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 95(2)(e.1) applies to a liquidation of a foreign affiliate (the "disposing affiliate") resident in one country (the "First Country") into second foreign affiliate resident in another country in circumstances where a gain or loss is recognized for tax purposes in the First Country by the disposing affiliate in respect of capital property distributed by it in the course of the dissolution.
Position: Yes it does.
Reasons: The exception only applies where a gain or loss was recognized by the disposing affiliate under the tax law of its country of residence in respect of capital property distributed by it in the course of the liquidation to another foreign affiliate of the taxpayer resident in that same country.
XXXXXXXXXX 991296
Olli Laurikainen
Attention: XXXXXXXXXX
November 24, 1999
Dear Sirs:
Re: Paragraph 95(2)(e.1) of the Income Tax Act (the "Act")
This is in reply to your letter dated May 14, 1999 wherein you request our views with respect to the application of paragraph 95(2)(e.1) of the Act in the following hypothetical fact situation.
1) Canco is a corporation resident in Canada.
2) FA1 is a wholly-owned foreign affiliate of Canco resident in a foreign ("Country A").
3) FA2 is a second foreign affiliate of Canco resident in a foreign country other than Country A ("Country B"). FA1 owns 100% of the shares of FA2.
4) FA2 is liquidated and dissolved.
You request our view whether paragraph 95(2)(e.1) of the Act would apply in the above circumstances.
Our Views
In our view the provisions of paragraph 95(2)(e.1) of the Act would apply in the above circumstances. It would not matter whether or not under the income tax law of Country B, a gain or loss was recognized by FA2 in respect of any capital property distributed by it in the course of the liquidation to FA1.
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 the Canada Customs and Revenue Agency.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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