News of Note
GST/HST Headquarters Letters August 2012
Email this ContentThis afternoon's release of 12 GST/HST Headquarters Letters is now available for your viewing.
Michael C. Durst suggests that the OECD draft discussion on transfer pricing for intangibles will combat income shifting through the mere transfer of cash to purchase or develop intangibles
The former director of the IRS's advance pricing agreement program has suggested that the the OECD Discussion Draft on Transfer Pricing for Intangibles combats the fallacy that it complies with the transfer pricing rules for income to be shifted to low tax jurisdictions through "the mere transfer of cash" to the affiliates there, i.e., they use cash to purchase intangibles for their fair market value or contract to pay the fair market value of contract services to develop intangibles for their account.
Neal Armstrong. Summary of Michael C. Durst, "OECD's Fight Against Income Shifting - and for Its Global Role," Tax Notes International, 3 December 2012, p. 933 under Treaties -Art. 9.
Rights offering of the MINT Income Fund is non-taxable
The MINT Income Fund will distribute rights to acquire its units to its unitholders - other than US unitholders, who are ineligible under the 1933 Act to receive certificates for rights, and will instead receive sales proceeds (if any) from the sale of the rights certificates that they would have received if the rights had been registered under that Act. The rights will be TSX-listed, implying that they are anticipated to have a positive value.
The tax disclosure indicates that the rights issuance "should have no immediate tax consequences for a Unitholder," so that this issuance should not give rise to a taxable benefit under s. 105(1). This may turn on the proposition that any positive value of the rights received by a unitholder (or the cash proceeds in lieu thereof in the case of a US unitholder) will be offset by dilution in the value of the units held.
Neal Armstrong. Summary of the MINT Income Fund preliminary short form prospectus under Offerings - Rights Offerings.
GST/HST Headquarters Letters July 2012
GSH/HST Headquarters letters for July 2012 are now available for your viewing.
CRA finds that a s. 84.1 deemed dividend can be an eligible dividend
CRA accepts that a dividend which is deemed by s. 84.1 to be received by an individual from a corporation with which he does not deal at arm's length is an eligible dividend which the deemed payor of the dividend can designate under s. 89(1) as coming out of its GRIP notwithstanding that the individual does not hold any shares of that corporation.
Neal Armstrong. Summary of 5 October 2012 APFF Roundtable, Q. 11 2012-0454091C6 F under s. 89(14).
CRA finds that grant of power of attorney did not result in an acquisition of control
CRA has stated that the granting of the power of attorney over the shares of a corporation in favour of the shareholder's accountant (an arm's length person), which then took effect on the shareholder's incapacity, did not result in an acquisition of control of the corporation. Under Duha, such an arrangement, which was external to corporation's corporate constitution, did not affect its control.
Neal Armstrong. Summary 5 October 2012 APFF Roundtable, Q 17 2012-0454111C6 F of under s. 249(4).
CRA reaffirms that winding-up an inter vivos trust does not shorten its taxation year
CRA considers that the taxation year end of an inter vivos trust is not shortened as a result of being wound-up in the year, so that the 90-day return filing deadline is still based on the calendar year. This is generally consistent with s. 132(6.2), which can deem a mutual fund trust to exist in the portion of a year in which it did not in fact exist, and also is consistent with earlier positions (28 February 1998 T.I. 9714685 and 17 July 2000 Memorandum 2000-0012557).
Neal Armstrong. Summary of 7 November 2012 T.I. 2012-0468101E5 under s. 249(1).
Income Tax Severed Letters 5 December 2012
This week's release of 13 severed letters from the Income Tax Rulings Directorate is available for your viewing.
Northwest International Healthcare Properties REIT structures its Australasian and German portfolio
As TSXV-listed Northwest International Healthcare Properties REIT is effectively privately-owned as to 96%, a unit offering under a short-form prospectus will effectively take it public. It currently holds Australasian, German and Brazilian properties.
The Australasian properties are held through a 20% interest in a New Zealand REIT, which has been transferred out under a securities lending arrangement, perhaps in order to avoid local withhholding tax. The German assets are held through a complex structure, but without apparently using the co-ownership fund structure used by Dundee International REIT. Rents on the Brazilian property have been securitized.
Neal Armstrong. Summary of Northwest International Healthcare Properties REIT short-form prospectus under Offerings - Cross-Border REITs.
Private company split-up butterfly raises Part IV tax/dividend refund circularity issue
A CCPC (DC) whose only significant asset is a shareholding (not exempt from Part IV tax) in a Canadian public company (Pubco) is butterflying that asset out to its numerous CCPC shareholders (TCs), who are owned by 3rd or 4th generation family members and to which it is not connected for Part IV tax exemption purposes. As both the deemed dividends arising on the redemption of the preferred shares issued by the TCs to DC on the butterfly, and the deemed dividends arising on the winding-up of DC (on which the promissory notes received by DC on the redemption of the TC preferred shares are distributed to the TCs) are subject to Part IV tax and generate a dividend refund, there is a classic circularity problem.
The ruling letter does not address this issue directly, but indicates that the stated capital of the TC preferred shares is nominal, and the stated capital of DC's shares is reduced to a nominal amount before its winding-up, in order "to ensure that each of the TCs and DC’s respective dividend refund ... and respective Part IV tax liabilities ... will approximately be equal to each other."
Neal Armstrong. Summary of 2012 Ruling 2011-0416001R3 under s. 55(1) - distribution.