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: Where a Canadian company is engaged by a non-resident Fund manager to provide accounting and clerical services in Canada, whether the non- resident Fund or its manager carries on business in Canada
Reasons: Based on the specific facts and proposed transactions the Canadian company is not acting in the capacity of an agent for the non-residents and is not simply an extension of the non-residents.
Advance Income Tax Ruling
This is in reply to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above named parties (the "Parties"). We also acknowledge the additional information that you provided in your letter of XXXXXXXXXX in respect of that request.
XXXXXXXXXX tax affairs are administered by the XXXXXXXXXX Tax Services Office and it files its income tax returns at the XXXXXXXXXX Taxation Centre under Account Number XXXXXXXXXX.
In this letter the following terms have the meanings specified:
(a) "Act" means 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 to a Part, section, subsection, paragraph or subparagraph is a reference to the relevant provisions of the Act;
(b) "Fund" means XXXXXXXXXX, which is a company incorporated under the laws of XXXXXXXXXX and which has not been continued under the laws of Canada;
(d) "Canco" means XXXXXXXXXX, a corporation incorporated under the Business Corporations Act (XXXXXXXXXX); and
(e) "XXXXXXXXXX" means XXXXXXXXXX, a limited partnership organized under the laws of XXXXXXXXXX.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
1. To the best of your knowledge and that of the Parties involved, none of the issues involved with this request:
(a) is involved in an earlier return of the Parties or a related person;
(b) is being considered by a tax services office or a taxation centre in connection with a tax return already filed by the Parties or a related person;
(c) is under objection by the Parties or a related person; or
(d) is before the courts or, if a judgement has been issued, the time limit for appeal has not expired.
2. The Fund is a company incorporated under the laws of the XXXXXXXXXX and has not been continued under the laws of Canada. The Fund does not have an office or any physical presence in Canada.
3. The Fund has a board of directors. The Fund's affairs are managed under the supervision of its board of directors. None of the directors is or will be resident in Canada. No board meetings are or will be held in Canada.
4. Shares of the Fund are and will continue to be offered for sale at the net asset value of the shares. The shares of the Fund are generally redeemable at the end of each calendar month, at the option of the holder, at their net asset value, subject to certain restrictions. The shares of the Fund are offered in many countries. The shares are and will not be marketed for sale in Canada although sophisticated Canadian investors may purchase shares from the Fund or its agents located outside of Canada. Currently, no shares are held by any persons with addresses in Canada.
5. The investment objective of the Fund is to achieve long-term capital appreciation principally through investments in the equity securities of companies incorporated in or whose principal operations are located in XXXXXXXXXX. The Fund may also invest in debt instruments, privately placed securities, leverage derivatives, including futures, options, options on futures, forwards, swaps (including equity swaps) in the European and occasionally in the non-European market (including potentially Canada).
6. XXXXXXXXXX provides day to day management and administration of the Fund pursuant to an agreement with the Fund. XXXXXXXXXX is a corporation incorporated under the laws of the XXXXXXXXXX. None of the directors of XXXXXXXXXX is resident in Canada and no meetings of the board of directors of XXXXXXXXXX are or will be held in Canada. XXXXXXXXXX does not have an office or any physical presence in Canada.
7. XXXXXXXXXX performs administrative, accounting, and clerical services for the Fund. XXXXXXXXXX also renders such services to many other investment funds resident in the XXXXXXXXXX. Among other things, XXXXXXXXXX maintains the shareholder registers for the Fund, is responsible for shareholder relations, and maintains their offices in XXXXXXXXXX.
8. XXXXXXXXXX is the principal investment advisor of the Fund. It is a limited partnership organized under the laws of XXXXXXXXXX. None of the partners of XXXXXXXXXX is or will be a resident of Canada. XXXXXXXXXX does not have an office or any physical presence in Canada. As the investment advisor of the Fund, XXXXXXXXXX has the exclusive right to make investment decisions for the Fund, in accordance with the investment guidelines and objectives of the Fund.
9. XXXXXXXXXX deals at arm's length with the shareholders of the Fund and XXXXXXXXXX.
10. Canco is a corporation incorporated under the Business Corporations Act (XXXXXXXXXX) and is controlled by a corporation incorporated outside of Canada which is related to XXXXXXXXXX, which is not a resident of Canada for purposes of the Act and which does not have an office or any physical presence in Canada.
11. Canco has an office in XXXXXXXXXX and currently employs XXXXXXXXXX people. Canco employs only persons that are presently resident in Canada. The board of directors of Canco is comprised of XXXXXXXXXX members, XXXXXXXXXX resident in Canada. All meetings of the board of Canco are and will be held in Canada. No employees of either XXXXXXXXXX or any related corporation, other than employees of Canco, direct the day to day activities of Canco.
