2010 Ruling 2009-0341561R3 - Irish CCF

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 an Irish CCF with pension funds of various countries (including Canada) investing is classified as a co-ownership arrangement, rather than a trust or a partnership?

Position: Yes.

Reasons: The Fund is not established under trust law in Ireland. It is being established such that each investor has an undivided co-ownership interest in the assets of the Fund.

XXXXXXXXXX  								2009-034156

XXXXXXXXXX , 2010

Dear XXXXXXXXXX :

Re: XXXXXXXXXX
Advance Income Tax Ruling

We are writing in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-referenced taxpayers. We acknowledge the various email transmissions from your firm in this regard. You also provided us with a draft copy of each of the Deed of Constitution, the Custodianship Agreement and the Prospectus (all of which are defined below) with respect to XXXXXXXXXX

To the best of your knowledge and that of the taxpayers involved, none of the issues involved with this request:

(i) is involved in an earlier return of the taxpayers or a related person;

(ii) is being considered by a tax services office or a taxation centre in connection with a tax return already filed by the taxpayers or a related person;

(iii) is under objection; or

(iv) is before the courts or, if a judgement has been issued, the time limit for appeal has not expired.

The rulings given herein are based solely on the facts, proposed transactions and purposes of the proposed transactions 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 transactions on which this ruling is based and any reference to these documents is provided solely for the convenience of the reader.

Unless otherwise stated, all references to a statute are references to the provisions of the Income Tax Act, R.S.C. 1985 c.1 (5th Supp.) as amended to the date hereof (the "Act"), and every reference herein to a Part, section, subsection, paragraph or subparagraph is a reference to the relevant provisions of the Act.

Definitions

In this letter the following terms have the meanings specified:

(a) "Aco" means XXXXXXXXXX , a company incorporated in XXXXXXXXXX and an affiliated person of Bco;

(b) "affiliated person" has the meaning assigned by subsection 251.1(1);

(c) "Bco" means XXXXXXXXXX , a publicly traded multinational company with its headquarters in XXXXXXXXXX ;

(d) "Cco" means XXXXXXXXXX ., a company incorporated in Canada which carries out the Canadian operations of Bco;

(e) "Common Contractual Fund or CCF" means a common contractual fund established by the Manager and authorised by the Financial Regulator under the Investment Funds, Companies and Miscellaneous Provisions Act 2005 (Ireland), as it may be amended, supplemented or consolidated from time to time, and meeting the conditions set out in Section 739I of the Taxes Consolidation Act (Ireland);

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

(g) "Custodian" means XXXXXXXXXX or any successor thereto approved by the Financial Regulator as custodian of the CCF and each Sub-Fund;

(h) "Custody Agreement" means the agreement to be entered into between the Manager and the Custodian as amended, supplemented or otherwise modified from time to time in accordance with the requirements of the Financial Regulator;

(i) "Deed of Constitution" means the deed of constitution to be entered into between the Manager and the Custodian providing for the constitution of the Fund;

(j) "Financial Regulator" means the Irish Financial Services Regulatory Authority or any successor regulatory authority with responsibility for authorising and supervising the CCF;

(k) "Fund" means the XXXXXXXXXX ;

(l) "Manager" means XXXXXXXXXX or any successor thereto duly appointed with the prior approval of the Financial Regulator as manager of the CCF and each Sub-Fund;

(m) "Master Trust" means XXXXXXXXXX ;

(n) "Prospectus" means the prospectus prepared by the Manager and pursuant to which Unitholders acquire an investment in the Fund;

(o) "Sub-custodian" means XXXXXXXXXX ;

(p) "Sub-Fund" or "Sub-Funds" means the Sub-Funds established in accordance with section XXXXXXXXXX of the Deed of Constitution by the Manager from time to time with the prior approval of the Financial Regulator;

(q) "Tax Treaty" has the meaning assigned under subsection 248(1);

(r) "TCA" means the Taxes Consolidation Act (Ireland), 1997 as amended;

(s) "Unit" means a unit of account, representing a proportionate undivided co-ownership interest in the assets of a Sub-Fund as tenants in common with the other Unitholders of the Sub-Fund and includes any fraction of a Unit which may be further divided into different classes of Units. Units in the CCF are not shares but serve to determine the proportion of underlying assets of the CCF to which each Unitholder is beneficially entitled; and

(t) "Unitholder" means any person holding Units of a Sub-Fund including any person who is a joint holder of a Unit as long as that person is legally entitled to an undivided co-ownership interest with the other holder in the assets of the Sub-Fund.

