7 July 1999 Income Tax Severed Letter 9921403 - Supplementary to 990262

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.

SUMMARY: Supplementary to 990262—ITA-40(1)—Advance income tax ruling - Amendments to advance income tax ruling.

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 3-992140 Attention: XXXXXXXXXX XXXXXXXXXX Attention: XXXXXXXXXX XXXXXXXXXX , 1999 Dear Sirs: Re: XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX Advance Income Tax Ruling This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling that the proposed transactions described herein will not affect the income tax rulings contained in our letter dated XXXXXXXXXX , 1999, our file number 3-990262 as amended by our letter of XXXXXXXXXX , 1999, our file XXXXXXXXXX (the “Ruling”). We also acknowledge your letters of XXXXXXXXXX and our various telephone conversations. We understand that to the best of your knowledge, and that of XXXXXXXXXX and Investor, the issues involved in this advance ruling request have not been involved in an earlier return of XXXXXXXXXX or Investor or any person related thereto, have not been ruled upon by Revenue Canada in connection with XXXXXXXXXX or Investor or any person related thereto, have not been considered by a Tax Services Office or Taxation Centre in connection with a tax return already filed by XXXXXXXXXX or Investor or any person related thereto, are not under objection or appeal by XXXXXXXXXX or Investor or any person related thereto and are not before the courts. Terms defined in the Ruling to have a certain meaning have the same meaning when used in this letter. FACTS 1. In accordance with the description of the proposed transactions in the Ruling, the Butterfly Reorganization was completed on XXXXXXXXXX , and immediately thereafter Investor subscribed for and acquired the XXXXXXXXXX Shares constituting XXXXXXXXXX % of the issued and outstanding shares of Newco after such subscription. XXXXXXXXXX owns all the issued and outstandingXXXXXXXXXX common shares of Newco which constitutes the remaining XXXXXXXXXX % of the issued and outstanding shares of Newco. 2. On XXXXXXXXXX , Investor agreed with XXXXXXXXXX to sell the XXXXXXXXXX Shares to an entity to be established by XXXXXXXXXX , as described in paragraph 7 below, provided that XXXXXXXXXX and Newco consent to such sale. 3. XXXXXXXXXX is a corporation incorporated in XXXXXXXXXX and is a wholly owned subsidiary of XXXXXXXXXX a corporation incorporated under the laws of XXXXXXXXXX . 4. XXXXXXXXXX is a corporation incorporated in XXXXXXXXXX . All of the common shares of XXXXXXXXXX , which carry XXXXXXXXXX % of the votes in an election of directors of XXXXXXXXXX , are indirectly held by XXXXXXXXXX through wholly owned subsidiaries of XXXXXXXXXX has issued preferred shares to arm's length holders, which shares carry XXXXXXXXXX % of the votes in an election of directors of XXXXXXXXXX . XXXXXXXXXX was established in XXXXXXXXXX to hold, indirectly, the investment made XXXXXXXXXX 5. XXXXXXXXXX is a corporation incorporated in XXXXXXXXXX and is a wholly owned subsidiary of XXXXXXXXXX . 6. XXXXXXXXXX loaned Investor the amount of XXXXXXXXXX (the “Investor Receivable”) which was used by Investor to pay for the XXXXXXXXXX Shares. XXXXXXXXXX owes XXXXXXXXXX (the “XXXXXXXXXX Receivable”) as a result of a loan from XXXXXXXXXX to XXXXXXXXXX ; the making of this loan was not related in any way to the acquisition of the XXXXXXXXXX Shares. PROPOSED TRANSACTIONS 7. A trust will be established under the laws of XXXXXXXXXX under a Trust Agreement (the “Trust”). Pursuant to the Trust Agreement, Investor will be the trustee of the Trust and XXXXXXXXXX will be the only beneficiaries of the Trust. Each of XXXXXXXXXX will be entitled to share in income and capital distributions by the Trust. Investor as the trustee of the Trust will manage and control the assets of the Trust, including the XXXXXXXXXX Shares, in the United States. 8. Investor will sell to the Trust the XXXXXXXXXX Shares. The purchase price to be paid by the Trust for the XXXXXXXXXX Shares will be XXXXXXXXXX Investor has complied with the provisions of section 116 by obtaining a certificate in prescribed form with an appropriate certificate limit from the XXXXXXXXXX Taxation Services Office prior to the transfer of the XXXXXXXXXX Shares to the Trust. 