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.
Principal Issues: Whether the amalgamation of foreign affiliates in a foreign group would put arrangement off-side under clause 95(2)(a)(ii)(D).
Position: No in the case at hand. Please review document.
Reasons: The requirements of clause 95(2)(a)(ii)(D) still met after amalgamation.
970057
XXXXXXXXXX Olli Laurikainen
(613) 957-2116
Attention: XXXXXXXXXX
October 8, 1997
Dear Sirs:
Re: Clause 95(2)(a)(ii)(D) of the Income Tax Act
This is in response to your letter dated December 16, 1996 concerning the application of the above provision. You provide the following hypothetical example.
1. Canco is a corporation resident in Canada.
2. FA1 is a wholly owned subsidiary of Canco.
3. FA2 is a wholly owned subsidiary of FA1.
4. FA3 is a wholly owned subsidiary of FA2.
5. FA4 is a wholly owned subsidiary of FA3.
6. FA1, FA2, FA3 and FA4 are foreign affiliates of Canco resident and subject to taxation in the same foreign country and they file a consolidated tax return in accordance with the income tax law of that country.
7. FA1 borrowed money from an arm's length third party and used the funds to make an interest bearing loan (the "Loan") to FA2.
8. FA2 used the funds from the Loan to purchase shares in FA3 which in turn used the funds to purchase shares in FA4.
9. The shares of FA3 and FA4 are "excluded property" as defined in subsection 95(1) of the Act.
10. The conditions are such that clause 95(2)(a)(ii)(D) applies to the interest paid on the Loan by FA2 to FA1.
11. FA2 and FA3 are combined to form one entity ("FA23"). The form of the combination could be either by way of merger or liquidation.
12. Subsequent to the transaction described in paragraph 11 above, the shares of FA4 continue to be "excluded property" as defined in subsection 95(1) of the Act..
You request our comments concerning the implications of the transaction described in paragraph 11 above, on the application of clause 95(2)(a)(ii)(D) of the Act.
It is our view that clause 95(2)(a)(ii)(D) of the Act would apply to the income derived by FA1 from the interest paid by FA23 on the Loan subsequent to the transaction set out in paragraph 11 above.
The foregoing comments are given in accordance with the practice referred to in paragraph 22 of information Circular 70-6R3 and are not binding on Revenue Canada.
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
- 3 -
.../cont'd
- 1 -
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1997
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1997