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 991599
Attention: XXXXXXXXXX
XXXXXXXXXX, 1999
Dear Sirs:
Re: XXXXXXXXXX
This is in reply to your letters of XXXXXXXXXX, wherein you requested an advance income tax ruling in respect of the above-noted taxpayer.
We are advised that, to the best knowledge of the taxpayers, the issues involved in this advance income tax ruling request are not in an earlier return of XXXXXXXXXX or of any of the other companies noted in this ruling request or of any other related person. Furthermore, these issues are not under objection or appeal and are not being considered by any of the tax services office or taxation centres in connection with any tax return already filed and they are not the subject of a ruling previously issued by the Directorate.
In this letter, any references to the "Act" are references to the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.), as amended to the date hereof, and unless otherwise stated, every reference herein is a reference to the relevant provision of the Act.
Our understanding of the relevant facts, the proposed transactions and the purposes of the proposed transactions is as follows:
Facts
1. XXXXXXXXXX is a corporation resident in the United States and incorporated under the laws of XXXXXXXXXX an affiliate of XXXXXXXXXX, is a corporation resident in the United States and incorporated under the laws of XXXXXXXXXX. In addition to their United States operations, XXXXXXXXXX and its subsidiaries conduct an international business involving XXXXXXXXXX.
2. XXXXXXXXXX and is an indirect wholly-owned subsidiary of XXXXXXXXXX. It is the principal international holding company for XXXXXXXXXX corporation which is an indirect wholly-owned subsidiary ofXXXXXXXXXX.
3. XXXXXXXXXX is an unlimited liability company incorporated in XXXXXXXXXX and is a "taxable Canadian corporation" as defined in subsection 89(1). XXXXXXXXXX conducts a business of XXXXXXXXXX in Canada. By way of background, XXXXXXXXXX ( a limited liability corporation that was incorporated under the Canada Business Corporations Act on XXXXXXXXXX) was wholly-owned by XXXXXXXXXX. In XXXXXXXXXX was continued under the laws of XXXXXXXXXX and was then amalgamated with a new wholly-owned subsidiary that was a XXXXXXXXXX unlimited liability company ("XXXXXXXXXX"), and the new corporation formed as a consequence of the amalgamation, XXXXXXXXXX, continued as an unlimited liability company. Prior to the amalgamation described above, all of the shares of XXXXXXXXXX owned by XXXXXXXXXX were transferred to XXXXXXXXXX on XXXXXXXXXX. It is your understanding that the purpose of this transfer was to limit XXXXXXXXXX liability and that the transferee's only assets were the XXXXXXXXXX shares.
4. XXXXXXXXXX.
5. The current estimated fair market values of the shares of XXXXXXXXXX are as follows:
XXXXXXXXXX
XXXXXXXXXX
6. The adjusted cost bases ("ACB"), as defined in section 54, of the shares of XXXXXXXXXX are as follows:
XXXXXXXXXX
XXXXXXXXXX
7. XXXXXXXXXX.
8. The Purchase Agreement provided, among other things, that XXXXXXXXXX (or its designated subsidiaries) would acquire XXXXXXXXXX subsidiaries, including XXXXXXXXXX, and certain other assets from the XXXXXXXXXX (or from subsidiaries of the XXXXXXXXXX) for total cash consideration of US$XXXXXXXXXX (of which, subject to adjustments at closing, US$XXXXXXXXXX was attributable to the shares of XXXXXXXXXX), such consideration to be paid by XXXXXXXXXX to the XXXXXXXXXX at closing.