12. It is proposed that Canco will provide on behalf of XXXXXXXXXX, the services described below in respect of the Fund. In order to achieve this result, XXXXXXXXXX will enter into an administrative services agreement with Canco (the "Administrative Services Agreement"). Under the Administrative Services Agreement, Canco will provide the following, and only the following, services in respect of the Fund:
(a) preparing and maintaining all customary financial and accounting books in appropriate form and in sufficient detail to support an annual independent audit of the financial condition of the Fund in accordance with instructions provided by XXXXXXXXXX;
(b) making books and records available for audit purposes and answering questions with respect to the same;
(c) based on accounting records, calculating the fees and expenses of the directors in connection with attending meetings, non-Canadian taxes, non-Canadian filing fees and other costs and expenses incurred for the account of the Fund (other than transaction costs and related expenses relating to the investment programs of the Fund);
(d) preparing quarterly and annual financial statements for the Fund;
(e) computing the market value and net asset value of the assets held by the Fund;
(f) calculating proceeds for the redemption of shares of the Fund;
(g) calculating the amount of dividends that may be paid by the Fund in accordance with guidelines provided by XXXXXXXXXX;
(h) calculating the fees payable to XXXXXXXXXX in accordance with the relevant formulae;
(i) preparing monthly and weekly reports containing statements of assets and liabilities, operations, changes in net assets and subsidiary or detailed reports, as may be requested by XXXXXXXXXX;
(j) placing on ledgers any capital transaction information, (i.e. share subscriptions and redemptions) based on information received from XXXXXXXXXX; and
(k) any other accounting and accounting-related functions incidental to the foregoing.
13. Canco will begin to render services described in paragraph 12 above in respect of the Fund under the Administrative Services Agreement promptly after the ruling requested has been granted.
14. XXXXXXXXXX will itself provide all other administrative and clerical services for which it is responsible as administrator of the Fund.
15. Pursuant to the Administrative Services Agreement, Canco will have no right to directly affect the legal relations of XXXXXXXXXX as regards other persons or the Fund. Specifically, it will have no authority to make contracts on behalf of XXXXXXXXXX. Furthermore, the Administrative Services Agreement will specifically provide that there will be no agency relationship between XXXXXXXXXX on the one hand and Canco on the other hand.
16. Canco will employ the persons who will perform the services described in the Administrative Services Agreement and will be the lessee of office space. That is, the various contracts entered into by Canco in the course of carrying on its business in Canada will create rights and obligations that are personal to Canco vis-à-vis the third parties.
17. No resolution has been or will be passed by XXXXXXXXXX appointing Canco as its agent, nor has or will a resolution be passed by Canco accepting an appointment as an agent of XXXXXXXXXX.
18. The accounts of Canco will show its profits as its own, with no liability to account therefor to XXXXXXXXXX.
19. Canco is a registered employer with Revenue Canada and will continue to deduct and remit to Revenue Canada income tax, employment insurance contributions and CPP contributions from the remuneration it pays to its employees.
Purpose of the Proposed Transaction
The Fund and XXXXXXXXXX have requested Canco to provide services in respect of the Fund for the same reason Canco provides such services in respect of other investment funds. Canada continues to be an appropriate jurisdiction in which to carry on an administrative services business because of its excellent telecommunications network, educated labour force, and its location in the same time zones as regions in the United States where much of the portfolio management for investment funds is carried out. Canco now has over XXXXXXXXXX years experience providing these services in respect of investment funds. The Administrative Services Agreement provides an excellent opportunity for Canco to continue to grow and employ additional residents of Canada.
Provided that the above statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and that the proposed transactions are carried out as set forth herein, the following ruling is given:
A. The furnishing of services by Canco under the Administrative Services Agreement, in and by itself, will not cause XXXXXXXXXX or the Fund to be carrying on business in Canada for the purpose of paragraph 2(3)(b).
The above ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996 issued by Revenue Canada, Customs, Excise and Taxation and is binding on Revenue Canada, Customs, Excise and Taxation provided that the Administrative Services Agreement described in paragraph 12 of the Proposed Transactions is signed by XXXXXXXXXX.
The above ruling is based on the law as it presently reads and does not take into account any proposed amendments to the Act which, if enacted into law, could have an effect on the ruling provided herein.
Nothing in this ruling should be construed as implying that Revenue Canada, Customs, Excise and Taxation has agreed to or reviewed any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the ruling given above.
Reorganizations and International Division
Income Tax Rulings and
Policy and Legislation Branch
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