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: Whether the provision of services by a Canadian corporation
to the non-resident corporation will result in the non-resident corporation carrying on business in
Reasons: Factual and legal analysis - see paragraphs 2 and 5
XXXXXXXXXX , 2010
Dear XXXXXXXXXX :
Re: Advance Income Tax Ruling
This is in response to your XXXXXXXXXX request for an advance income tax ruling on behalf of the above.
Unless otherwise stated, all statutory references herein are to the Income Tax Act, R.S.C. 1985, c.1 (5th Supplement) (the “Act”), as amended to the date of this advance income tax ruling.
The rulings given herein are based solely on the facts, proposed transactions and purposes of the proposed transactions described below. Facts and proposed transactions described in the documents submitted with your request do not form part of the facts and proposed transactions on which this ruling is based and any reference to these documents is provided solely for the convenience of the reader.
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
(a) “Additional Services” means the accounting, financial, anti-money laundering, compliance, knowledge management, information resources management and marketing services described in paragraph 14 below;
(b) “Canco” means XXXXXXXXXX ;
(c) “XXXXXXXXXX Services” means XXXXXXXXXX ;
(d) “CRA” means the Canada Revenue Agency;
(e) “Foreignco” means XXXXXXXXXX ;
(f) “Foreign Countries” means XXXXXXXXXX ;
(g) “Foreign Country 1” means XXXXXXXXXX ;
(h) “Foreign Country 2” means XXXXXXXXXX ;
(i) “non-resident” has the meaning assigned by subsection 248(1) of the Act;
(j) “Non-Resident Group” means the direct and indirect affiliates of Parent that are non-residents of Canada;
(k) “Parent” means XXXXXXXXXX ;
(l) “Partnership” means XXXXXXXXXX , a partnership that was formed under the laws of Foreign Country 1;
(m) “Province” means XXXXXXXXXX ;
(n) “related persons” has the meaning assigned by subsection 251(2) of the Act;
(o) “subsidiary wholly-owned corporation” has the meaning assigned by subsection 248(1) of the Act; and
(p) “taxable Canadian corporation” has the meaning assigned by subsection 89(1) of the Act.
1. Parent is a company formed in Foreign Country 1. Parent carries on the XXXXXXXXXX business previously carried on by XXXXXXXXXX .
2. Parent does not use the offices of Canco to conduct any business in Canada, does not have any employees in Canada, does not sign or negotiate any contracts in Canada, does not solicit or offer anything for sale in Canada, does not engage in any other business activity in Canada and does not have an agent who has the authority to conclude contracts on its behalf present in Canada.
3. Foreignco is a holding company incorporated under the laws of Foreign Country 2. All of the issued and outstanding shares of Foreignco are owned directly or indirectly by members/shareholders of Parent and the Non-Resident Group. Foreignco does not carry on business in Canada.
4. Canco is a taxable Canadian corporation incorporated under the laws of the Province and is a subsidiary wholly-owned corporation of Foreignco. Canco carries on business in Canada and uses its own employees to provide the XXXXXXXXXX Services to Parent and the Non-Resident Group. Canco’s business number is XXXXXXXXXX . Canco files its tax returns with the XXXXXXXXXX Taxation Centre and its tax affairs are administered by the XXXXXXXXXX Tax Services Office.
5. Canco does not offer anything of Parent’s for sale in Canada, does not undertake any marketing activities to the Canadian market on behalf of Parent and is not an agent of Parent.
6. To the best of your knowledge and that of Parent, none of the proposed transactions involved in this ruling letter:
(i) is in an earlier return of Parent or any persons related to Parent,
(ii) is being considered by a tax services office or taxation centre in connection with a previously filed tax return of Parent or any persons related to Parent,
(iii) is under objection by Parent or any persons related to Parent, or
(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired.
7. Parent and Canco will enter into a services agreement (the “Services Agreement”) whereby Canco will provide the Additional Services, the services of a chief compliance officer and the services of a chief marketing officer to Parent and the Non-Resident Group.
8. The Services Agreement will specify that Canco will not have the authority to execute or deliver any contract, agreement or instrument in the name of, or on behalf of, Parent or any member of the Non-Resident Group and, other than for the receipt and payment of funds, will not act as an agent of Parent. Furthermore, Canco cannot assume or create any obligation, liability or responsibility whatsoever, express or implied, on behalf of or in the name of Parent or any member of the Non-Resident Group. For greater certainty, in performing the global marketing services, Canco will not be permitted to distribute marketing materials, plan marketing events or coordinate promotional trips of Parent or any member of the Non-Resident Group to persons located in Canada. The authority of Canco to act for Parent and/or any member of the Non-Resident Group is limited solely to the matters specifically set forth in the Services Agreement. The Services Agreement will provide that Canco will receive a commercially reasonable fee for the provision of its services to Parent and/or any member of the Non-Resident Group.
9. To assist Canco in establishing each of the services that it will provide under the Services Agreement, Parent may send some of its employees to Canada for a short period of time (approximately XXXXXXXXXX weeks). Once this initial phase is completed, Canco will at all times exercise its sole discretion with respect to all matters relating to the employees of Canco including, without limitation, all matters relating to the hiring, compensation and termination of such employees. No employees of Parent will remain in Canada and none of Parent’s employees will thereafter be involved in the day-to-day activities of Canco.
10. The global marketing services will be directed at persons located outside of Canada. Notwithstanding that Canco will not distribute marketing materials to persons located in Canada, will not plan or hold marketing events in, and will not provide promotional trips to, Canada, marketing activities may incidentally come to the attention of persons located in Canada (e.g. a person located in Canada may visit the website of Parent or any member of the Non-Resident Group).
