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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
XXXXXXXXXX 961814
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: XXXXXXXXXX
Advance Income Tax Ruling
We are writing in response to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above-referenced taxpayers. In your letter of XXXXXXXXXX you provided additional information in respect of the facts and proposed transactions described in your original letter.
To the best of your knowledge and that of the taxpayers involved:
(i)none of the issues involved in the requested rulings is being considered by a Tax Services Office or a Taxation Centre in connection with a tax return already filed, and
(ii)none of the issues involved in the requested rulings is the subject of any notice of objection or is under appeal.
Unless otherwise stated all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act").
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
FACTS
1.Foreignco is
XXXXXXXXXX
2. XXXXXXXXXX
3.Foreignco's affairs are managed under the supervision of its board of directors, which is currently comprised of XXXXXXXXXX None of the directors is, or will be, resident in Canada for purposes of the Act. No meetings of the board of directors are held in Canada. Foreignco has no office or physical presence in Canada.
4. XXXXXXXXXX
5. XXXXXXXXXX
6.Managementco #1 provides management and administrative services to Foreignco pursuant to an agreement made on XXXXXXXXXX Such services are provided to Foreignco outside Canada.
7.Managementco #1 is a corporation incorporated under the laws of XXXXXXXXXX None of the directors of Managementco #1 is resident in Canada for purposes of the Act and no meetings of the board of directors of Managementco #1 are held in Canada. Managementco #1 has no office or physical presence in Canada.
8.As noted in paragraph 6 above, Managementco #1 entered into a management and administrative services agreement with Foreignco pursuant to which Managementco #1 renders accounting, administrative and clerical services.
XXXXXXXXXX
9. XXXXXXXXXX
10.Managementco #2 is a corporation organized under
XXXXXXXXXX
11. XXXXXXXXXX
12. XXXXXXXXXX
13. XXXXXXXXXX
14. XXXXXXXXXX
15.XXXXXXXXXX ("Canco") is a corporation incorporated under XXXXXXXXXX (XXXXXXXXXX) and is related, as that term is defined in subsection 251(2) of the Act, to Mangementco #1.
XXXXXXXXXX
16.Managementco #1 deals at arm's length with the shareholders of Foreignco.
PROPOSED TRANSACTION
17.Managementco #1 will enter into an administrative services agreement (the "Agreement") with Canco pursuant to which, in consideration of certain reasonable fees, Canco, as an independent contractor, will provide the following, and only the following services:
(a) XXXXXXXXXX
(b) XXXXXXXXXX
(c) XXXXXXXXXX
(d) XXXXXXXXXX
(e) XXXXXXXXXX
(f) XXXXXXXXXX
(g) XXXXXXXXXX
(h) XXXXXXXXXX
(i) XXXXXXXXXX
(j) XXXXXXXXXX
(k) XXXXXXXXXX
18.Managementco #1 will itself continue to provide all other administrative and clerical services currently provided to Foreignco. Managementco #1 will provide such services from its offices outside Canada. XXXXXXXXXX
19.Pursuant to the Agreement, Canco will have no right to directly affect the legal relations of Managementco #1 as regards to other persons. Specifically, it will have no authority to make contracts on behalf of Managementco #1. Furthermore, the Agreement will specifically provide that there will be no agency relationship between Managementco #1 and Canco.
20.No resolution will be passed by Managementco #1 appointing Canco as its agent nor will a resolution be passed by Canco accepting an appointment of agency of Managementco #1.
21.The accounts of Canco will show its profits as its own, with no liability to account therefor to Managementco #1.
22.Canco will employ the persons who will perform the services described in the Agreement. The various contracts entered into by Canco in the course of carrying on its business in Canada will create rights and obligations that are personal to Canco vis-a-vis the third parties.
23.No employees of either Managementco #1 or a related corporation other than Canco will direct the day to day activities of Canco.
PURPOSE OF THE PROPOSED TRANSACTION
24.The purpose of Canco entering into the Agreement with Managementco #1 is that additional resources are required to perform certain of the accounting, administrative and clerical services provided to Foreignco. The provision of services by Canco pursuant to the agreements referred to in paragraph 15 have been successful, and it has been determined that Canco should provide additional administrative services. The proposed administrative services agreement described herein provides an excellent opportunity to Canco for growth and to employ additional residents of Canada.
RULING GIVEN
Provided that the above statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and that the proposed transactions are carried out as set forth herein, the following ruling is given:
A.The furnishing of services by Canco under the Agreement, in and by itself, will not cause Foreignco or Managementco #1 to be carrying on business in Canada for the purpose of paragraph 2(3)(b) of the Act.
The above ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990 and the Special Release thereto dated September 30, 1992, and is binding on Revenue Canada, Customs, Excise and Taxation provided that the proposed transactions are completed by XXXXXXXXXX
The above ruling is based on the law as it presently reads and does not take into account any proposed amendments to the Act which, if enacted into law, could have an effect on the ruling provided herein.
Nothing in this ruling should be construed as implying that Revenue Canada, Customs, Excise and Taxation has agreed to or reviewed any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the ruling given above.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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© Her Majesty the Queen in Right of Canada, 1995
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