2010 Ruling 2010-0365371R3 - Cross-Border Restructuring

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.

Principal Issues: 1. Computation of equity of amalgamated corporation. 2. Whether Article 11 of the Canada-Luxembourg Tax Convention applies to interest payments made by Canadian-resident ULC to Luxembourg company.

Position: 1. The paid-up capital of the amalgamated corporation, determined immediately after the amalgamation, will be considered the amount determined under s. 18(4)(a)(ii)(C) in respect of the calendar month in which the amalgamation occurs. 2. Provided the recipient is the beneficial owner of the interest income, treaty benefits may be claimed by the Luxembourg-resident company under the Luxembourg Convention.

Reasons: 1. Extension of position taken with respect to determining paid-up capital of newly-formed incorporations for the purposes of s. 18(4). 2. Requirements for treaty benefits are satisfied.

XXXXXXXXXX
									2010-036537
									XXXXXXXXXX
		

XXXXXXXXXX , 2010

Dear Sir and Madam:

Re: XXXXXXXXXX
Advance Income Tax Ruling Request

We are writing in response to your letter of XXXXXXXXXX , in which you requested an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge the information provided in your letters of XXXXXXXXXX , as well as the information provided in e-mail correspondence, and in the course of various telephone conversations. You have advised us that, to the best of your knowledge and that of the taxpayer involved, none of the issues involved in this ruling request are:

(i) in an earlier return of the taxpayer or persons related to the taxpayer;
(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or persons related to the taxpayer;
(iii) under objection by the taxpayer or persons related to the taxpayer;
(iv) before the courts; or
(v) the subject of a ruling previously issued by the Income Tax Rulings Directorate.

Unless otherwise noted, all statutory references herein are to the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended (hereinafter referred to as the "Act"). Unless otherwise noted, all references to currency are to Canadian dollars.

DEFINITIONS

(a) "adjusted cost base" has the meaning assigned by section 54;

(b) "Agreed Amount" means the amount that a transferor and transferee have agreed upon in a joint election under subsection 85(2) in respect of a transfer of eligible property, as adjusted in accordance with paragraphs 85(1)(b) to 85(1)(e.4);

(c) "arm's length" has the meaning assigned by section 251;

(d) "Canco" means XXXXXXXXXX ;

(e) "Canco 2" means XXXXXXXXXX ;

(f) "Canco 2 Debt" has the meaning assigned in Paragraph 14;

(g) "Canco Amalco Common Shares" has the meaning assigned in Paragraph 41;

(h) "Canco Amalco" means the unlimited liability company to be formed on the amalgamation described in Paragraph 41;

(i) "Canco Amalco First Preferred Shares" has the meaning assigned in Paragraph 41;

(j) "Canco Amalco Second Preferred Shares" has the meaning assigned in Paragraph 41;

(k) "Canco Amalco Note 1" has the meaning assigned in Paragraph 41(e);

(l) "Canco Amalco Note 2" has the meaning assigned in Paragraph 41(f);

(m) "Canco Amalco Note 3" has the meaning assigned in Paragraph 42;

(n) "Canco Amalco Note 4" has the meaning assigned in Paragraph 44;

(o) "Canco Amalco Preferred Shares" means the Canco Amalco First Preferred Shares and the Canco Amalco Second Preferred Shares;

(p) "Canco Common Shares" has the meaning assigned in Paragraph 22;

(q) "Canco Notes" has the meaning assigned in Paragraph 24;

(r) "capital property" has the meaning assigned by section 54;

(s) "Code" means the Internal Revenue Code of 1986, 26 U.S.C., as amended, the U.S. Treasury regulations promulgated thereunder, administrative rulings and applicable federal income tax jurisprudence;

(t) "Company Legislation A" means the XXXXXXXXXX ;

(u) "Company Legislation B" means the XXXXXXXXXX ;

(v) "Corporate Law" mean the XXXXXXXXXX ;

(w) "CRA" means the Canada Revenue Agency;

(x) "Effective Date" means XXXXXXXXXX ;

(y) "eligible property" has the meaning assigned by subsection 85(1.1);

(z) "fair market value" means the highest price available in an open and unrestricted market between informed and prudent parties acting at arm's length, and under no compulsion to act, expressed in cash;

(aa) "Fifth Protocol" means the Protocol Amending the Convention Between the United States of America and Canada with respect to Taxes on Income and on Capital signed at Washington on 26 September 1980 as amended by the Protocols signed on 14 June 1983, 28 March 1984, 17 March 1995 and 29 July 1997, signed at Chelsea, Québec on September 21, 2007;

(bb) "GP" means XXXXXXXXXX ;

(cc) "GP 2" XXXXXXXXXX ;

(dd) "ITARs" means the Income Tax Application Rules, R.S.C. 1985 c. 2 (5th Supplement), as amended;

(ee) "LLC 1" means XXXXXXXXXX ;