9. XXXXXXXXXX formed the following companies to complete the Acquisition: XXXXXXXXXX.
10. XXXXXXXXXX.
11. XXXXXXXXXX.
12. XXXXXXXXXX.
13. XXXXXXXXXX.
14. XXXXXXXXXX.
15. XXXXXXXXXX.
16. XXXXXXXXXX.
17. Prior to the proposed amalgamation of XXXXXXXXXX described below, XXXXXXXXXX plans to transfer at fair market value the beneficial ownership of its trademarks and the associated right to sell goods bearing the trademarks to a wholly-owned Canadian subsidiary in exchange for shares of the subsidiary. The trademarks have a nil cost for tax purposes and the parties will file an election under subsection 85(1) to have the transfer take place at $XXXXXXXXXX for tax purposes. The transferee will then licence XXXXXXXXXX to use the trademarks to manufacture and sell goods bearing the trademarks.
Proposed Transaction
18. XXXXXXXXXX will amalgamate and continue as an unlimited liability company under the law of XXXXXXXXXX ("MergeCo"). The terms of the amalgamation will provide that all of the rights, assets, privileges, liabilities and obligations of each of XXXXXXXXXX will become rights, assets, privileges, liabilities and obligations of MergeCo and that the authorized and issued capital of XXXXXXXXXX will become the authorized and issued capital of MergeCo.
19. Immediately prior to the completion of the amalgamation, the capital property, as defined in section 54, of XXXXXXXXXX will include the shares of XXXXXXXXXX. In connection with the amalgamation of XXXXXXXXXX to form MergeCo, a designation will be made under the provisions of subsection 87(11), and paragraph 88(1)(d) to increase, within the limits described in paragraphs 88(1)(d), the ACB of certain capital property (other than ineligible property as defined in paragraph 88(1)(c)) owned by XXXXXXXXXX immediately before the amalgamation. More particularly, such property will include the shares of XXXXXXXXXX, but not the shares of the subsidiary described in paragraph 17 above. No property acquired by MergeCo on the amalgamation, or any other property acquired by any person in substitution therefor, will be acquired by a person or persons described in subclauses 88(1)(c)(vi)(B)(I), (II) or (III).
Purpose of the Proposed Transaction
20. The purpose of the proposed transaction is to permit XXXXXXXXXX to reorganize its corporate structure following the acquisition of the XXXXXXXXXX assets and subsidiaries. Following the amalgamation of XXXXXXXXXX, MergeCo may sell the shares of XXXXXXXXXX to other non-Canadian holding companies directly or indirectly wholly-owned by XXXXXXXXXX.
Rulings
Provided that the above statements constitute complete and accurate disclosure of all the relevant facts, proposed transactions and purposes of the proposed transactions, we rule that:
a) Pursuant to subsection 87(11), and paragraphs 88(1)(c) and (d), the cost to MergeCo of the property acquired by MergeCo on the amalgamation of XXXXXXXXXX will be deemed to be the amount deemed by paragraph 88(1)(a) to be the proceeds of disposition of the property to XXXXXXXXXX, plus, where the property is a capital property of XXXXXXXXXX at the time that XXXXXXXXXX last acquired control of XXXXXXXXXX, subject to the provisions of subparagraphs 88(1)(d)(ii) and (iii), such portion of the amount, if any, by which:
i) the aggregate of the ACB to XXXXXXXXXX of its shares of XXXXXXXXXX immediately before the amalgamation of XXXXXXXXXX.
exceeds
ii) the aggregate of the amounts determined under subparagraphs 88(1)(d)(i) and (i.1)
and as is designated by MergeCo in its return of income under Part I of the Act for its first taxation year commencing after XXXXXXXXXX are amalgamated.
b) Section 245 will not be applied as a result of the proposed transactions, in and by themselves, to redetermine the tax consequences confirmed in the ruling given in paragraph (a) above.
These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996, provided that the proposed transactions are completed by XXXXXXXXXX.
These rulings are based on the Act as it currently reads and do not take into account any future amendments, whether currently proposed or not, to the Act.
Nothing in this letter should be construed as confirmation, express or implied, of:
(a) the determination of the fair market value, ACB, paid-up capital of any particular shares referred to herein; or
(b) the tax consequences of any of the transactions described in this letter other than as specifically described.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretation Directorate
Policy and Legislation Branch
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, 1999
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, 1999
Email this Content