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: Does 87(8.1) apply where one corporation does not exchange its shares?
Position: Yes.
Reasons: Surviving corporation is new corporation.
XXXXXXXXXX 981130
J. Stalker
Attention: XXXXXXXXXX
December 14, 1998
Dear Sirs:
We are writing in response to your letter of April 29, 1998 in respect of foreign mergers pursuant to subsection 87(8.1) of the Income Tax Act (Canada) (the “Act”).
You have described the following hypothetical situation. Subco A and Subco B are subsidiaries of Parentco. Subco A, Subco B and Parentco are all incorporated and resident in the United States. Subco A is a wholly-owned subsidiary of Parentco. Parentco holds less that 10% of the shares of Subco B. The remainder of Subco B’s shares are held by Canco, a corporation incorporated and resident in Canada.
Subco A and Subco B merge. Subco B is merged into or absorbed into Subco A, leaving Subco A as the surviving corporation. Parentco does not receive shares of Subco A in exchange for its Subco B shares on this amalgamation. However, Canco does receive shares of the amalgamated corporation in exchange for its shares of Subco B. This horizontal amalgamation is in all ways legally effective for U.S. corporate and tax purposes.
You have asked if the conditions of paragraph 87(8.1)(c) of the Act have been satisfied in the above situation. In our view, the surviving corporation (Subco A) would be considered the “new foreign corporation” referred to in paragraph 87(8.1)(c). It is also our opinion that the shares of the predecessor corporations (Subco A and Subco B) have become or are exchanged for the shares of the new foreign corporation (Subco A). Therefore, provided the other conditions of subsection 87(8.1) are met, the above amalgamation would qualify as a “foreign merger” within the meaning of that provision.
We hope our comments are of assistance.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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