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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Amendments to the advance income tax ruling dated XXXXXXXXXX, 2000, our file number 1999-001058. Foreign Sub-Holdco will resign as the general partner of Foreign Sub-LP and dispose of its XXXXXXXXXX % interest in Foreign Sub-LP. As a result of the resignation of Foreign Sub-Holdco, Foreign Sub-LP will have only one partner and consequently under German partnership law, all of the assets, liabilities and business of Foreign Sub-LP will be assumed by Foreign LP immediately after the resignation. As a result of this, there will be dispositions of taxable Canadian property (TCP). The issue is whether the taxable capital gain on these dispositions of TCP will be exempt from tax by virtue of paragraph 5 of Article 13 of the Canada-German Income Tax Agreement (the "German Convention").
Position: The taxable capital gain on the dispositions of TCP will be exempt from tax by virtue of paragraph 5 of Article 13 of the German Convention.
Reasons: Paragraph 4 of Article 13 of the German Convention allows Canada to tax gains derived by a resident of Germany from the alienation of an interest in a partnership the value of which is derived principally from "immovable property" situated in Canada. For the purposes of paragraph 4, the term "immovable property" includes an interest in a partnership the value of which is derived principally from immovable property situated in Canada. (Thus, a partnership "look-through" rule is provided for.) However, the term "immovable property" does not include property (other than rental property) in which the business of the partnership was carried on.
In a previous advance ruling involving some of the same taxpayers, we concluded that the processing plants, buildings, machinery and equipment used by a limited partnership carrying on business in Canada in its mining and its processing business were "property.... in which the business of the.... partnership.... was carried on" in paragraph 4 of Article 13 of the German Convention. Consistent with the previous advance ruling, we maintained our view in the current advance ruling and amendment to such ruling that such partnership interests do not constitute "immovable property" for the purposes of paragraph 4. Thus, paragraph 4 of Article 13 of the German Convention does not apply to the dispositions.
Since the gains, if any, from the dispositions of TCP do not fall under paragraphs 1 to 4 of Article 13 of the German Convention, such gains are exempt from tax in Canada by virtue of paragraph 5 of Article 13 of the German Convention.
XXXXXXXXXX
XXXXXXXXXX 2000-002252
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 2000
Dear Sirs:
Re: XXXXXXXXXX (Mr. T)
XXXXXXXXXX (Foreign Holdco)
XXXXXXXXXX (Foreign LP)
XXXXXXXXXX (Foreign Sub-Holdco) and
XXXXXXXXXX (Foreign Sub-LP)
(collectively the "Parties")
Advance Income Tax Ruling_ _________
We are writing in response to your letter of XXXXXXXXXX wherein you advised us of changes to the proposed transactions in the advance income tax ruling described in our letter of XXXXXXXXXX, 2000, our file number 1999-001058, (the "Ruling"). Terms, which are defined in the Ruling to have certain meanings, have the same meanings when used in this letter.
As a result of your letter, the following changes are made to the Ruling.
Proposed Transactions
1. The proposed transactions set out in paragraphs 12 and 13 of the Ruling should be deleted and replaced with the following paragraphs.
"12. It is proposed that Foreign Sub-Holdco will resign as the general partner of Foreign Sub-LP and dispose of its XXXXXXXXXX% interest in Foreign Sub-LP. Foreign Sub-Holdco will be paid an amount of $XXXXXXXXXX Canadian for its XXXXXXXXXX% interest in Foreign Sub-LP. (The $XXXXXXXXXX amount is estimated to be equal to the fair market value of Foreign Sub-Holdco's XXXXXXXXXX% interest in Foreign Sub-LP.) As a result of the resignation of Foreign Sub-Holdco, Foreign Sub-LP will have only one partner and consequently under German partnership law, all of the assets and liabilities of Foreign Sub-LP will be assumed by Foreign LP immediately after the resignation. In effect, Foreign Sub-LP will be merged with Foreign LP"
"13. Prior to the merger, requests for certificates of compliance (clearance certificates) will be filed by the appropriate Parties in accordance with the provisions of section 116 of the Act in respect of the following dispositions of taxable Canadian property arising as a result of the merger:
(a) the disposition of Foreign Sub-LP's interest in XXXXXXXXXX;
(b) the disposition of Foreign LP's interest in Foreign Sub-LP; and
(c) the disposition of Foreign Sub-Holdco's interest in Foreign Sub-LP."
Rulings Given
2. Ruling B of the Ruling should be reworded to read as follows.
"B. As a result of the proposed transactions in 12 above, there will be a disposition of Foreign Sub-LP's interest in XXXXXXXXXX; a disposition of Foreign LP's interest in Foreign Sub-LP; and a disposition of Foreign Sub-Holdco's interest in Foreign Sub-LP as described in 13 above.
The gains, if any, realized by Mr. T, Foreign Holdco and/or Foreign Sub-Holdco in respect of such dispositions, will be exempt from taxation in Canada pursuant to paragraph 5 of Article 13 of the German Convention."
We confirm that the amendments to the proposed transactions and the rulings given above will not affect the remaining rulings given in the Ruling and the remaining rulings together with the amended ruling will continue to be binding as indicated in the Ruling.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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