11. Subsequent to the ratification of Services Agreement, Parent will not sign or negotiate any contracts in Canada, will not engage in any profit-producing activity in Canada, will not solicit or offer anything for sale in Canada, will not have an agent present in Canada and will not use the offices of Canco to conduct any business in Canada.
12. Canco will continue to earn its own profits, will not offer anything of Parent’s for sale in Canada and will not act as an agent of Parent.
13. All of the directors of Parent are non-residents and all of the directors’ meetings will continue to be held outside of Canada. The business decisions of Parent will continue to be made outside of Canada and no employee of Canco will be involved in making such business decisions.
14. Pursuant to the Services Agreement, Canco will provide the following services to Parent and the Non-Resident Group:
(a) accounting and financial services, including:
(i) preparation and maintenance of all financial and accounting books, including general ledgers;
(ii) development of annual budgets;
(iii) production of monthly financial statements and consolidation of financial results;
(iv) maintenance and reconciliation of bank accounts;
(v) generation and mailing of invoices, maintenance of accounts receivable and accounts payable including debt collection, provision of cash management and any related treasury functions;
(vi) provision of payroll services;
(vii) calculation of inter-group dividends/distributions in accordance with guidelines provided by Parent and members of the Non-Resident Group;
(viii) hiring and training of accounting and finance employees.
(ix) payments to suppliers on behalf of Parent and the Non-Resident Group; and
(x) receiving payments from clients of Parent and the Non-Resident Group for forwarding to Parent and/or the Non-Resident Group.
(b) supply of a chief compliance officer and preparation and maintenance of a compliance manual.
(c) provision of anti-money laundering services including:
(i) XXXXXXXXXX ;
(ii) provision of comments for submissions to regulatory authorities and/or liaising directly with regulatory authorities in the Foreign Countries;
(iii) preparation of filings and reports to be submitted to regulatory authorities in the Foreign Countries and responding to requests from regulatory authorities in the Foreign Countries;
(iv) provision of anti-money laundering and XXXXXXXXXX searches, reviewing clients of Parent and the Non-Resident Group to ensure compliance with relevant anti-money laundering laws and maintenance of a database; and
(v) provision of training to employees employed by Parent or a member of the Non-Resident Group.
(d) knowledge management services, including:
(i) researching, drafting and developing XXXXXXXXXX for use by Parent’s and the members of the Non-Resident Group’s XXXXXXXXXX and staff;
(ii) development and implementation of internal policies, forms, checklists and guidance for XXXXXXXXXX and administrative matters including policies on XXXXXXXXXX , anti-money laundering and XXXXXXXXXX ;
(iii) development and upkeep of Parent’s and the Non-Resident Group’s intranet for the purpose of delivering documents and information to Parent and the Non-Resident Group;
(iv) conducting XXXXXXXXXX , market and XXXXXXXXXX research in response to specific requests from XXXXXXXXXX and management;
(v) formatting and branding of documentation and troubleshooting corrupted documents;
(vi) directing XXXXXXXXXX and staff to the necessary resources for the conduct of their XXXXXXXXXX ;
(vii) XXXXXXXXXX ; and
(viii) advising XXXXXXXXXX and staff on matters of XXXXXXXXXX and related matters.
(e) information resources management services, including:
(i) provision of research support and XXXXXXXXXX and business information services;
(ii) engaging in a range of knowledge and information services including XXXXXXXXXX ;
(iii) conducting jurisdictional, competitive intelligence, company and market research;
(iv) evaluating and recommending research/information products;
(v) training programs for end-users of information products and services; and
(vi) managing the content of Parent’s and the Non-Resident Group’s information resources.
(f) provision of a chief marketing officer.
(g) provision of global marketing services outside of Canada, including:
(i) direction and coordination of marketing activities;
(ii) maintenance of Parent’s and the Non-Resident Group’s global XXXXXXXXXX system which will include inputting and analyzing data;
(iii) production of marketing materials including brochures and advertisements;
(iv) liaising with Parent’s and the Non-Resident Group’s global advertising agency located in Canada;
(v) collection and maintenance of XXXXXXXXXX information and related intelligence;
(vi) market research including the analysis of the marketing activities of competitors and monitoring the effectiveness of Parent’s and the Non-Resident Group’s marketing activities;
(vii) planning and coordination of business promotion trips and events (including being a participant on those trips) outside of Canada; and
(viii) hiring and training of marketing staff.
Purpose of the Proposed Transactions
15. Canada has a readily available, well-educated, knowledgeable and experienced labour force. Parent will enter into the Services Agreement to gain access to this labour force. Canco will enter into the Services Agreement to expand its business operations in Canada.
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose of the proposed transactions, and provided further that the proposed transactions are completed in the manner described above, our ruling is as follows:
A. Canco’s provision of the services described in paragraph 14 above in accordance with the terms and conditions of the Services Agreement, in and by themselves, will not cause Parent to be carrying on business in Canada for the purposes of paragraph 2(3)(b) or subsection 115(1) of the Act.
This ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R5, issued by the CRA on May 17, 2002, and is binding on the CRA
provided that the proposed transactions are commenced before XXXXXXXXXX .
Except as expressly stated, this advance income tax ruling does not imply acceptance, approval or confirmation of any other income tax implications of the facts or proposed transactions described herein. For greater certainty, nothing in this ruling should be construed as implying that the CRA:
(a) has reviewed, or agreed to, the reasonableness of any fees that will be paid by Parent to Canco pursuant to the Services Agreement, as described in paragraph 8 above;
(b) has reviewed, or agreed to, the application of section 247 of the Act to the fees that will be paid by Parent to Canco pursuant to the Services Agreement, as described in paragraph 8 above; or
(c) determined whether Parent is currently carrying on business in Canada.
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, could have an effect on the ruling provided herein.
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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