9. The Trust will pay for the XXXXXXXXXX Shares in the following manner: (a) XXXXXXXXXX will transfer to XXXXXXXXXX as a contribution of capital a portion of the Investor Receivable, such portion (the “$XXXXXXXXXX Receivable”) having a principal amount of approximately XXXXXXXXXX will contribute the $XXXXXXXXXX Receivable to the Trust to obtain XXXXXXXXXX beneficial interest in the Trust. (b) XXXXXXXXXX will contribute to the Trust a portion of the XXXXXXXXXX Receivable, such portion (the “$XXXXXXXXXX Receivable”) having a principal amount of approximately XXXXXXXXXX , to obtain XXXXXXXXXX beneficial interest in the Trust. (c) The Trust will transfer to Investor the $XXXXXXXXXX Receivable and the $XXXXXXXXXX Receivable in payment of the purchase price for the XXXXXXXXXX Shares. As a result of these transfers of receivables by the Trust to Investor, the $XXXXXXXXXX Receivable will be extinguished and the principal amount of the Investor Receivable will be reduced to approximately XXXXXXXXXX . (d) Investor will transfer the $XXXXXXXXXX Receivable to XXXXXXXXXX in payment of the remaining XXXXXXXXXX owing to XXXXXXXXXX by Investor under the Investor Receivable. 10. The Trust will also assume the obligation of Investor to reimburse XXXXXXXXXX for the costs incurred by it in connection with the acquisition of the XXXXXXXXXX Shares. The Trust will subsequently satisfy its obligation to make such reimbursement out of income earned by the Trust. 11. Pursuant to the provisions of Treasury Regulation 301.7701-3 under the Internal Revenue Code of the United States (the “Code”), the Trust will be treated as a partnership for purposes of the Code. As a result of being treated as a partnership for purposes of the Code all of the income of the Trust will be allocated to XXXXXXXXXX for United States federal income tax purposes. XXXXXXXXXX 12. There is no intention to wind-up or otherwise discontinue the corporate existence of Investor. PURPOSE OF THE PROPOSED TRANSACTIONS 13. The purpose of the proposed transaction is XXXXXXXXXX XXXXXXXXXX had determined that it would be preferable that the XXXXXXXXXX Shares be held by a trust. However, it was not possible for the Trust to have made the arrangements to be the original subscriber of the XXXXXXXXXX Shares to take place in time for the proposed transactions described in the Ruling. The parties are not aware of any “tax benefit” under the Act (as that term is defined in subsection 245(1)) that will result from any of the proposed transactions described herein, in and by themselves, other than the reduction of any liability for Canadian income tax that Investor might have on any gain on its disposition of the XXXXXXXXXX Shares, as a result of the application of the provisions of the Convention. RULING Provided that the above statements are accurate and constitute complete disclosure of all of the relevant facts, proposed transactions and the purposes of the proposed transactions, we confirm the following: A. The proposed transactions described herein, in and by themselves, will not affect the rulings contained in the Ruling. This ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996 issued by Revenue Canada and is binding provided that the proposed transactions are completed before XXXXXXXXXX . This ruling is based on the Act as it currently reads and does not take into account any future amendments, whether currently proposed or not, to the Act. COMMENTS Nothing in this letter should be construed as implying that Revenue Canada has agreed to or accepted: (a) the income tax consequences of the transactions described herein, other than as specifically set out in the ruling above;

(b) the determination of the fair market value or adjusted cost base of any property referred to herein; or

(c) whether the proposed sale of the XXXXXXXXXX Shares by Investor to the Trust, is or is not part of the same series of events or transactions that include the deemed dividends described in Ruling L of the Ruling, as such determination is a question of fact which is not covered by this ruling.

Yours truly,

for Director Reorganizations and International Division Income Tax Rulings and Interpretations Directorate Policy and Legislation Branch