2010 Ruling 2010-0380841R3 - Is transfer of Partnership Interest a disposition?

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: Will the transfer of the Partnership Interest to another Partnership result in a disposition for tax purposes?

Position: No

Reasons: In this case, there is no change in the beneficial ownership of the partnership interest transferred.

XXXXXXXXXX
				2010-038084
				XXXXXXXXXX 

XXXXXXXXXX , 2010

Dear XXXXXXXXXX :

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in response to your XXXXXXXXXX request for an advance income tax ruling on behalf of the above-referenced entity.

The ruling given herein is based solely on the facts, proposed transaction and the purpose of the proposed transaction described below. Facts and proposed transactions in the documents submitted with your request not described below do not form part of the facts and proposed transaction on which this ruling letter is based and any reference to these documents is provided solely for the convenience of the reader.

Our understanding of the facts, proposed transaction and the purpose of the proposed transaction is as follows:

Definitions:

"Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date of this advance income tax ruling;

"Code" means the German Commercial Code;

"Corp 1" means XXXXXXXXXX;

"Corp 2" means XXXXXXXXXX;

"Corp 3" means XXXXXXXXXX ;

"Country 1" means Germany;

"CRA" means the Canada Revenue Agency;

"Disposition" has the meaning assigned by subsection 248(1) of the Act;

"Foundation" means XXXXXXXXXX ;

"KG1" means XXXXXXXXXX;

"KG2 " means XXXXXXXXXX; and

"Taxable Canadian Property" has the meaning assigned by subsection 248(1) of the Act.

Facts:

1. The Foundation is a family foundation established in XXXXXXXXXX by XXXXXXXXXX, XXXXXXXXXX residents in Country 1. The Foundation has an advisory board consisting of XXXXXXXXXX members, all of whom are residents of Country 1. The Foundation also has XXXXXXXXXX managers, XXXXXXXXXX of whom are residents of Country 1 as well. The beneficiaries of the Foundation are the heirs of both founders, and are residents of Country 1.

2. KG1 is a partnership for purposes of the Code and for the purposes of the Act. The Foundation owns a XXXXXXXXXX % equity interest in KG1. The remaining XXXXXXXXXX % equity interest in KG1 is owned by other group companies.

3. Corp 1 is a corporation resident in Canada for purposes of the Act. Corp 1 is a real-estate holding corporation. The shares of Corp 1 are Taxable Canadian Property.

4. Corp 2 is a corporation resident in Canada for purposes of the Act. The shares of Corp 2 are Taxable Canadian Property.

5. KG1 owns the shares of Corp 1 and Corp 2. The fair market value of the shares of Corp 1 accounts for substantially all of the fair market value of the assets of KG1. As a result, the equity interest in KG1 held by the Foundation is Taxable Canadian Property.

6. KG2 is a partnership for the purposes of the Code. According to the Code and German tax law, in contrast to the Foundation, KG2 is not a legal entity.

7. Corp 3 is a corporation resident in Country 1. All the shares of Corp 3 are owned by KG2.

8. The Foundation owns a XXXXXXXXXX % equity interest in KG2. Corp 3 owns a XXXXXXXXXX % equity interest in KG2. While Corp 3 manages the property of KG2, it holds no beneficial ownership interest in that property and does not participate in the profits from the activities or operations of KG2. KG2 acts as an intermediary management entity between Foundation and other real-estate operating companies.

Proposed Transaction:

9. The Foundation will contribute its XXXXXXXXXX % interest in KG1 to KG2, taking back as consideration a new interest in KG2. This transaction will be completed on a tax neutral basis in accordance with the tax legislation of Country 1.

10. After this transaction, the Foundation will continue to own a XXXXXXXXXX % equity interest in KG2, while KG2 will own a XXXXXXXXXX % equity interest in KG1. The remaining partners in KG1 will remain the same.

Purpose of the Proposed Transaction:

11. The purpose of the transaction is to simplify the group structure, reduce operating costs, and centralize management by having KG2 be responsible for the operating companies.

Ruling Given:

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transaction and purpose of the proposed transaction, and provided that the proposed transaction is completed in the manner described above, our Ruling is as follows:

We confirm that:

A. The transfer of the KG1 interest to KG2 by Foundation is not a disposition for the purposes of the Act.

This Ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and is binding on the Canada Revenue Agency ("CRA") provided the proposed transaction is carried out before XXXXXXXXXX .

Nothing in this letter should be construed as implying that the Canada Revenue Agency has reviewed, accepted or otherwise agreed to any tax consequences relating to the Facts and Proposed Transaction described herein other than that specifically described in the Ruling given above.

The above noted Ruling is based on the Act in its present form 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.

Yours truly,

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