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 a LLC is a foreign affiliate of a Canadian corporation which is the member of the partnership which owns all the interest of the LLC.
Position: No
Reasons: It have been our view that the LLC is the foreign affiliate of the partnership, not the foreign affiliate of the corporate partner of the partnership.
972216
XXXXXXXXXX S. Leung
(613) 957-2115
Attention: XXXXXXXXXX
August 28, 1998
Dear Sirs:
Re: Foreign Affiliate
We are writing in response to your letter of August 14, 1997 in which you requested our opinion as to whether a U.S. limited liability corporation in the following hypothetical situation would be considered a foreign affiliate of a Canadian corporation.
The Hypothetical Situation
1. A Canadian corporation (Canco) owns an interest in a partnership (Pship) which in turn owns 100% of a U.S. limited liability corporation (LLC). All the partners of Pship are Canadian corporations.
2. Canco also owns 100% of an operating company which was incorporated in the U.S. (Opco).
3. For U.S. tax purposes, elections were made to treat Pship as a corporation and LLC as a flow-through.
4. Canco will make a loan to Pship which will contribute the proceeds of the loan and its remaining equity capital to the capital of LLC.
5. Pship will undertake the absolute minimum activity necessary under partnership law to constitute a partnership.
6. LLC will take the proceeds from the equity infusion and loan them to Opco.
7. Opco will use the funds received from LLC in carrying on its active business in the U.S.
The situation described in your letter appears to involve seriously contemplated transactions and identifiable taxpayers. Consequently, we would like to bring your attention to paragraph 22 of Information Circular 70-6R3, dated December 30, 1996, issued by Revenue Canada, Taxation (a copy of which is herewith enclosed) wherein it is stated that when a requested interpretation relates to a specific proposed transaction, a taxpayer should request an advance income tax ruling rather than an opinion. The procedures for requesting an advance income tax ruling are set out in paragraph 16 of the said circular. We are, however, able to provide you with the following general comments.
We have given your request careful consideration. However, we note that we have consistently expressed our view in the past that in a situation similar to the one described above a U.S. corporation the shares of which is owned by a partnership is a foreign affiliate of the partnership and not a foreign affiliate of the partners of the partnership.1 In the hypothetical situation described above, as LLC would generally be treated as a corporation for Canadian tax purposes, LLC would be a foreign affiliate of Pship and not a foreign affiliate of Canco or any other corporate partners of Pship.
Since there is no basis in law to support the argument that Pship should be ignored for income tax purposes in the hypothetical situation described in your letter, it is our view that LLC is a foreign affiliate of Pship and not a foreign affiliate of Canco.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
1 see for examples Revenue Canada roundtable sessions of the 1988 Canadian Tax Foundation Conference and the 1992 Tax Executives Institute Conference.
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