(ff) "LLC 2" means XXXXXXXXXX ;

(gg) "LLC Legislation " means the XXXXXXXXXX ;

(hh) "Luxco" has the meaning assigned in Paragraph 30;

(ii) "Luxco Common Shares" has the meaning assigned in Paragraph 30(h);

(jj) "Luxco CPECs" has the meaning assigned in Paragraph 38;

(kk) "Luxco Directors" has the meaning assigned in Paragraph 30(b);

(ll) "Luxco Sub" has the meaning assigned in Paragraph 31;

(mm) "Luxco Sub Common Shares" has the meaning assigned in Paragraph 31(h);

(nn) "Luxco Sub Debt" has the meaning assigned in Paragraph 46;

(oo) "Luxembourg Convention" means the Convention Between the Government of Canada and the Government of the Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital signed at Luxembourg on September 10, 1999;

(pp) "New LLC" has the meaning assigned in Paragraph 7;

(qq) "New Partnership 3 Debt" has the meaning assigned in Paragraph 29;

(rr) "Newco" has the meaning assigned in Paragraph 32;

(ss) "Newco Common Shares" has the meaning assigned in Paragraph 32;

(tt) "Newco Preferred Shares" has the meaning assigned in Paragraph 32;

(uu) "Newco Sub" has the meaning assigned in Paragraph 33;

(vv) "Newco Sub Common Shares" has the meaning assigned in Paragraph 33;

(ww) "Newco Sub Note" has the meaning assigned in Paragraph 39;

(xx) "paid-up capital" has the meaning assigned by subsection 89(1);

(yy) "Paragraph" means a numbered paragraph in this letter;

(zz) "Parent Group" means GP1 and Parent and its subsidiary entities, including Canco, Canco 2, GP2, LLC 1, LLC 2, Partnership 1, Partnership 2 and Partnership 3;

(aaa) "Parent" means XXXXXXXXXX ;

(bbb) "Partnership 1 Agreement" has the meaning assigned in Paragraph 20;

(ccc) "Partnership 1 Debt" has the meaning assigned in Paragraph 19;

(ddd) "Partnership 1 GP Interest" has the meaning assigned in Paragraph 19;

(eee) "Partnership 1 LP Interest" has the meaning assigned in Paragraph 19;

(fff) "Partnership 1" means XXXXXXXXXX ;

(ggg) "Partnership 2 Debt" has the meaning assigned in Paragraph 34;

(hhh) "Partnership 2 Legislation" means the XXXXXXXXXX ;

(iii) "Partnership 2" means XXXXXXXXXX ;

(jjj) "Partnership 3 Debt" has the meaning assigned in Paragraph 14;

(kkk) "Partnership 3 GP Interest" has the meaning assigned in Paragraph 13;

(lll) "Partnership 3 Legislation" means XXXXXXXXXX ;

(mmm) "Partnership 3 LP Interest" has the meaning assigned in Paragraph 13;

(nnn) "Partnership 3" means XXXXXXXXXX ;

(ooo) "Proposed Transactions" means the transactions described in Paragraphs 25 to 50;

(ppp) "taxable Canadian corporation" has the meaning assigned by subsection 89(1);

(qqq) "taxable Canadian property" has the meaning assigned by subsection 248(1);

(rrr) "U.S. Convention" means the Convention Between Canada and The United States of America With Respect to Taxes on Income and on Capital, signed at Washington on September 26, 1980, as amended by the Protocols signed on June 14, 1983, March 28, 1984, March 17, 1995, July 29, 1997 and September 21, 2007;

(sss) "XXXXXXXXXX " has the meaning assigned in Paragraph 17

(ttt) "XXXXXXXXXX " has the meaning assigned in Paragraph 17;

(uuu) "United States" or "U.S." means the United States of America;

(vvv) "U.S. Partnership 1 Legislation" means the XXXXXXXXXX ;

(www) "Unitholders" means the holders of Units; and

(xxx) "Units" has the meaning assigned in Paragraph 2.

FACTS

1. Parent and its subsidiary entities are engaged in the business in Canada and the United States of XXXXXXXXXX .

2. Parent is a limited partnership governed by the U.S. Partnership 1 Legislation. The general partner of Parent is GP. Interests in Parent held by its limited partners are described by reference to units XXXXXXXXXX (the "Units"). As of XXXXXXXXXX , there were approximately XXXXXXXXXX Units outstanding that were owned by over XXXXXXXXXX Unitholders. As of XXXXXXXXXX , based on the total fair market value of the outstanding Units, the market capitalization of Parent was approximately US$XXXXXXXXXX .

3. Profits and losses of Parent are allocated to the general partner and other Unitholders in accordance with their respective percentage interests therein. No particular source of income or profit of Parent is allocated to a particular Unitholder or group of Unitholders other than in accordance with the percentage interests of the particular Unitholder or group of Unitholders. Parent makes quarterly cash distributions to GP and the Unitholders on a pro-rata basis, subject to the incentive distribution right described in Paragraph 6. Units also provide Unitholders with a limited set of voting rights on matters affecting the business and governance of Parent.