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

Facts

1. Bco is a publicly traded multinational company with its headquarters in XXXXXXXXXX , with XXXXXXXXXX including Canada. Cco is a company controlled by Bco and carries out the Canadian operations of Bco's business.

2. Aco is an affiliated person of Bco and is responsible for the management of the assets of the pension funds of Bco and its related companies. Aco provides actuarial and asset-liability advice to the pension funds, as well as a number of other services, such as manager selection, risk budgeting, monitoring, multi-manager fund construction and asset allocation implementation.

3. CCFs are governed by Irish law Statutory Instrument dated 29 May, 2003 S.I. No. 211 of 2003 namely the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2003 and The Investment Funds, Companies and Miscellaneous Act, 2005 (the "Regulations"). This legislation establishes that a CCF is not a distinct corporate entity or a trust but rather a contractual arrangement under which participants participate in the co-ownership of assets. As a consequence, it does not have any separate legal existence.

4. The CCF is established by contract, i.e. the Deed of Constitution. The Deed of Constitution must be approved by and filed with the Financial Regulator. The provisions of the Deed of Constitution are considered to have been accepted by the Unitholders as a term of the acquisition of units under the terms of the Prospectus where they agree to be bound by the Deed of Constitution. Irish law sets out the basic provisions which must be included in the Deed of Constitution.

5. Subsection 739I of the TCA as amended by the Finance Act 2003 (Ireland), governs the taxation of CCFs. In particular, income, gains and losses in relation to the investment undertaking shall be treated as arising or accruing to each unitholder in the investment undertaking in proportion to the value of the units beneficially owned by the unitholder, as if the income and gains arise or accrue to the unitholders in the investment undertaking without passing through the hands of the investment undertaking. Consequently, CCFs are treated as fiscally transparent by the Irish tax authority.

6. The Manager was incorporated as a limited liability company on XXXXXXXXXX in Ireland XXXXXXXXXX and are both non-residents of Canada for purposes of the Act. The registered offices of both are in XXXXXXXXXX , Ireland.

7. The Unitholders will initially include pension funds of Bco or its related companies. The current proposed Unitholders will be pension funds in the following countries (others may be added in the future):

(a) XXXXXXXXXX ;

(b) XXXXXXXXXX ;

(c) XXXXXXXXXX ;

(d) XXXXXXXXXX ;

(e) XXXXXXXXXX ; and

(f) Canada.

Each such pension fund is constituted and operated exclusively to administer or provide benefits under one or more pension, retirement or employee benefits plans and is fully or partially tax exempt under the taxation laws of the applicable country.

8. In Canada, there are XXXXXXXXXX registered pension plans established in respect of Cco:

XXXXXXXXXX

9. The assets of each pension plan described in paragraph 8 above are held by the Master Trust. The Sub-custodian is the trustee of each individual participating trust and of the Master Trust.

Proposed Transactions

10. The Custodian and the Manager will enter into the Deed of Constitution under which the Manager and the Custodian will confirm their respective obligations and responsibilities with respect to the Fund.

11. The Fund will be constituted by the Manager in accordance with the Deed of Constitution to serve as an investment vehicle for pension funds of Bco and its related companies. The Fund will meet the definition of "CCF" as described in subparagraph 739I(i)(a)(ii) of the TCA. It will be constituted as an open ended "umbrella fund", consisting of several Sub-Funds. Each Sub-Fund is a separate portfolio of assets invested in accordance with the investment objectives and policies as set out in the Deed of Constitution for the relevant Sub-Fund and to which all liabilities, income and expenditure attributable or allocated to such Sub-Fund shall be applied and charged. The Fund will not invest in any Canadian mutual fund trust or mutual fund corporation. Units shall be issued in respect of each Sub-Fund. Each Unit will represent a proportionate undivided co-ownership interest in the property of the Sub-Fund.

12. Initially, the Fund will have XXXXXXXXXX Sub-Funds investing in North American equities (Canadian and US equities): XXXXXXXXXX Other Sub-Funds may be offered in the future.

13. Units of the Sub-Fund will be issued pursuant to the Prospectus.

14. The Master Trust will subscribe for Units of the Sub-Fund and become a Unitholder.

15. The following foreign pension funds will also invest in the Fund:

XXXXXXXXXX

16. The Deed of Constitution will provide that the Unitholders participate in the property of the Fund, including without limitation, income arising thereon and profits derived therefrom, as such income and profits arise as co-owners and accordingly, income and profits accrue to Unitholders as they arise. The Manager has the authority to distribute such income and profits to the Unitholders.

