be made by Forco2 in Opco, as is referred to in paragraph 68(c), below;

(p) "FAPI" means foreign accrual property income as defined in subsection 95(1);

(q) "Finco" means XXXXXXXXXX established under the laws of Country 1;

(r) "Finco Loan" means the proposed loan from Finco to Forco2, as is described more fully in paragraph 54, below;

(s) "Forco1" means XXXXXXXXXX established under the laws of Country 2;

(t) "Forco2" means XXXXXXXXXX established under the laws of Country 2;

(u) "Forco2 Loan" means the proposed loan from Forco2 to XXXXXXXXXX, as is described more fully in paragraph 55, below;

(v) XXXXXXXXXX;

(w) "Holdco1" means XXXXXXXXXX, a limited liability company established under the laws of State A;

(x) "Holdco2" means XXXXXXXXXX, a corporation established under the laws of Country 4;

(y) "Holdco3" means XXXXXXXXXX, a corporation established under the laws of Country 5;

(z) "Investment Agreement" means the investment agreement among Pubco, Opco, Norco2 and the Government of Country 3 entered into on XXXXXXXXXX;

(aa) "Land A" means XXXXXXXXXX;

(bb) "LIBOR" means the London Interbank Offered Rate;

(cc) "Loan X" means the proposed loan by Finco to Forco2, as is described more fully in paragraph 64, below;

(dd) "Loan Y" means the proposed loan by Forco2 to Opco, as is described more fully in paragraph 65, below;

(ee) XXXXXXXXXX;

(ff) "MRPS" means the mandatorily redeemable preferred shares to be issued by Finco;

(gg) "Norco Group" means Norco1 and all of its direct and indirect subsidiaries including Norco2, but excluding Pubco;

(hh) "Norco1" means XXXXXXXXXX, a public company whose shares are listed on the XXXXXXXXXX;

(ii) "Norco2" means XXXXXXXXXX, a member of Norco Group;

(jj) "Note A" means the proposed interest-bearing debt obligation to be issued by XXXXXXXXXX in favour of Forco2, as is described more fully in paragraphs 59 and 60, below;

(kk) "Opco" means XXXXXXXXXX, a body corporate incorporated under the Company Law of Country 3;

(ll) "Project" means the XXXXXXXXXX located in XXXXXXXXXX Country 3 and as is described more fully in paragraphs 27 to 32, below;

(mm) "Pubco Group" means Pubco and all its direct and indirect subsidiaries, including Finco, Forco1, Forco2 and Opco;

(nn) "Pubco" means XXXXXXXXXX, a corporation XXXXXXXXXX under the laws of XXXXXXXXXX;

(oo) "Pubco Branch" means a branch established by Pubco in Country 1;

(pp) "public corporation" has the meaning assigned by subsection 89(1);

(qq) "qualifying interest" has the meaning assigned by paragraph 95(2)(m);

(rr) "Regulations" means the Income Tax Regulations, C.R.C., c. 945, as amended;

(ss) XXXXXXXXXX;

(tt) XXXXXXXXXX;

(uu) "Shareholders' Agreement" means the shareholders' agreement relating to Opco entered into by XXXXXXXXXX;

(vv) "State A" means the State of XXXXXXXXXX in Country 6;

(ww) "Stateco" means XXXXXXXXXX a state-owned company of Country 3 incorporated under the Company Law of Country 3;

(xx) "Tax Treaty" has the meaning assigned by subsection 248(1); and

(yy) "taxable Canadian corporation" has the meaning assigned by subsection 89(1).

Facts:

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

Pubco

1. Pubco is a taxable Canadian corporation and a public corporation incorporated under the laws of XXXXXXXXXX. Pubco's shares are listed and traded on the XXXXXXXXXX. Norco1 currently owns XXXXXXXXXX% of the common equity of Pubco. The remainder of Pubco's common shares are widely held.

