15 May 2014 External T.I. 2014-0520091E5 - Form T1134

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 Form T1134: "Information return relating to controlled and not-controlled foreign affiliates" should be filed pursuant to subsection 233.4(4) of the Act in respect of a non-resident corporation that distributed its property in the process of a liquidation and dissolution prior to its non-resident corporate shareholder becoming a resident of Canada.

Position: Yes.

Reasons: Law.

XXXXXXXXXX
2014-052009
Julia Belova

May 15, 2014

Dear XXXXXXXXXX:

Re: Form T1134 Filing Requirement

We are writing in response to your email dated February 10, 2014 in which you asked us to consider whether Form T1134 "Information return relating to controlled and not-controlled foreign affiliates" should be filed in the following hypothetical scenario.

A non-resident corporation ("NRCo") distributed all its property during its 2012 taxation year in the process of a liquidation and dissolution to its shareholders. A few months after the distribution, NRCo formally dissolved on December 31, 2012. Subsequent to the distribution, but prior to NRCo's formal dissolution, a corporate shareholder ("CanCo") of NRCo that held a 20% interest in NRCo became a resident of Canada for purposes of the Act. Both, NRCo and CanCo's normal taxation year-end is December 31.

You request our view whether CanCo is required by subsection 233.4(4) of the Act to file Form T1134 in respect of NRCo for CanCo's taxation year ended December 31, 2012.

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (the "Act") and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.

The legislative requirement in subsection 233.4 of the Act is that Form T1134 must be filed if the non-resident corporation is a foreign affiliate or a controlled foreign affiliate, as the case may be, at any time in the reporting taxpayer's taxation year.

Under subsections 95(1) and 95(4), the determination of whether a non-resident corporation is a foreign affiliate of a reporting entity at a particular time is based on the legal ownership of the shares of the non-resident corporation at that time. As a consequence of immigration, pursuant to subsection 128.1(1), CanCo will be deemed to have disposed of and re-acquired each property it owned immediately prior to the immigration. Since NRCo was not formally dissolved at that time CanCo will be deemed to have re-acquired the 20% interest in NRCo at that time. As a result, despite the fact that NRCo had previously distributed its property in the process of a liquidation and dissolution, NRCo should be considered a foreign affiliate of CanCo in the taxation year of CanCo that ended December 31, 2012.

We have considered whether NRCo could be regarded dissolved for purposes of the reporting requirement in subsection 233.4(4) prior to its formal dissolution in the circumstances described in IT-126R2, e.g. where the sole reason for the delay in obtaining the formal dissolution is the existence of outstanding litigation. While your hypothetical scenario does not explain the reason for the delay, regardless, we concluded that IT-126R2 does not apply for all purposes of the Act (footnote 1) and would not apply for purposes of the reporting requirement in subsection 233.4(4). This position is consistent with the requirement that a Canadian corporation, despite being considered wound up for purposes of subsections 88(1) or 88(2), file a corporate tax return pursuant to subsection 150(1) until such time it is formally dissolved. It is also consistent with the purpose of T1134 reporting requirement, which is to provide the Canada Revenue Agency with an accurate record of the history of foreign affiliates and transparency of offshore structures.

For these reasons, we determined that Form T1134 should be filed in respect of NRCo, subject to currently available administrative relief as further described in the form. For your convenience we have included a link to the CRA website (http://www.cra-arc.gc.ca/tx/nnrsdnts/cmmn/frgn/menu-eng.html), where you can find Form T1134 and the relevant information concerning the filing requirements.
We trust these comments to be of assistance.
Yours truly,

Olli Laurikainen, CPA, CA
For Director
International Division
Income Tax Rulings Directorate

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 See for example CRA documents 2001-0067105 and 2001-0093395.