4. Parent is a XXXXXXXXXX . It is a partnership for the purposes of the Act. It is fiscally transparent under the taxation laws of both Canada and the United States for the purposes of the U.S. Convention.

5. Based on information available to the management of the Parent Group, substantially all the Unitholders of Parent have been persons who are residents of the United States for purposes of the U.S. Convention. XXXXXXXXXX , the overall proportion of such United States-resident Unitholders generally has not varied significantly. No Unitholder owns, directly or indirectly, either alone or together with persons with which such person does not deal at arm's length, XXXXXXXXXX % or more of the outstanding Units.

6. The general partner of Parent is GP, a limited liability company governed under the LLC Legislation. Pursuant to the partnership agreement for Parent, GP manages and operates Parent. GP holds a XXXXXXXXXX % general partnership interest in Parent and an incentive distribution right entitling it to receive distributions in excess of that percentage in the event that cash distributions made to Unitholders exceed certain thresholds.

7. On the Effective Date, Parent will be the sole member of New LLC, a limited liability company formed under the LLC Legislation. New LLC will be disregarded as an entity separate from Parent under the Code and will be fiscally transparent under the taxation laws of the United States for the purposes of the U.S. Convention.

8. Parent owns all of the issued and outstanding shares of GP 2, a corporation governed by the Corporate Law. GP 2 is not resident in Canada for the purposes of the Act and is a resident of the United States for the purposes of the U.S. Convention.

9. GP 2 is the general partner of Partnership 2, a limited partnership governed by the Partnership 2 Legislation, with a XXXXXXXXXX % general partnership interest therein. Parent owns a XXXXXXXXXX % limited partnership interest in Partnership 2.

10. Partnership 2 is treated as a partnership for the purposes of the Code. It is a partnership under the Act. It is fiscally transparent under the taxation laws of Canada and the United States for the purposes of the U.S. Convention.

11. Partnership 2 owns assets and carries on business activities described in Paragraph 1 in the United States. Approximately XXXXXXXXXX % of the fair market value of the limited partnership interest in Partnership 2 is attributable to property owned by Partnership 2 that is situated in the United States. Historically, the revenues and the asset values attributable to the operations of Parent and its subsidiary entities carried on in Canada have been proportionately less than the revenues and asset values associated with the United States operations of those entities.

12. Partnership 2 is the sole member of LLC 2, a limited liability company governed by the LLC Legislation, which owns all the issued shares of Canco 2, an unlimited liability company governed by Company Legislation A. Both LLC 2 and Canco 2 are disregarded as entities separate from their owner for the purposes of the Code. Accordingly, both entities are fiscally transparent under the taxation laws of the United States for the purposes of the U.S. Convention. LLC 2 is not resident in Canada for the purposes of the Act. Canco 2 is a taxable Canadian corporation and a resident of Canada for the purposes of the U.S. Convention.

13. Partnership 3 is a limited partnership formed under the Partnership 3 Legislation. Canco 2 is the general partner of Partnership 3, holding a XXXXXXXXXX % general partnership interest (the "Partnership 3 GP Interest"), and Partnership 2 owns a XXXXXXXXXX % limited partnership interest (the "Partnership 3 LP Interest") in Partnership 3. Partnership 3 is disregarded as an entity separate from its owners for the purposes of the Code and is fiscally transparent under the taxation laws of the United States for the purposes of the U.S. Convention. Partnership 3 is a partnership for the purposes of the Act.

14. Partnership 3 owes Canco 2 XXXXXXXXXX (the "Partnership 3 Debt") and Canco 2 owes XXXXXXXXXX to persons with whom it deals at arm's length ("Canco 2 Debt").

15. The Partnership 3 LP Interest is capital property of Partnership 2.

16. Partnership 3 carries on the business activities described in Paragraph 1 in Canada utilizing assets owned by it that are situated in Canada.

17. Part of the business activities carried on by Partnership 3 involves the XXXXXXXXXX , which business is carried on by personnel situated in the United States utilizing assets situated in the United States. A significant portion of the assets used in the XXXXXXXXXX is comprised of XXXXXXXXXX .

18. LLC 1 is a limited liability company governed by the LLC Legislation. Partnership 2 is the sole member of LLC 1. LLC 1 is disregarded as an entity separate from its owner under the Code and is fiscally transparent under the taxation laws of the United States for the purposes of the U.S. Convention. LLC 1 is not resident in Canada for the purposes of the Act.