2. Pubco is XXXXXXXXXX. While it also does some of its XXXXXXXXXX in Canada, generally Pubco's activities in Canada are otherwise limited to XXXXXXXXXX activities. All or substantially all of the XXXXXXXXXX activities carried on by members of the Pubco Group are performed outside Canada.

3. Pubco currently has a taxation year-end of XXXXXXXXXX. Its business number is XXXXXXXXXX and it is served by the XXXXXXXXXX Taxation Centre. Pubco has not made a functional currency election under section 261.

Finco

4. Finco is a XXXXXXXXXX established under the laws of Country 1. Pubco is of the view that Finco is a corporation for the purposes of the Act. Finco is a resident of Country 1 for the purposes of the Act and the Tax Treaty that Canada has with Country 1. In this respect, Finco has obtained a Certificate of Residence from the tax authorities of Country 1 confirming that it is also the view of those authorities that Finco is a resident of Country 1. All of the equity interests in Finco are owned by Pubco. It is anticipated that the activities of Finco will be limited to providing direct or indirect financing to Opco and engaging in the transactions described herein.

5. In accordance with its constating documents, Finco has the following general characteristics:

(a) Finco is a legal entity separate from its members;

(b) Finco has the capacity to contract in its own name, for its own account and at its own risk;

(c) Finco is incorporated for an indefinite period;

(d) ownership interests in Finco are divided into shares;

(e) admission and transfer of shares in Finco is subject to shareholders' approval;

(f) each shareholder is entitled to at least one vote;

(g) profits are available to Finco and can be retained by Finco unless the members vote in favour of distribution;

(h) the board of directors has authority to represent Finco; and

(i) members are excluded from any liability for any of Finco's debts or losses.

6. The authorized share capital of Finco consists of ordinary common shares and MRPS. The general attributes of the MRPS are as follows:

(a) Finco has a mandatory redemption duty at the end of XXXXXXXXXX from the date of issuance of the MRPS assuming that the MRPS are neither converted nor redeemed by the holder;

(b) the MRPS shall not carry a dividend entitlement;

(c) the MRPS shall carry full voting rights;

(d) all or a portion of the MRPS are convertible at any time into a fixed value of Finco common shares at the option of the holder (i.e., the number of common shares received on the conversion will have a total fair market value equal to the par value of the MRPS converted);

(e) all or a portion of the MRPS are convertible into another class of MRPS at the option of the holder;

(f) the MRPS are redeemable before the maturity date (i.e., XXXXXXXXXX) at the option of the holder with prior notice; and

(g) the rights of the MRPS holders to receive redemption proceeds are subordinated to debt obligations issued by Finco.

7. For XXXXXXXXXX purposes in Country 1, the MRPS will be considered debt rather than equity of Finco. However, for all other XXXXXXXXXX purposes in Country 1, the MRPS will be considered equity of Finco.

Forco1

8. Forco1 is a XXXXXXXXXX established under the laws of Country 2 and is resident in Country 2 for the purposes of the Act and Tax Treaty between Canada and Country 2.

9. All of the equity interests in Forco1 are owned, directly or indirectly, by Pubco. Pubco directly owns XXXXXXXXXX% of the equity interest in Forco1 and the remaining XXXXXXXXXX% is owned by Cansub, which is XXXXXXXXXX% owned by Pubco. Cansub is a corporation incorporated in Canada and is a taxable Canadian corporation. The activities of Forco1 are anticipated to be limited to XXXXXXXXXX Forco2.

10. Under the XXXXXXXXXX law of Country 2, Forco1 is viewed as a corporation and by virtue of the fact that it is established under the laws of Country 2, it is normally subject to Country 2's corporate tax on its worldwide profits at a top rate of XXXXXXXXXX%, subject to any available exemptions.

Forco2

11. Forco2 is a XXXXXXXXXX established under the laws of Country 2 and is resident in Country 2 for purposes of the Act and the Tax Treaty between Canada and Country 2.

