Corporation

A Quebec individual resident was a member of Delaware, New York and Florida LLCs. His representatives submitted that in light of Backman and the introduction of s. 8.1 of the Interpretation Act, and on the basis of a comparison of the attributes of a partnership under the Quebec Civil Code (“QCC”), which were relevant in light of the individual's residence, and those of the LLCs, that the LLCs were partnerships for purposes of the application of the Act to the individual. In rejecting this submission, CRA stated (TaxInterpretations translation):

[W]e are maintaining our position… that they should generally be considered as corporations for the purposes of the Act under the two-step approach outlined above. …

[W]e are not convinced that a comparative analysis involving partnerships governed by the QCC by itself supports the conclusion submitted by the representatives… . However, if it were determined that such a comparative analysis supported the conclusion that a US LLC must be considered as a partnership for the purpose of application of the Act, we suggest that it would not be appropriate to adopt a classification approach to entities and foreign arrangements which could result in a different classification according to the province or territory of the residence (or permanent establishment) of the taxpayer holding an interest in the entity or the arrangement. Otherwise, for example, simply changing the province or territory of residence or the establishment would be susceptible to the triggering of complex and onerous tax consequences to the taxpayer involved. …

[I]t appears to us, based in particular on the conflict of law rules, that the provincial and territorial laws of property and civil rights in Canada provide for mutual recognition of different types of entities or arrangements established under the respective jurisdictions of the various provinces and territories, thus providing an expanded base for analysis that is uniform across Canada for the purposes of applying the two-step approach.

Before ruling that the contribution of shares of a Netherlands private limited liability company to a newly-formed Netherlands cooperative (Dutch Co-op, or "DC"), in consideration for a credit to the membership accounts of the contributing foreign affiliates, was eligible for s. 95(2)(c) rollover treatment, CRA ruled that DC was a corporation for the purposes of the Act, and a non-resident corporation without share capital for purposes of s. 93.2.

In connection with this ruling, the factual description noted the following:

• Upon the registration of the notarial deed with the commercial register, DC will be regarded as a legal entity that exists separately from its members under the Dutch Civil Code and the Netherlands domestic income tax law.
• The Articles will provide that each member must make capital contributions to DC as unanimously agreed upon by all members, the number of votes that a member may cast at a general meeting of members will generally be proportionate to its percentage of ownership in DC, a distribution of retained profits will only be made with the unanimous agreement of all members and such distribution s will be proportional to the respective ownership percentages, and the members will not be liable for any debts or losses incurred by DC that are in excess of their required contributions to the capitalization of DC.
• The Dutch Civil Code provides that “a Dutch cooperative may, by its articles of association, exclude or limit to a maximum, any liability of its members or former members to contribute to a deficit.”

A taxpayer holds an interest in a Dutch Co-Op. Is it a partnership or a corporation? After referring to the two-step approach to entity classification, the Directorate stated:

Based on our analysis of the Deed, the Annual Report and the Dutch Legislation, provided that the Dutch Co-op complies with the Dutch Legislation, it is our view that the Dutch Co-op is a corporation for purposes of the Act.

CRA largely repeated its position immediately below in 2016 IFA Roundtable, Q. 1 (as well as indicating that Anson has not changed its views on LLCs). One change was that after listing the four conditions respecting when it will continue respecting an LLP or LLLP as a partnership, CRA added that “where some but not all of those conditions are met, those cases may be dealt with on a facts and circumstance basis.”

A (presumably U.S.) limited liability partnership (FA1) will pay a distribution proportionately to its partners who directly comprise (i) a limited partner corporation (Canco9), and (ii) a general partner which is a general partnership - whose partners on a s. 212.3(25) look-through basis are two other Canadian corporations in the same group (Canco7 and Canco8). The CRA ruling letter described FA1 as a (non-resident) subject corporation rather than as a Canadian partnership, described the proportionate distribution as being deemed by s. 90(2) to be a dividend and provided a ruling that the distribution will be considered to be received as a dividend in respect of a single class of shares of capital stock of FA1 by Canco7, 8 and 9 for the purposes of s. 212.3(9)(b)(ii) – A(B).

CRA indicated that it has finalized its view that Florida and Delaware limited liability partnerships and limited liability limited partnerships are corporations for ITA purposes in light inter alia of their separate legal personality and limited liability for all members (and noted that "we see little substantive difference between LLPs, LLLPs and LLCs governed by the laws of the states of Florida and Delaware." However, CRA is prepared as an administrative matter to continue accepting that an existing LLP or LLLP (that had been formed from scratch, rather than being converted from an LLC) is a partnership if it is clear that the members are carrying on business in common with a view to profit, they intended for the entity to be a partnership, all members and the entity itself have been treating the entity for ITA purposes as a partnership, and the LLP or LLLP converts to an entity recognized by CRA as a partnership before 2018.

