13 September 2001 External T.I. 2000-0048855 - French General Partnership - SNC

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: Is a French société en nom collectif ("SNC") considered a person and/or a corporate body for the purposes of the Canada-France Income Tax Convention (the "Treaty")? More specifically, should dividends paid by a Canadian resident corporation to a SNC be subject to the 5% reduced rate of withholding under subparagraph 2(a) of Article X of the Treaty.

Position: No. Our position is that the election by an SNC to be taxed in the same manner as French domestic corporations does not make the SNC a body corporate for tax purposes.

Reasons: The law.

XXXXXXXXXX 2000-004885

September 13, 2001

Dear Sir\Madam:

Re: French General Partnerships

This is in response to your letter dated September 22, 2000, wherein you requested our opinion as to the appropriate withholding tax rate for dividends under the Canada-France Income Tax Convention (the "Treaty") in the situation described below.

In your letter you indicate that where the partners of a French société en nom collectif ("SNC") elect under the domestic income tax laws of France the income of the SNC is subject to corporate income tax in France at the partnership level rather than individually at the partner level. Where such an election is made it is your view that the particular SNC is considered as a company for the purposes of the Treaty. It is also your view that if such a SNC beneficially owns shares of a Canadian resident corporation that represent at least 10% of the votes of Canco then any dividends it receives from Canco should be subjected to the 5% withholding tax rate pursuant to subparagraph 2(a) of Article X of the Treaty.

In your letter you referred to two earlier technical interpretations issued by Canada Customs and Revenue Agency ("CCRA") that dealt with the taxation of SNCs. However, you stated that since those interpretations dealt primarily with the taxation of SNCs under Part I of the Act they did not address what our current position would be in regards to the situation described in your letter and therefore asked for our comments.

Your request appears to relate to either a proposed transaction or a completed transaction. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R3 (IC-70-6R3) dated December 30, 1996. However, if the situation relates to a completed transaction a request for the Canada Customs and Revenue Agency's views must be made to your local Tax Services Office. Notwithstanding the above we are prepared to offer the following general comments.

It is our understanding that SNCs are general partnerships that are considered as legal persons, the partners of which are jointly and severally liable for its debts and obligations, under the domestic laws of France. We also understand that under the domestic income tax laws of France SNCs are not normally considered to be taxpayers. The profits or losses of SNCs are deemed to be immediately distributed to their partners, in accordance with the terms of the partnership agreement, who must report them as their own taxable income. While we are aware that under the domestic income tax laws of France the partners of a particular SNC are able to elect to have the SNC be subject to corporate income tax, we do not know what the criteria, if any, for making such an election are.

In order for a person to qualify for a reduced rate of withholding under Article X of the Treaty the particular person must be considered a resident of one or both contracting states for purposes of the Treaty. It is our view that where a SNC makes an irrevocable election to be taxed as a corporation in France it would not be considered a resident of France for the purposes of the Treaty as it is not liable to tax in France by reason of its domicile, residence, place of management or any other criterion of a similar nature. Therefore, the reduced rate of withholding under Article X of the Treaty does not apply to an SNC electing to be taxed as a corporation in France.

Our comments are provided in accordance with the practice described in paragraph 22 of IC-70-6R3.

Yours truly,

for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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