12. All of the equity interests in Forco2 are owned by Forco1. The activities of Forco2 are anticipated to be limited to XXXXXXXXXX Opco.

13. Under the XXXXXXXXXX law of Country 2, Forco2 is viewed as a corporation and by virtue of the fact that it is established under the laws of Country 2, it is normally subject to Country 2's corporate tax on its worldwide profits at a top rate of XXXXXXXXXX%, subject to any available exemptions. However, because XXXXXXXXXX, Forco1 will be primarily responsible for Forco2's tax liabilities to Country 2. Forco2 will be directly responsible to Country 2's tax authorities for its own tax liabilities only if Forco1 fails to pay those amounts.

Holdco1, Holdco2, and Holdco3

14. Pubco owns all the equity interest in Holdco1, a company established under the laws of State A. Holdco1 owns all the equity interest in Holdco2, a corporation established under the laws of Country 4. Holdco2 owns all the equity interest in Holdco3, a corporation established under the laws of Country 5.

Stateco

15. Stateco is a company incorporated under the Company Law of Country 3.

16. All of the issued and outstanding equity in Stateco is owned, directly or indirectly, by the Government of Country 3.

Opco

17. Opco is a body corporate established under the laws of Country 3 and is resident in Country 3 for purposes of the the Act and the Tax Treaty that Canada has entered into with Country 3. Pubco is of the view that Opco is a corporation for the purposes of the Act.

18. In accordance with its enabling legislation, the Company Law of Country 3, Opco has the following general characteristics:

(a) it is "a legal person" and has a name;

(b) its capital is divided into shares;

(c) shares in Opco represent ownership interests in Opco, and not an ownership interest in any of Opco's separate property;

(d) it has its own separate property;

(e) its charter includes Opco's full name, its place of business and information relating to its authorized common shares and preferred shares;

(f) it is established for an indefinite duration;

(g) its common shareholders are entitled to vote;

(h) it is a limited liability company;

(i) there are pre-emptive rights applicable to the transfer of its common shares;

(j) its shareholders are generally not liable for Opco's obligations and only bear risk of loss to the extent of the shares held;

(k) it may pay dividends if certain conditions (e.g., solvency) are met;

(l) a resolution to pay dividends must be made through Opco's board of directors;

(m) it has a board of directors, which is its governing body between shareholder meetings; and

(n) its board of directors consists of XXXXXXXXXX members, who are elected by the vote of holders of common shares only.

19. The Shareholders' Agreement provides that Stateco, a state-owned company of Country 3 incorporated under the Company Law of Country 3, is entitled to nominate XXXXXXXXXX directors to Opco's board of directors and Forco2 and Holdco3 are collectively entitled to nominate the remaining XXXXXXXXXX directors.

20. Opco is in the business of XXXXXXXXXX in Country 3. Opco's principal asset is the Project. All or substantially all of Opco's assets are used in its active business. Under the tax law of Country 3, Opco is taxable on its revenues generated both in Country 3 and in any other country in a given year because it is a body corporate established under the laws of Country 3.

21. Currently, the common shares in Opco are owned by Forco2 (as to approximately XXXXXXXXXX%), Holdco3 (as to approximately XXXXXXXXXX%), and Stateco (as to approximately XXXXXXXXXX%). XXXXXXXXXX.

22. Currently, all of the XXXXXXXXXX shares in Opco are owned by Forco2. These XXXXXXXXXX shares are XXXXXXXXXX.

XXXXXXXXXX

The Project

27. The Project is located in Country 3 in XXXXXXXXXX.

28. It is currently anticipated that the Project will cost in excess of XXXXXXXXXX. To date, these costs have been funded through a mix of common and preferred share equity purchased in Opco and loans to Opco (in proportions that meet Country 3's thin capitalization limitations). In the future, funding will comprise a mix of these sources and, potentially, direct financing from arm's-length sources.

