4 December 2025 External T.I. 2025-1072361E5 - CANADIAN PARTNERSHIPS AND U.S. LLC UNDER CBCR RUL

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: Given the importance of the CbCR under the GMTA, can you clarify if 1) a Canadian partnership should be considered a stateless entity or resident in Canada for purposes of the CbCR; and 2) a U.S. limited liability company that is wholly owned by a U.S. corporation and is considered a disregarded entity for U.S. tax purposes should be considered a stateless entity or resident in the U.S. for purposes of the CbCR ?

Position: 1) A Canadian partnership should generally be considered a stateless entity for the purpose of the CbCR.

2) A disregarded U.S. limited liability company that is wholly owned by a U.S. corporation should generally be considered resident in the U.S. for the purpose of the CbCR.

Reasons: 1) Status of Canadian partnerships under the Income Tax Act.

2) Treatment of U.S. limited liability companies under U.S. tax law, in particular for purposes of the U.S. CbCR rules.

XXXXXXXXXX									HEADQUARTERS
										Income Tax Rulings Directorate
F. Fournier-Gendron
										2025-107326

December 4, 2025

Dear XXXXXXXXXX:

Re: Treatment of a Canadian partnership and of a U.S. limited liability company under the CbCR rules

This letter is in response to your request for interpretative assistance regarding the treatment of a Canadian partnership and of a U.S. limited liability company that is wholly owned by a U.S. corporation (“U.S.-Owned Single-Member LLC”) (footnote 1) under Canada’s country-by-country (“CbC”) reporting rules. You have noted that this question is relevant to the application of the transitional CbCR safe harbour (“TCSH”) in section 47 of the Global Minimum Tax Act (“GMTA”).The TCSH applies on a jurisdictional basis. Where the conditions are met and a valid election is filed for a jurisdiction for a particular fiscal year, the top-up amount of each standard constituent entity of the MNE group that is located in the jurisdiction for the particular fiscal year is deemed to be nil, thereby eliminating the need to perform detailed GloBE calculations for the jurisdiction.

Under subsection 5(2) of the GMTA, a flow-through entity is considered a stateless entity unless it meets specific exceptions. As a result, a Canadian partnership or a U.S.-Owned Single-Member LLC may be classified as a stateless entity under the GMTA. Pursuant to subsection 5(4) of the GMTA, a stateless entity is deemed to be located in a notional jurisdiction in which no other entity or permanent establishment is located.

For CbC reporting purposes, the OECD’s Guidance on the Implementation of Country-by-Country Reporting (footnote 2) (“OECD CbCR Guidance”) provides that where a partnership is tax transparent and has no tax residency, its items should be reported on the stateless entity line in Table 1 of the CbC report, except for items attributable to a permanent establishment. Partners that are constituent entities within the MNE group must report their share of the partnership’s items in Table 1 of the CbC report based on their own jurisdiction of tax residence.

In addition, while we cannot provide opinions on foreign tax rules, we acknowledge your reference to guidance issued by the Internal Revenue Service (“IRS”) on the treatment of U.S. LLCs under the U.S. CbC reporting rules. The guidance provides that “a U.S. LLC that does not elect to be treated as a corporation for federal income tax purposes and that is wholly and directly owned by a business entity that is organized and has its tax jurisdiction of residence in the United States will be considered to be a U.S. business entity that has its tax jurisdiction of residence in the United States (footnote 3)”. We understand that you consider the IRS guidance to potentially deviate from the OECD CbCR Guidance with respect to the treatment of tax-transparent partnerships as stateless entities.

You have asked:

(i) whether a Canadian partnership should be reported as a stateless entity or as a resident of Canada under the CbC reporting rules; and

(ii) whether a U.S.-Owned Single-Member LLC should be reported as a stateless entity or as a resident of the U.S. under the CbC reporting rules.

CRA responses

Canadian partnership

A partnership is not a “person” under the Income Tax Act (“ITA”) notwithstanding that paragraph 96(1)(a) of the ITA provides that the income or loss of a member of a partnership is computed as if the partnership were a separate person resident in Canada. Partnerships, in and of themselves, are not liable to tax and are not considered resident (footnote 4).

