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 there is a continuity of existence of the converting XXXXXXXXXX corporation in the form of the converted XXXXXXXXXX limited liability company, such that the converted entity can retain the same business number and tax accounts after the conversion for Canadian tax purposes.
Position: Yes.
Reasons: The relevant foreign laws provide for conversion and treat the converted corporation as a continuation of the converting corporation.
Rachel Sullivan HEADQUARTERS
XXXXXXXXXX Income Tax Rulings Directorate
Assessment, Benefit and Service Branch Vicky Liu
2024-101904
Subject: Conversion from a XXXXXXXXXX LLC
We are writing in response to your inquiry of May 21, 2024, wherein requested a technical interpretation as to whether there is a continuity of existence of the converting Delaware corporation in the form of the converted Iowa limited liability company, such that the converted entity can retain the same business number and tax accounts after the conversion for Canadian tax purposes.
Our understanding of the situation is as follows:
1. The Company was a XXXXXXXXXX corporation (“XXXXXXXXXX”) organized under section 103 of the XXXXXXXXXX General Corporation Law (the “XXXXXXXXXX”).
2. XXXXXXXXXX was converted into an XXXXXXXXXX limited liability company (“XXXXXXXXXX”) in accordance with the terms of XXXXXXXXXX of the XXXXXXXXXX and XXXXXXXXXX of the XXXXXXXXXX Code Chapter 489, XXXXXXXXXX Limited Liability Company Act (the “XXXXXXXXXX”). The foregoing conversion event is referred as the “Conversion”.
3. The Conversion was approved in a manner that complied with the XXXXXXXXXX, which governed the status of XXXXXXXXXX.
4. The Conversion also complied with the XXXXXXXXXX which governed the status of XXXXXXXXXX LLC, the converted entity.
5. The FEIN/EIN number issued by the IRS remained the same after the Conversion.
6. The Conversion was effective on October 31, 2022, at 11:59 pm Eastern Time.
7. Both XXXXXXXXXX and XXXXXXXXXX LLC are treated as corporations for Canadian Tax purposes.
Some of the provisions of the XXXXXXXXXX relevant to the Conversion are described below:
1. Paragraph (a) of XXXXXXXXXX of the XXXXXXXXXX provides that, upon the authorization of such conversion in accordance with this section, a corporation of the State of Delaware may convert, among other things, into a limited liability company.
2. Paragraph (h) of XXXXXXXXXX of the XXXXXXXXXX provides that when a corporation has been converted to another entity, the other entity shall, for all purposes of the law of the XXXXXXXXXX, be deemed to be the same entity as the corporation.
Some of the provisions of the XXXXXXXXXX relevant to the Conversion are described below:
1. Paragraph 1 of XXXXXXXXXX of the XXXXXXXXXX provides that an organization other than a limited liability company or a foreign limited liability company may convert to a limited liability company, if all of the following apply:
a. The other organization’s governing statute authorizes the conversion.
b. The conversion is not prohibited by the law of the jurisdiction that enacted the other organization’s governing statute.
c. The other organization complies with its governing statute in effecting the conversion.
2. Paragraph 1 of XXXXXXXXXX of the XXXXXXXXXX provides that an organization that has been converted pursuant to this article is for all purposes the same entity that existed before the conversion.
3. Paragraph 2 of XXXXXXXXXX of the XXXXXXXXXX provides that when a conversion takes effect all of the following apply:
a. All property owned by the converting organization remains vested in the converted organization.
b. All debts, obligations, or other liabilities of the converting organization continue as debts, obligations, or other liabilities of the converted organization.
c. An action or proceeding pending by or against the converting organization may be continued as if the conversion had not occurred.
d. Except as prohibited by law other than this chapter, all of the rights, privileges, immunities, powers, and purposes of the converting organization remain vested in the converted organization.
e. Except as otherwise provided in the plan of conversion, the terms and conditions of the plan of conversion take effect.
f. Except as otherwise agreed, the conversion does not dissolve a converting limited liability company for the purposes of article 7.”
To determine whether there is a continuity of existence on a conversion from one type of entity into another type of entity, we need to examine many factors including, among other things, the classification of the relevant entities for Canadian commercial and tax purposes, the relevant foreign corporate or company law, and the details of the plan of conversion.
For the purposes of this analysis, it is assumed that there is no issue with the classification of XXXXXXXXXX – both are considered corporations for the purpose of the Act. In other words, the Conversion does not result in any change in the nature or character of the entity being converted. In such case, the CRA would generally rely on the relevant foreign corporate or company law and the details of the plan of conversion to determine whether there is a continuity of existence on the Conversion.
Under the relevant provisions of XXXXXXXXXX law and XXXXXXXXXX law, the Conversion is not deemed to constitute a wind-up or dissolution of XXXXXXXXXX is considered to be the same entity as and a continuation of XXXXXXXXXX.
Provided that the plan of conversion does not provide for XXXXXXXXXX to cease to exist, it is our view that, for the purposes of the Act, XXXXXXXXXX is considered to be the same entity that it was prior to the Conversion. Consequently, in this case, XXXXXXXXXX can retain the same business number and tax accounts after the Conversion for Canadian tax purposes.
We trust these comments are of assistance.
Charles Taylor
Section Chief
for Director
International Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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