29. XXXXXXXXXX.

30. XXXXXXXXXX.

31. XXXXXXXXXX.

32. The current estimated net present value of the Project is at least XXXXXXXXXX taking into account all anticipated expenditures. Total capital expenditures over the life of the Project are anticipated to be approximately XXXXXXXXXX.

33. XXXXXXXXXX.

Funding of Opco and New Negotiations with XXXXXXXXXX

34. Commencing in XXXXXXXXXX, Pubco has funded Opco, directly or indirectly, through both equity and debt. XXXXXXXXXX.

35. XXXXXXXXXX.

36. XXXXXXXXXX.

37. XXXXXXXXXX.

38. XXXXXXXXXX.

39. XXXXXXXXXX.

40. XXXXXXXXXX.

Relationship between Pubco and XXXXXXXXXX

41. XXXXXXXXXX.

42. XXXXXXXXXX.

43. XXXXXXXXXX.

44. XXXXXXXXXX.

45. XXXXXXXXXX.

Other Information

46. To facilitate certain of the proposed transactions discussed below, Pubco has established a branch office constitutive of a permanent establishment in Country 1 (the "Pubco Branch"). For XXXXXXXXXX purposes, the Pubco Branch and Finco will be treated as a single taxpayer XXXXXXXXXX. The Pubco Branch is staffed by an employee of Pubco and has separate accounting and separate Country 1 bank accounts for its activities. However, as a branch of a Canadian corporation, any income earned by Pubco through its Pubco Branch will be subject to tax in Canada under the Act.

47. Finco is liable for Country 1 income taxes on its worldwide income, including interest income it receives from loans made by Finco, such as those described in paragraphs 54 and 63 below, in accordance with the laws of Country 1.

48. The use of the Pubco Branch is not motivated by any Canadian tax or commercial objectives. No foreign tax credits, or deductions in computing income are available to Pubco under the Act in respect of Country 1 income taxes pertaining to the income of Finco because of the fiscal unity and no such credits or deductions will be claimed. XXXXXXXXXX.

49. Pubco anticipates that it may obtain the funds necessary to complete the transactions proposed herein from XXXXXXXXXX.

50. To the best of your knowledge and that of the taxpayers involved, none of the issues involved with this advance income tax ruling is:

(a) involved in an earlier return of the taxpayer or a related person;

(b) being considered by a tax services office or taxation centre in connection with a tax return already filed by the taxpayer or a related person;

(c) under objection by the taxpayer or a related person;

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

(e) the subject of a ruling previously considered by the Income Tax Rulings Directorate, XXXXXXXXXX.

Proposed Transactions:

51. Pubco proposes four sets of transactions aimed at meeting the financial and commercial needs of Opco and the demands of XXXXXXXXXX.

52. The first two sets of transactions are described below as the "Step 1 Transactions" and the "Step 2 Transactions". The second two sets of transactions are described below as the "Step 3 Transactions" and the "Step 4 Transactions".

Step 1 Transactions

53. As a result of XXXXXXXXXX, Pubco proposes to finance a portion of XXXXXXXXXX by the following means:

(a) Pubco will use cash to subscribe for new MRPS and/or common shares in Finco;

(b) Finco will use such capital (less any transaction costs) to make the Finco Loan to Forco2;

(c) Forco2 will use the proceeds of the Finco Loan (less any transaction costs) to make the Forco2 Loan to XXXXXXXXXX;

(d) XXXXXXXXXX will use the proceeds of the Forco2 Loan to acquire additional common shares in Opco in sufficient quantities to XXXXXXXXXX; and

(e) Opco will use such capital for the purpose of funding its operational and capital requirements.

54.. The essential terms of the Finco Loan will be as follows:

(a) it will bear interest at a rate equal to the interest rate applicable to the Forco2 Loan, less XXXXXXXXXX%;

(b) the obligation of Finco to make the Finco Loan will be conditional upon the completion of the transaction described in paragraph 53(a), above; and

(c) Forco2 is required to use the proceeds of the Finco Loan (less any transaction costs) for the sole purpose of making the Forco2 Loan to XXXXXXXXXX.