17. The transfer of Units in a Sub-Fund is not permitted.

18. The Units will be listed for trading on the Main Market of the Irish Stock Exchange. However, this is a technical listing and the Units will not be publicly traded.

19. The Units will not have any voting rights (save the right, on written notice signed by Unitholders holding XXXXXXXXXX % of the Units, to require the Manager to resign). Neither the Unitholders, nor their heirs and successors, shall have rights with respect to the representation or management of the Fund or any Sub-Fund. The death, incapacity, failure or insolvency of a Unitholder shall have no effect on the existence of the Fund or any Sub-Fund.

20. The liability of each Unitholder shall be limited to the issue price of Units subscribed to by the Unitholder in the relevant Sub-Fund.

21. Pursuant to the Deed of Constitution and the Custody Agreement, the Custodian will be responsible for safekeeping the Fund's property, executing transactions relating to the safekeeping of the Fund's property, and complying with obligations imposed on the Custodian by the Regulations. The Custodian will engage the Sub-custodian to have custody of the Fund's Canadian securities and cash deposits. Also, the Custodian will enquire into the conduct of the Manager semi-annually and report thereon to the Unitholders. If the Manager has not complied with the terms set out in the Deed of Constitution and the Regulations, the Custodian must state the reasons for the non-compliance and outline the steps which the Custodian has taken to rectify the situation. The Custodian will have no material duties other than those referred to above.

22. The Custodian's safekeeping responsibilities include the responsibility to ensure that the appropriate amount of withholding tax is deducted and remitted to the tax authorities. In this connection, the Sub-custodian will be engaged by the Custodian to withhold and remit amounts on behalf of the Unitholders in respect of their Part XIII tax liabilities. The Custodian and the Sub-custodian will determine the amount of Part XIII tax to withhold on amounts paid or credited on a particular day in the following manner. Based on the treaty residency of the Unitholders, the Custodian and the Sub-custodian will first determine, for each Sub-Fund, the percentage of its Unitholders that are resident in a particular country other than Canada. The Custodian and the Sub-custodian will then apply that percentage to the aggregate amount of the Sub-Fund's Canadian source receipts that are taxable under Part XIII of the Act to determine the amount received by the resident Unitholders of that particular country. The Custodian and the Sub-custodian intend to then apply the relevant provisions of the applicable Tax Treaty to determine the amount of tax to withhold in respect of the amounts received by the Unitholders resident in that particular country for the purposes of the relevant Tax Treaty. At the end of each month the Sub-custodian will compute the total amount withheld on behalf of the Unitholders for that month as determined above and remit that amount to the CRA by the XXXXXXXXXX of the following month. Within XXXXXXXXXX months after the end of each year, the Sub-custodian will provide the Unitholders' custodian with an NR4 Supplementary form reporting the total amount of Part XIII tax withheld and remitted to the CRA on behalf of the Unitholders and will forward to the CRA a copy of the NR4 Supplementary issued by the Fund to the Unitholders' custodian as well as an NR4 Summary for the year.

The Custodian and the Sub-custodian will also determine, for each Sub-Fund, the percentage of its Unitholders that are resident in Canada. The Custodian and the Sub-custodian will then apply that percentage to the aggregate amount of the Sub-Fund's Canadian source receipts to determine the amount received by each Canadian resident Unitholder ("T5 Amount"). Within XXXXXXXXXX months after the end of each year, the Sub-custodian will provide the Unitholders' custodian with a T5 Supplementary form reporting the T5 Amount to each Canadian resident Unitholder and will forward to the CRA a copy of the T5 Supplementary issued by the Fund to the Unitholders' custodian as well as a T5 Summary for the year.

Purpose of the Proposed Transactions

23. The purposes of the proposed transactions are to pool the investment portfolios of several pension funds of Bco and related companies in order to achieve economies of scale and investment diversification.

24. A pooled vehicle will enable a number of cost savings to be achieved through economies of scale. These savings would include a reduction in management fees, administration costs and custodian fees. Equally important, a pooled vehicle would allow smaller local country funds with respect to Bco group to diversify their risk by using a larger number of investment managers than would be possible if they were to operate on a stand-alone basis. A pooled vehicle will only be viable if it does not materially increase the tax costs incurred by the local pension funds. As such, it is a primary objective that the pooling vehicle should be fiscally transparent because a fiscally transparent vehicle would allow the pension funds to continue to claim treaty benefits on the same basis as if they had invested in the underlying securities directly.