19. Partnership 1 is a limited partnership formed under the U.S. Partnership Legislation. LLC 1 is the general partner of Partnership 1, holding a XXXXXXXXXX % general partnership interest (the "Partnership 1 GP Interest"). Partnership 2 holds a XXXXXXXXXX % limited partnership interest (the "Partnership 1 LP Interest") in Partnership 1. Partnership 1 owes Partnership 2 an amount of debt that is denominated in Canadian currency ("Partnership 1 Debt"). It is expected that the Partnership 1 Debt will be equal to the Canco Debt on the Effective Date. Partnership 1 is disregarded as an entity separate from its owners for the purposes of the Code. It is a partnership for the purposes of the Act. Partnership 1 is fiscally transparent under the taxation laws of the United States and Canada for the purposes of the U.S. Convention.

20. The Agreement of Limited Partnership of Partnership 1 (the "Partnership 1 Agreement") provides that, except as otherwise expressly provided in the Partnership 1 Agreement, all powers to control and manage the business and affairs of Partnership 1 shall be vested exclusively in the general partner of such partnership. Such powers include casting votes in respect of the Canco Common Shares.

21. The Partnership 1 LP Interest is capital property to Partnership 2.

22. Canco is an unlimited liability company amalgamated under Company Legislation B. Partnership 1 owns all of the outstanding voting common shares (the "Canco Common Shares") of Canco. Canco is disregarded as an entity separate from its owner under the Code and is fiscally transparent under the taxation laws of the United States for the purposes of the U.S. Convention. Canco is a taxable Canadian corporation and is a resident of Canada for the purposes of the U.S. Convention.

23. Canco carries on business in Canada described in Paragraph 1 utilizing assets owned by it that are situated in Canada.

24. Partnership 1 also owns interest-bearing indebtedness owing by Canco which is denominated in Canadian dollars (the "Canco Notes").

PROPOSED TRANSACTIONS

The following transactions and events will be implemented or undertaken in the order presented below.

25. Prior to the Effective Date, Partnership 2 will make a Canadian-dollar loan to Partnership 1 and Partnership 1 will issue an interest-bearing promissory note that will become part of the Partnership 1 Debt.

26. Prior to the Effective Date, Partnership 1 will distribute to Partnership 2 an amount equal to the amount of the loan described in Paragraph 25. The distribution will be a return of partnership capital.

27. Prior to the Effective Date, Partnership 2 will transfer to Partnership 1 an amount of cash equal to the Canadian dollar equivalent of the Partnership 3 Debt. In consideration for the transfer, the capital account of Partnership 2 in respect of Partnership 1 will be increased.

28. Prior to the Effective Date, Partnership 1 will transfer to Canco an amount of cash equal to the Canadian dollar equivalent of the Partnership 3 Debt. In consideration for the transfer, Canco will issue additional Canco Common Shares.

29. Prior to the Effective Date, Canco will lend Partnership 3 an amount of cash equal to the Canadian dollar equivalent of the Partnership 3 Debt ("New Partnership 3 Debt") and Partnership 3 will use the proceeds of the New Partnership 3 Debt to repay the Partnership 3 Debt. Canco 2 will use the funds it receives from Partnership 3 from the repayment of the Partnership 3 Debt to repay the Canco 2 Debt.

30. Prior to the Effective Date, a Luxembourg société à responsabilité limitée will be formed under the laws of Luxembourg as a wholly-owned subsidiary of Partnership 2 ("Luxco").

(a) The articles of association for Luxco will provide that its objects will be to acquire shares and/or indebtedness or other financial instruments issued by entities within the Parent Group as well as for the administration and collection of these holdings; Luxco will qualify as a fully-taxable holding company or a société de participations financières.

(b) Luxco will have XXXXXXXXXX managers (which are the equivalent of directors under Luxembourg law) ("Luxco Directors"), XXXXXXXXXX of whom will be resident in Luxembourg and not resident in Canada for purposes of the Act, and the remaining XXXXXXXXXX directors will be persons who are not resident in Canada for purposes of the Act. Luxco's central control and management, including the place meetings of the Luxco Directors, will be in Luxembourg.

(c) Under Luxembourg law, the amount of dividends to be paid to shareholders is determined by the net profit, subject to solvency and reserve requirements and the corporate articles. The Luxco Directors will propose a dividend at the annual general meeting to the shareholders who must approve it. Luxco will not be legally obliged to pay dividends to its shareholders. The Luxco Directors will not enter into any agreement that would require them to distribute dividends to the Luxco shareholders (other than the procedures to legally declare dividends described above).

(d) Luxco will be a body corporate for Luxembourg tax purposes and will be a resident of Luxembourg for the purposes of the Luxembourg Convention.

(e) Luxco will not be resident in Canada for purposes of the Act, will not carry on business in Canada and will not maintain a permanent establishment in Canada.

(f) Luxco will have the discretion to reinvest any amounts it receives in respect of any of its assets, in any manner it determines is appropriate.

(g) Payments received by Luxco will be the property of Luxco and will be available to satisfy liabilities owing to its creditors, if any, until such time as the shareholder approves any dividends.