55. The essential terms of the Forco2 Loan will be as follows:

(a) it will bear interest at a rate of XXXXXXXXXX% per annum XXXXXXXXXX;

(b) the obligation of Forco2 to make the Forco2 Loan will be conditional upon the completion of the transaction described in paragraph 53(b), above;

(c) XXXXXXXXXX is required to use the proceeds of the Forco2 Loan to XXXXXXXXXX; and

(d) if XXXXXXXXXX fails to meet its obligations under the Forco2 Loan, Forco2's recourse shall be limited to XXXXXXXXXX.

56. The equity contribution described in paragraph 53(a), above, will be booked by Pubco through its Pubco Branch (i.e., prior to those equity contributions to Finco, Pubco will effect an internal "contribution" of the related assets from itself to the Pubco Branch).

Step 2 Transactions

57. XXXXXXXXXX.

58. XXXXXXXXXX.

59. Forco2 proposes to transfer, in one or more transactions, XXXXXXXXXX% of the XXXXXXXXXX shares it currently holds in Opco to XXXXXXXXXX in exchange for an interest-bearing debt obligation, Note A, to be issued by XXXXXXXXXX.

60. The essential terms of Note A will be as follows:

(a) it will bear interest at a rate of XXXXXXXXXX% per annum XXXXXXXXXX;

(b) the amounts owing thereunder will be payable in accordance with the terms of the XXXXXXXXXX; and

(c) if XXXXXXXXXX fails to meet its obligations in relation to Note A, Forco2's recourse shall be limited to XXXXXXXXXX.

61. It is anticipated that, immediately after acquiring the Opco XXXXXXXXXX shares from Forco2, XXXXXXXXXX.

Step 3 Transactions

62. The Step 3 Transactions, as described below, involve the "debt portion" of Pubco's indirect financing of Opco.

63. Pubco proposes to finance this portion of the future capital needs of the Project by the following means:

(a) Pubco will use cash to subscribe for new MRPS and/or common shares in Finco;

(b) Finco will use such capital (less any transaction costs) to make Loan X to Forco2;

(c) Forco2 will use the proceeds of Loan X (less any transaction costs) to make Loan Y to Opco; and

(d) Opco will use the proceeds of Loan Y (less any transaction costs) for the purpose of funding its operational and capital requirements.

64. The essential terms of Loan X will be similar to those of the Finco Loan. In particular, the essential terms of Loan X will be as follows:

(a) it will bear interest at a rate equal to the interest rate applicable to Loan Y, less XXXXXXXXXX%;

(b) the obligation of Finco to make Loan X will be conditional upon the completion of the transaction described in paragraph 63(a), above; and

(c) Forco2 is required to use the proceeds from Loan X (less any transaction costs) for the sole purpose of making Loan Y to Opco.

65. The essential terms of Loan Y will be similar to those of the Forco2 Loan. In particular, the essential terms of Loan Y will be as follows:

(a) it will bear interest at a rate of XXXXXXXXXX;

(b) the obligation of Forco2 to make Loan Y will be conditional upon the completion of the transaction described in paragraph 63(b), above; and

(c) Opco is required to use the proceeds of Loan Y for the purpose of funding its operational and capital requirements.

66. The equity contribution described in paragraph 63(a), above, will be booked by Pubco through its Pubco Branch (i.e., prior to those equity contributions to Finco, Pubco will effect an internal "contribution" of the related assets from itself to the Pubco Branch).

Step 4 Transactions

67. The Step 4 Transactions, as described below, involve the "equity portion" of Pubco's indirect financing of Opco.

68. Pubco proposes to finance this portion of the future capital needs of the Project by the following means:

(a) Pubco (and/or Cansub) will use cash to make Equity Investment A in Forco1;

(b) Forco1 will use such capital to make Equity Investment B in Forco2;

(c) Forco2 will use such capital to make Equity Investment C in Opco; and

(d) Opco will use such capital for the purpose of funding its operational and capital requirements.