Accordingly, the CRA does not consider a Canadian partnership to be tax resident in Canada for CbC reporting purposes, except where paragraph 233.8(2)(b) of the ITA applies (i.e., when the partnership is the ultimate parent entity and was organized under the laws of Canada). The Canadian partnership’s items, to the extent they are not attributable to a permanent establishment, should be reported in Table 1 of Form RC4649, Country-by-Country Report, on the line for stateless entities (coded as X5). Additionally, any partners that are also constituent entities within the MNE group should include their share of the Canadian partnership’s items in Table 1 in their jurisdiction of tax residence. Explanatory information may be included in Table 3.

U.S.-Owned Single-Member LLC

We would generally expect a U.S.-Owned Single-Member LLC to be reported on Form RC4649 as having its tax jurisdiction in the United States, and its items to be reported on the United States line in Table 1. The OECD’s guidance on double-reporting the items of a tax transparent partnership with no tax residency should not apply in this context because the U.S.-Owned Single-Member LLC is reported as a tax resident in the U.S. and is not regarded as a partnership.

Additional comments in respect of the TCSH

Subsection 47(2) of the GMTA sets out the conditions under which a filing constituent entity of an MNE group may elect the TCSH for a jurisdiction for a particular fiscal year. Where an MNE group that has filed a CbC report for a particular fiscal year wishes to avail itself of the TCSH for a jurisdiction for that fiscal year, subparagraph 47(2)(b)(i) requires that the CbC report filed in relation to that jurisdiction for the particular fiscal year qualify as a “qualified country-by-country report”(footnote 5). To meet this requirement, the CbC report must, among other conditions, be filed in accordance with the “relevant country-by-country reporting regulations” (footnote 6). If a CbC report is filed by the ultimate parent entity (or a surrogate parent entity) of an MNE group and that entity is located in Canada, the “relevant country-by-country reporting regulations” will be the CbC reporting requirements of Canada. In other cases, the “relevant country-by-country reporting regulations” to be applied may differ.

Canadian partnerships or U.S.-Owned Single-Member LLCs that are stateless entities under the GMTA are considered as located in notional jurisdictions as described in subsection 5(4) of the GMTA. A TCSH election would not be available for such notional jurisdictions, consistent with the OECD’s guidance in paragraph 38 of Chapter 1 of Annex A to the Consolidated Commentary to the Global Anti-Base Erosion Model Rules (footnote 7). However, under the financial accounting income allocation rules for flow-through entities set out in subsection 17(6) of the GMTA, a Canadian partnership or a U.S.-Owned Single-Member LLC may ultimately have no GloBE income or loss to report (footnote 8).

We trust our comments will be of assistance.

Yours truly,

Charles Dumas
Section Chief
Specialty Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

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

1. For the purpose of this letter, reference to a “U.S.-Owned Single-Member LLC” should be read as meaning a U.S. LLC that does not elect to be treated as a corporation for U.S. federal income tax purposes and is wholly and directly owned by a business entity that is organized and has its tax jurisdiction of residence in the United States.

2. The publication Guidance on the Implementation of Country-by-Country Reporting was last updated in May 2024 and is available at: https://www.oecd.org/content/dam/oecd/en/topics/policy-sub-issues/cbcr/guidance-on-the-implementation-of-country-by-country-reporting-beps-action-13.pdf

3. See answer to question D9 at: https://www.irs.gov/businesses/international-businesses/frequently-asked-questions-faqs-country-by-country-reporting#Reporting%20D9

4. Refer to Income Tax Rulings document 2014-0547501E5.

5. As this term is defined in subsection 47(1).

6. As this term is defined in section 43.

7. The Consolidated Commentary to the Global Anti-Base Erosion Model Rules was last updated on May 9, 2025 and is available at: https://www.oecd.org/content/dam/oecd/en/publications/reports/2025/05/tax-challenges-arising-from-the-digitalisation-of-the-economy-consolidated-commentary-to-the-global-anti-base-erosion-model-rules-...

8. See also paragraph 39 of the OECD Annex A to the Consolidated Commentary to the Global Anti-Base Erosion Model Rules.