(h) Luxco's share capital will be comprised of voting common shares ("Luxco Common Shares"). Upon formation, Partnership 2 will subscribe and fully pay for XXXXXXXXXX Luxco Common Shares for $XXXXXXXXXX .

(i) The registered office of Luxco will be in Luxembourg.
31. Prior to the Effective Date, Luxco will form a Luxembourg société à responsabilité limitée ("Luxco Sub").

(a) The articles of association for Luxco Sub will provide that its objects will be to acquire shares and/or indebtedness or other financial instruments issued by entities within the Parent Group as well as for the administration and collection of these holdings; Luxco Sub will qualify as a fully-taxable holding company or a société de participations financières.

(b) Luxco Sub will have XXXXXXXXXX managers (which are the equivalent of directors under Luxembourg law) ("Luxco Sub Directors"), XXXXXXXXXX of whom will be resident in Luxembourg and not resident in Canada for purposes of the Act, and the remaining XXXXXXXXXX directors will be persons who are not resident in Canada for purposes of the Act. Luxco Sub's central control and management, including the place meetings of the Luxco Sub Directors, will be in Luxembourg.

(c) Under Luxembourg law, the amount of dividends to be paid to shareholders is determined by the net profit, subject to solvency and reserve requirements and the corporate articles. The Luxco Sub Directors will propose a dividend at the annual general meeting to the shareholders who must approve it. Luxco Sub will not be legally obliged to pay dividends to its shareholders. The Luxco Sub Directors will not enter into any agreement that would require them to distribute dividends to the Luxco Sub shareholders (other than the procedures to legally declare dividends described above).

(d) Luxco Sub will be a body corporate for Luxembourg tax purposes and will be a resident of Luxembourg for the purposes of the Luxembourg Convention.

(e) Luxco Sub will not be resident in Canada for purposes of the Act, will not carry on business in Canada and will not maintain a permanent establishment in Canada.

(f) Luxco Sub will have the discretion to reinvest any amounts it receives in respect of any of its assets, in any manner it determines is appropriate.

(g) Payments received by Luxco Sub will be the property of Luxco Sub and will be available to satisfy liabilities owing to its creditors, if any, until such time as the shareholder approves any dividends.

(h) Luxco Sub's share capital will be comprised of voting common shares ("Luxco Sub Common Shares"). Upon formation, Luxco will subscribe and fully pay for XXXXXXXXXX Luxco Sub Common Shares for $XXXXXXXXXX .

(i) The registered office of Luxco Sub will be in Luxembourg.

32. Prior to the Effective Date, Luxco Sub will incorporate an unlimited liability company under Company Legislation B ("Newco"). Newco's authorized capital will be comprised of voting common shares ("Newco Common Shares") and non-voting, redeemable, retractable preferred shares ("Newco Preferred Shares"), having a redemption amount described in Paragraph 36.

33. Prior to the Effective Date, Newco will incorporate an unlimited liability company under Company Legislation B ("Newco Sub"). Newco Sub's authorized capital will be comprised of voting common shares ("Newco Sub Common Shares").

34. Prior to the Effective Date, Partnership 3 will transfer the XXXXXXXXXX to Partnership 2 at a purchase price equal to the fair market value of the XXXXXXXXXX , in consideration of Partnership 2 issuing indebtedness to Partnership 3 ("Partnership 2 Debt"), with a principal amount equal to the purchase price. The XXXXXXXXXX will not be taxable Canadian property to Partnership 3 or its members at the time of the transfer.

35. On the Effective Date, Parent will transfer its XXXXXXXXXX % interest in Partnership 2 to New LLC as a capital contribution.

36. On the Effective Date, Partnership 2 will transfer the Partnership 1 LP Interest to Newco, at a purchase price equal to the fair market value of the Partnership 1 LP Interest at the time of the transfer. In consideration for the transfer, Newco will issue Newco Preferred Shares with a redemption amount equal to the adjusted cost base of the Partnership 1 LP Interest to Partnership 2 immediately before the transfer and Newco Common Shares with a total fair market value equal to the fair market value of the Partnership 1 LP Interest less the redemption amount of the Newco Preferred Shares. Partnership 2 and Newco will jointly elect, in prescribed form and within the time referred to in subsection 85(6), to have the provisions of subsection 85(2) apply to the transfer. The Agreed Amount in respect of the transfer will be equal to the adjusted cost base of the Partnership 1 LP Interest to Partnership 2 immediately before the transfer. For greater certainty, the Agreed Amount will not be less than the lesser of the two amounts described in subparagraphs 85(1)(c.1)(i) and (ii) the Agreed Amount also will not be less than the amount described in paragraph 85(1)(b).

37. On the Effective Date, Partnership 2 will transfer the Newco Preferred Shares to Luxco Sub, at a purchase price equal to the fair market value of the Newco Preferred Shares at the time of the transfer, in consideration for the issuance of Luxco Sub Common Shares.