69. The Step 4 Transactions are intended to be carried out in tandem with the other transactions described in this rulings letter in proportions that meet Country 3's thin capitalization limitations and ensure that the respective XXXXXXXXXX% - XXXXXXXXXX% shareholdings of Pubco (indirectly) and Stateco are maintained.

Purpose of the Proposed Transactions:

70. The purpose of the proposed transactions is to allow Pubco to finance Opco and to facilitate XXXXXXXXXX in a manner that meets the commercial, regulatory and tax requirements of all parties, and in XXXXXXXXXX. It is also intended to satisfy a group of arm's length financial institutions which are considering providing additional financing in relation to XXXXXXXXXX.

Rulings Given:

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

A. To the extent such income or loss would otherwise be income or loss from property the income or loss of Forco2 for a taxation year in respect of the Forco2 Loan and Note A will be included in computing Forco2's income or loss from an active business by virtue of subparagraph 95(2)(a)(i).

B. To the extent such income or loss would otherwise be income or loss from property the income or loss of Finco in respect of the Finco Loan will be included in computing Finco's income or loss from an active business by virtue of clause 95(2)(a)(ii)(B).

C. The income or loss of Finco for a taxation year from the Finco Loan will be included in its exempt earnings or exempt loss as defined in subsection 5907(1) of the Income Tax Regulations.

D. Subsections 17(1) and 17(2) will not apply to Pubco to impute an income inclusion in connection with the proposed transactions.

E. Paragraph 95(6)(b) will not apply to Pubco's direct acquisition of shares in Finco or its indirect acquisition of shares of Forco2 described under the heading Proposed Transactions above.

F. Paragraph 17(14)(b) will not apply to Pubco's direct acquisition of shares in Finco or its indirect acquisition of shares of Forco2 described under the heading Proposed Transactions above.

G. Subsection 258(3) will not apply to recharacterize any dividends received by Pubco from Finco on any share of Finco acquired by Pubco in a transaction described under the heading Proposed Transactions above to be interest.

H. The provisions of subsection 245(2) will not apply as a result of the proposed transactions, in and by themselves, to redetermine the tax consequences stated in the rulings given above.

I. For purposes of the Act:

(i) Finco will be considered a corporation;

(ii) the ownership interests in Finco will be considered shares of Finco; and

(iii) distributions of Finco's profits to its equity holder(s) will be considered dividends.

J. For purposes of the Act:

(i) Forco2 will be considered a corporation;

(ii) the ownership interests in Forco2 will be considered shares of Forco2; and

(iii) distributions of Forco2's profit to its equity holder will be considered dividends.

K. For purposes of the Act:

(i) Opco will be considered a corporation;

(ii) the ownership interests in Opco will be considered shares of Opco; and

(iii) distributions of Opco's profit to its equity holder(s) will be considered dividends.

The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and are binding on the Canada Revenue Agency ("CRA") provided that the proposed transactions are completed by XXXXXXXXXX.

These rulings are based on the Act in the present form and do not take into account amendments to the Act which, if enacted into law, could have an effect on the rulings provided herein.

Opinion:

It is our opinion that proposed subsection 212.3(2), if enacted as currently worded in the proposed legislation dated XXXXXXXXXX, may apply to Pubco and Cansub as a consequence of the proposed transactions.

Other Comments:

Nothing in this ruling letter should be construed as implying that the CRA has agreed to or reviewed any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above. In particular, nothing in this ruling letter should be construed as implying that the CRA has agreed to or reviewed the following:

(i) the fair market value of any property described in this letter; and

(ii) the residence in a country for any purpose of any person referred to in this ruling letter.

Yours truly,

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