Although a Netherlands Antilles private foundation had separate legal personality (including a separate legal entity clause in the governing legislation) and capacity to acquire rights and liabilities (with no beneficiary liability), CRA nonetheless considered it to be a trust rather than a corporation given that it did not issue shares, the beneficiaries did not pay for their interests in the foundation, they could not transfer their beneficial interests and they did not have a right to participate in any decisions of the foundation. Although it was still quite dissimilar to a common law trust, it was sufficient that it was somewhat similar to a civil law trust.

CRA affirmed its position that a Liechtenstein Foundation "generally will be considered to be a trust for purposes of the Act." See summary under s. 94(1) - connected contributor.

CRA indicated that Florida limited liability limited partnerships and limited liability partnerships potentially may be corporations for purposes of the Act given that "they seem to have both legal personality and full, or at least very extensive, limited liability for all members," i.e., liability protection which "seems to go beyond the type of limitation of liability applicable to partnerships governed by the laws of the Canadian provinces," and invited submissions on this issue.

CRA also noted (before release of Anson) that it accepts that LLC are corporations. See summary under s. 96.

[The] Directorate has reconsidered its 2010 decision [to cease giving entity classification rulings]....Taxpayers wishing to request an advance income tax ruling on...classification...should include with their request a complete description of the characteristics of the entity, their analysis as to its proper classification, and a translated copy of both the legislation under which the entity was created and its organizational documents.

a Liechtenstein anstalt possessed most of the hallmarks of a corporation aside from issuing shares, and was to be treated as a corporation. Furthermore, although it did not issue shares within the meaning of s. 248(1), as there was only one beneficiary, a division of the capital of the anstalt into shares was unnecessary so that it was reasonable to consider that the Canadian resident beneficiary's interest was the equivalent of a share. "For Canadian tax purposes, it should suffice that the interest is what accords him the same rights as are normally conveyed by a share."

In light of its characteristics, a Liechtenstein anstalt could be treated for Canadian purposes as either a trust or a corporation depending on the specific facts of the particular situation. However, CRA would not change its published position that an anstalt is a corporation without a public announcement to that effect which would only have prospective effect.

application of CRA's two-step approach to entity classification to find that a Delaware LLC governed by the Delaware Limited Liability Company Act that is converted into a limited partnership pursuant to s. 17-217 of the Limited Partnership Act will be considered to have become a partnership for Canadian income tax purposes, so that there is a disposition of the property of the LLC and of the shares in the LLC.

A limited liability company organized in Madagascar would be considered to be a corporation for purposes of the Act given that it has several characteristics of a corporation, including separate legal personality.

A Leichtenstein establishment (i.e., a Leichtenstein anstalt) is a corporation for purposes of the Act.

List of states for which CCRA has provided an opinion that a limited liability company formed under the laws of that state is a corporation for Canadian tax purposes.

A Hungarian korlatolt feleossegu tarsasag is a corporation for purposes of the Act because it has legal personality and existence apart from its members. "This would be our view whether or not the Articles of Association of the particular Kft provided that members may be liable for losses of the Kft in excess of their initial capital contributions."

A Tennessee limited liability company is a corporation for purposes of the Act.

A Russian joint stock company would be a corporation for purposes of the Act (including the foreign affiliate definition), as it is a distinct legal entity, separate from its shareholders, directors and officers.

Kazackhstan Limited Liability Partnerships normally will be considered to be corporations given that they have the status of a legal entity under Kazackh Law, their property belongs to them and the participants are not held liable for the partnership's obligations - although it is possible for a particular partnership to possess certain important attributes which are not indicative of a corporate entity, for example, being formed for only a very brief period of time.

The fact that a private company with limited liability incorporated under, and governed by the Netherlands Civil Code may not have an unlimited life or that the shareholders have agreed to assume liability for its liabilities, does not generally affect the determination that it qualifies as a corporation.

RC stated on the basis of its review of the New York Limited Liability Company Law that it was of the opinion "that a company formed under the NYLLCL would be a corporation for the purposes of the Act notwithstanding that all of its members are liable in their capacity as members for all its debts, obligations or liabilities as a result of a statement to such effect in the articles of organization thereof."

A German offene Handelsgesellschaft ("OHG"), as described by the writer, would be considered a partnership for Canadian tax purposes.

A limited liability company organized under the applicable legislation of Florida, Wyoming, Delaware or Indiana will be considered to be a corporation rather than a partnership for Canadian tax purposes.

A limited liability company formed under Chapter 18, Subtitle II of Title 6 of the laws of Delaware will be treated as a corporation for purposes of the Act.

An unlimited liability company incorporated under the Nova Scotia Companies Act is a corporation within the meaning of s. 248 of the Act.

Assuming that the proposed Barbadian Societies Restricted Liability Act is enacted in its proposed form, a foreign entity created under that legislation should qualify as a corporation for purposes of the Act.

A foreign unlimited liability company is a "corporation" and therefore may qualify as a foreign affiliate.