38. On the Effective Date, Partnership 2 will transfer the Luxco Sub Common Shares to Luxco, at a purchase price equal to the fair market value of the Luxco Sub Common Shares on the Effective Date, in consideration of Luxco issuing convertible preferred equity certificates ("Luxco CPECs") to Partnership 2, with the principal terms of such instrument described below.

(a) The Luxco CPECs will be convertible into Luxco Common Shares, but Luxco may, at its option, redeem the Luxco CPECs instead of converting them into Luxco Common Shares. The redemption price of the Luxco CPECs will be equal to the fair market value, at the time of redemption, of the Luxco Common Shares into which the Luxco CPECs would have been converted or are convertible.

(b) The Luxco CPECs will have a maturity of XXXXXXXXXX years and are freely transferable, subject to the application of certain Luxembourg law relating to commercial companies. They may be redeemed prior to maturity only at the option of Luxco.

(c) The Luxco CPECs will be denominated in Canadian dollars.

(d) The Luxco CPECs will rank prior to all shares issued or to be issued by Luxco, but will be subordinated to all other present and future debt obligations of Luxco.

(e) The Luxco CPECs will have no voting rights.

(f) The Luxco CPECs will be treated as debt for Luxembourg tax purposes and will bear interest at an annual rate of approximately XXXXXXXXXX %.

39. On the Effective Date, LLC 1 will transfer the Partnership 1 GP Interest to Newco Sub in exchange for the issuance of a demand, interest-bearing promissory note of Newco Sub ("Newco Sub Note").

40. On the Effective Date, Partnership 1 will be dissolved and wound-up and shall cease to exist. Newco Sub shall be appointed liquidator of Partnership 1 to hold all of the property of Partnership 1 until such time as it is distributed to Newco and Newco Sub, as the former partners of Partnership 1. Newco Sub, in its capacity as liquidator of Partnership 1 following the dissolution of Partnership 1, will assign, convey, transfer and deliver undivided interests in all of the property of Partnership 1 to Newco and Newco Sub, in proportion to their interests in Partnership 1, and Newco and Newco Sub shall assume and become liable to pay, satisfy, discharge and observe, perform and fulfill any Partnership 1 liabilities or obligations, in such proportion. Newco and Newco Sub will jointly elect, in prescribed form and within the time referred to in subsection 96(4), to have the provisions of subsection 98(3) apply to the distribution of Partnership 1's property to Newco and Newco Sub.

41. On the Effective Date, Newco, Newco Sub and Canco will amalgamate under Company Legislation B to form Canco Amalco, an unlimited liability company. Canco Amalco's articles of incorporation will be the same as Canco's articles of incorporation, except that its share capital will include voting common shares ("Canco Amalco Common Shares") and two classes of non-voting, redeemable, retractable, preferred shares being ("Canco Amalco First Preferred Shares) and ("Canco Amalco Second Preferred Shares"). On the amalgamation:

(a) all of the property of Newco, Newco Sub and Canco (except for amounts receivable from Newco, Newco Sub and Canco and the shares of Newco Sub and Canco) will become property of Canco Amalco;

(b) all of the liabilities of Newco, Newco Sub and Canco (except for amounts payable to Newco, Newco Sub and Canco) will become liabilities of Canco Amalco;

(c) Luxco Sub will receive Canco Amalco Common Shares in exchange for its Newco Preferred Shares and its Newco Common Shares. The fair market value of the shares received by Luxco Sub will be equal to the total fair market value of the Newco Preferred Shares and Newco Common Shares held by it immediately before the amalgamation;

(d) Partnership 2 will receive Canco Amalco First Preferred Shares in exchange for its Newco Common Shares with a fair market value equal to the fair market value immediately before the amalgamation, of Partnership 2's Newco Common Shares;

(e) the Newco Sub Note will become indebtedness of Canco Amalco ("Canco Amalco Note 1");

(f) the Partnership 1 Debt will become indebtedness of Canco Amalco ("Canco Amalco Note 2");

(g) the New Partnership 3 Debt will become indebtedness owed by Partnership 3 to Canco Amalco;

(h) and the Canco Note will be extinguished.