Rulings Given

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

A. For the purposes of the Act, each Unitholder of a particular Sub-Fund will be treated as the owner of a direct proportionate and undivided interest in each property of the particular Sub-Fund, and such an interest, as a percentage of all the interests in the property of the particular Sub-Fund will be determined at any point in time based on the percentage of all of the Units of that Sub-Fund owned by the Unitholder at that time.

B. For the purposes of Part I of the Act, each Unitholder of a particular Sub-Fund will be treated as directly earning and realizing, as the case may be, its proportionate share of income, losses, capital gains and capital losses from the property comprising the particular Sub-Fund whether or not distributed.

C. For the purposes of Part I of the Act, the character, source and timing of income, losses, capital gains and capital losses earned by each Unitholder from the property of a particular Sub-Fund will not be affected by the fact that the Fund or the particular Sub-Fund has been used as a mechanism by which each Unitholder will own its proportionate share of such property as co-owner with the other Unitholders of the particular Sub-Fund.

D. Provided that a Unitholder of a particular Sub-Fund who is not resident in Canada is not considered to be carrying on business in Canada with respect to its ownership of the Units of the particular Sub-Fund, for the purposes of Part XIII of the Act, any amount paid or credited by a Canadian payer to the Sub-custodian in respect of the property of the particular Sub-Fund will be an amount paid or credited to the Unitholder of the particular Sub-Fund in proportion to the Unitholder's ownership of the property of the particular Sub-Fund.

E. Provided that a Unitholder of a particular Sub-Fund who is not resident in Canada is not considered to be carrying on business in Canada with respect to its ownership of the Units of the particular Sub-Fund, for the purposes of applying Part XIII of the Act to the Unitholder, the character, source and timing of any amount paid or credited by a payer resident in Canada in respect of the assets of the particular Sub-Fund will not be affected by the fact that the Fund or the particular Sub-Fund has been used as a mechanism by which the Unitholder will own its proportionate share of those assets.

F. If a Unitholder redeems Units of a particular Sub-Fund, the Unitholder will, for the purposes of the Act, have disposed of a proportionate interest in the property of the particular Sub-Fund for the purposes of calculating any capital gain or loss on such disposition.

G. Provided that a Unitholder of a particular Sub-Fund who is not resident in Canada is not considered to be carrying on business in Canada with respect to its ownership of the Units of the particular Sub-Fund and subject to the limitation on benefits provisions in the applicable Tax Treaty, for the purposes of applying Part XIII of the Act to the Unitholder, the Unitholder that is a resident for the purposes of any applicable Tax Treaty in a particular jurisdiction, shall be entitled to the benefits of that Tax Treaty in respect of the Unitholder's proportionate interest in the income of the particular Sub-Fund, as applicable, to the extent such income qualifies for relief under the provisions of that Tax Treaty.

H. Provided that a Unitholder of a particular Sub-Fund who is not resident in Canada is not considered to be carrying on business in Canada with respect to its ownership of the Units of the particular Sub-Fund and subject to the limitation on benefits provisions in the applicable Tax Treaty, if the Sub-custodian calculates and remits Part XIII tax on behalf of the Unitholder in the manner set out in paragraph 22 above, the amounts paid by the Sub-custodian in respect of the Unitholder's Part XIII tax will be treated as being paid on behalf of the Unitholder in respect of its Part XIII tax liability and both the Unitholder and the Sub-custodian will be considered to have complied with Part XIII of the Act in respect of income earned through the particular Sub-Fund by the Unitholder.

The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and are binding on the CRA provided that the proposed transactions are completed by XXXXXXXXXX .

These rulings are based on the Act in the present form and do not take into account amendments to the Act which, if enacted into law, could have an effect on the rulings provided herein.

Other Comments

Nothing in this ruling should be construed as implying that the CRA has agreed to or ruled on whether the Unitholder is a resident of any country with which Canada has entered into a Tax Treaty, whether income referred to herein is taxable under Part I or Part XIII, or the manner in which any article of a Tax Treaty applies to any Unitholder. In addition, nothing in this letter should be construed as implying that the CRA has agreed to or reviewed any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above. In particular, the CRA has not examined and therefore takes no position on whether any Unitholder would be considered to be carrying on business in Canada because of the provision of services to them by the Custodian or the Sub-custodian in reference to their investments in Canadian securities.

Yours truly,

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