42. On the Effective Date, Partnership 2 will transfer the Partnership 3 LP Interest to Canco Amalco, at a purchase price equal to the fair market value of the Partnership 3 LP Interest at the time of the transfer. In consideration for the transfer, Canco Amalco will assume the Partnership 2 Debt, issue a promissory note, denominated in Canadian dollars, with a principal amount equal to the amount by which the adjusted cost base of the Partnership 3 LP Interest to Partnership 2 immediately before the transfer exceeds the principal amount of the Partnership 2 Debt ("Canco Amalco Note 3"), and issue Canco Amalco Second Preferred Shares with a fixed aggregate redemption amount equal to the amount of the aforementioned purchase price minus the aggregate of the principal amounts of the Partnership 2 Debt and Canco Amalco Note 3. Partnership 2 and Canco Amalco will jointly elect, in prescribed form and within the time referred to in subsection 85(6), to have the provisions of subsection 85(2) apply to the transfer of the Partnership 3 LP Interest to Canco Amalco. The Agreed Amount in respect of the transfer of the Partnership 3 LP Interest by Partnership 2 will be equal to the adjusted cost base of the Partnership 3 LP Interest to Partnership 2 immediately before the transfer. For greater certainty, the Agreed Amount will not be less than the lesser of the two amounts described in subparagraphs 85(1)(c.1)(i) and (ii) and will not be less than the amount described in paragraph 85(1)(b).

43. Partnership 3 will be converted from a limited partnership to a general partnership.

44. On the Effective Date, Canco 2 will transfer the Partnership 3 GP Interest to Canco Amalco at a purchase price equal to its fair market value at the time of the transfer in consideration for indebtedness of Canco Amalco having a principal amount equal to the purchase price, to be evidenced by the issuance by Canco Amalco of a promissory note ("Canco Amalco Note 4"). Partnership 3 will cease to exist under Partnership 3 Legislation as a consequence of the transfer and the business activities formerly carried on by Partnership 3 thereafter will be carried on by Canco Amalco. The New Partnership 3 Debt and the Partnership 2 Debt will be extinguished on the cessation of Partnership 3.

45. On the Effective Date, Partnership 2 will transfer Canco Amalco Note 2 and Canco Amalco Note 3 (together, the "Canco Amalco Debt") to Luxco, at a purchase price equal to the aggregate fair market value of the Canco Amalco Debt at the time of the transfer, in consideration for the issuance of interest-bearing indebtedness of Luxco with an interest rate equal to the rate of interest accruing on the Luxco Sub Debt described in Paragraph 46 less XXXXXXXXXX basis points (the "Luxco Debt").

46. On the Effective Date, Luxco will transfer the Canco Amalco Debt to Luxco Sub at a purchase price equal to the fair market value of the Canco Amalco Debt on the Effective Date, in consideration for the issuance of indebtedness of Luxco Sub that bears interest equal to the net interest accruing on the Canco Amalco Debt (the "Luxco Sub Debt").

47. After the Effective Date, Canco Amalco will repay Canco Amalco Note 1 and Canco Amalco Note 4 with cash or through reduction of intercompany balances.

48. LLC 1 will be wound-up.

49. New LLC will be wound-up.

50. Canco Amalco will pay interest to Luxco Sub on the Canco Amalco Debt.

PURPOSES OF THE PROPOSED TRANSACTIONS

51. The Proposed Transactions will allow the Parent Group to consolidate its Canadian operations in one Canadian resident corporation to enhance operational, administrative and financial reporting efficiencies.

52. The Proposed Transactions will allow Canco Amalco to determine, with certainty, the withholding tax rate applicable to the payment of interest on the Canco Amalco Debt without having to undertake extraordinary information gathering and analysis of a number of different tax treaties to do so.

53. The Proposed Transactions reduce the negative Canadian tax consequences that otherwise would arise under Article IV(7)(b) of the U.S. Convention from converting Partnership 3 to corporate form to avoid the application of the "specified investment flow-through" partnership rules that otherwise may apply to Partnership 3 effective XXXXXXXXXX .

54. The Proposed Transactions will allow Canco to reduce the administrative burden and compliance costs that arise from complying with the provisions of the U.S. Convention, which costs represent new costs to the Parent Group that arise solely because of changes to the U.S. Convention introduced by the Fifth Protocol.

55. The Proposed Transactions should reduce the compliance costs and administrative burdens for the Unitholders and the Parent Group, and, in particular those burdens that arise in respect of Unitholders who are not resident in Canada for purposes of the Act and are currently required to file Canadian income tax returns in respect of income earned by Partnership 3. In addition, the Proposed Transactions should eliminate the preparation by the Parent Group of partnership information returns for an extraordinary large number of Unitholders.

56. The Proposed Transactions seek to achieve the above objectives in a manner that is tax-efficient, with respect to the Canadian federal income tax consequences to the Parent Group and the Unitholders, and which allows the Parent Group to remain competitive in accessing capital markets and continuing the expansion of the Canadian business as opportunities are available.

57. The purpose of the Proposed Transaction described in Paragraph 35 is to eliminate the obligation of a Unitholder to provide a notification of a disposition of taxable Canadian property pursuant to section 116 in respect of any subsequent Proposed Transaction. Instead, New LLC, as the holder of the Partnership 2 LP Interest, will be required to make any necessary notifications.

ADDITIONAL INFORMATION

58. For both financial statement purposes and Canadian, United States and Luxembourg tax purposes, the fiscal period and taxation year of each entity in the Parent Group ends on XXXXXXXXXX . The first taxation years of Luxco and Luxco Sub will end on XXXXXXXXXX .

59. Parent is organized as a XXXXXXXXXX so that it can be competitive with other entities that carry on comparable business activities. Efficient and competitive access to public capital markets is essential to Parent's overall business strategy. Management of the Parent Group believes Parent is valued by the markets as a "yield security". As such it is important to maximize cash distributions to Unitholders to maintain and enhance the value of the Units.

60. If any of the Proposed Transactions result in an acquisition of control of Canco for purposes of the Act, Canco will not make an election contemplated by subsection 256(9) in its return of income for the taxation year of Canco that ends immediately before the time of that acquisition of control. In addition, Canco will designate the maximum amounts permitted under paragraph 111(4)(e) within the time limits referred to in paragraph 111(4)(e), provided that the aggregate amounts so designated will not exceed any loss that Canco may realize by virtue of being deemed to dispose of property under paragraph 111(4)(c) immediately before the acquisition of control.

61. There are no other significant transactions that were completed by the Applicant prior to the time of submission of this ruling request or that will be undertaken after completion of the Proposed Transactions which will be part of the series of transactions.

62. As of XXXXXXXXXX , to the knowledge of the officers of GP who are responsible for the execution of, and are familiar with the structure and anticipated results of the Proposed Transactions, and based upon information requested and obtained from independent third-party service providers:

(a) the majority of the Unitholders are persons who are residents of the United States for the purposes of the U.S. Convention;

(b) there is no reason to believe that the Unitholders referred to in (a) would not be entitled to the benefits of the U.S. Convention under Article XXIX A of the U.S. Convention; and

(c) there is no reason to expect any change in the statements made in (a) or (b) above as a result of and after giving effect to the Proposed Transactions.
63. The obligations of Canco Amalco under the terms of the Canco Amalco Debt may only be enforced by Luxco Sub as the holder of the debt obligations which comprise the Canco Amalco Debt. Under the terms of the Luxco Debt, Partnership 2, Parent and GP will not have any right to enforce the obligations of Canco Amalco under the Canco Amalco Debt. Under the terms of the Luxco Sub Debt, Luxco will not have any right to enforce the obligations of Canco Amalco under the Canco Amalco Debt.

64. Canco Amalco will be disregarded as an entity separate from its owner under the Code and will be fiscally transparent under the taxation laws of the United States for the purposes of the U.S. Convention.

65. Luxco and Luxco Sub will each be disregarded as entities separate from their respective owners under the Code.

66. It is expected that for the next several years, the amount of interest payable on the Canco Amalco Debt will exceed any dividends that the board of directors of Canco Amalco may declare to be payable on the outstanding Canco Amalco Shares based on the business expansion opportunities available in Canada.

67. Interest on the Canco Amalco Debt will be interest within the meaning of Article 11(5) of the Luxembourg Convention.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, the proposed transactions and the purposes of the proposed transactions, and provided further that the Proposed Transactions are completed in the manner described above, we rule as follows:

A. Luxco Sub will be a resident of Luxembourg for purposes of the Luxembourg Convention.

B. Provided that Luxco Sub is the beneficial owner, within the meaning of Article 11(2) of the Luxembourg Convention, of the interest paid by Canco Amalco as described in Paragraph 50, the amount of interest paid will be subject to tax under Part XIII of the Act at a rate of 10% pursuant to Article 11(2) of the Luxembourg Convention and subsection 10(6) of the ITARs.

C. For the purposes of subparagraph 18(4)(a)(ii)(C), the paid-up capital of the Canco Amalco Common Shares, determined immediately after the amalgamation described in Paragraph 41, will be the paid-up capital of Canco Amalco at the beginning of the calendar month in which the Effective Date occurs.

D. Subsection 245(2) will not apply to the Proposed Transactions, in and by themselves, to re-determine the tax consequences confirmed in the rulings given.
The above-noted rulings are based on the Act, the Luxembourg Convention and the U.S. Convention in their present form and do not take into account any proposed amendments to the Act, the Luxembourg Convention or the U.S. Convention which, if enacted, could have an effect on the rulings provided herein.

CAVEAT

Nothing in this letter should be construed as implying that the CRA has agreed to or reviewed:

(a) the determination of the adjusted cost base, paid-up capital or fair market value of any shares or other property referred to herein;

(b) the deductibility of interest on the Canco Amalco Debt;

(c) the application of subsection 247(2); and

(d) any tax consequences relating to the facts and Proposed Transactions described herein other than those described in the rulings given above.

This ruling is based solely on the facts, the proposed transactions and additional information described above and is subject to the limitations and qualifications set forth in Information Circular 70-6R5 issued on May 17, 2002. This ruling is binding on the CRA provided that the Proposed Transactions are completed on or before XXXXXXXXXX .

Yours truly,

for Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch