2005 Ruling 2005-0109741R3 - XXXXXXXXXX

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 the conversion of a French société anonyme into a French société par actions simplifiée would result: (1) in the rulings issued in 2001, 2003 and 2004 to a Canadian corporation of whom the converted entity is a controlled foreign affiliate being void or inapplicable; (2) in the converted entity still being treated as a corporation for the purposes of the ITA; (3) in a disposition of the shares of the converted entity held by a Canadian corporation; (4) in a disposition of the property and assets of the converted entity; and (5) in changes to the exempt surplus, exempt deficit, taxable surplus, taxable deficit and underlying tax account balances of the converted entity with respect to a Canadian corporation of whom it is a controlled foreign affiliate.

Position: (1) no; (2) yes; (3) no; (4) no; (5) no

Reasons: Position adopted in ruling E 2002-0132163.

XXXXXXXXXX 2005-010974

XXXXXXXXXX, 2005

Dear XXXXXXXXXX:

Re : XXXXXXXXXX
Advance Income Tax Ruling Request

This is in reply to your letter of XXXXXXXXXX, in which you request an Advance Income Tax Ruling on behalf of the above named taxpayer.

We understand that, to the best of your knowledge and that of the taxpayer involved, none of the issues involved in this Ruling request:

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

(ii) is being considered by a Tax Services Office or Taxation Center in connection with a previously filed tax return of the taxpayer or a related person;

(iii) is under objection by the taxpayer or a related person;

(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; or

(v) is the subject of a Ruling previously issued by the Directorate.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c. 1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

This document is based solely on the facts and proposed transactions described below.

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

Definitions

The following definitions apply in respect of this Ruling request:

"2001 Tax Ruling" means the income tax ruling issued by the CRA to Aco originally dated XXXXXXXXXX, 2001 and revised as of XXXXXXXXXX, 2001, having reference number 2001-008991;

"2003 Tax Ruling" means the income tax ruling issued by the CRA to Aco dated

XXXXXXXXXX , 2003, having reference number 2003-002458;

"2004 Tax Ruling" means the income tax ruling issued by the CRA to Aco dated XXXXXXXXXX, 2004, having reference number 2004-010311;

"Aco" means XXXXXXXXXX, a company incorporated and resident in Canada;

"Bco" means XXXXXXXXXX, a company incorporated and resident in France and a controlled foreign affiliate of Aco;

"Bco XXXXXXXXXX Branch" means the XXXXXXXXXX branch of Bco;

"Bco XXXXXXXXXX Project" means the XXXXXXXXXX project carried on in XXXXXXXXXX by Bco through the Bco XXXXXXXXXX Branch;

XXXXXXXXXX;

"CBCA" means the Canada Business Corporations Act, R.S.C. 1985, c. C-44, as amended to the date hereof;

"Cco" means XXXXXXXXXX, a company incorporated in France and a wholly-owned subsidiary of XXXXXXXXXX;

"CRA" means the Canada Revenue Agency;

"controlled foreign affiliate" has the meaning assigned by subsection 95(1) of the Act;

"disposition" has the meaning assigned by subsection 248(1) of the Act;

"exempt deficit" has the meaning assigned by subsection 5907(1) of the Regulations;

"exempt surplus" has the meaning assigned by subsection 5907(1) of the Regulations;

"foreign affiliate" has the meaning assigned by subsection 95(1) of the Act;

"French Act" means the Code de commerce;

"public corporation" has the meaning assigned by subsection 89(1) of the Act;

"qualifying interest" has the meaning assigned by paragraph 95(2)(m) of the Act;

"Regulations" means the Income Tax Regulations;

"SA" means a company that is a société anonyme established under and governed by the French Act and its articles of incorporation;

"SAS" means a company that is a société par actions simplifiée established under and governed by the French Act and its articles of incorporation;

"taxable deficit" has the meaning assigned by subsection 5907(1) of the Regulations;

"taxable surplus" has the meaning assigned by subsection 5907(1) of the Regulations;

"Tax Rulings" means the 2001 Tax Ruling, the 2003 Tax Ruling and the 2004 Tax Ruling; and

"underlying foreign tax" has the meaning assigned by subsection 5907(1) of the Regulations.

Facts

1. Aco was incorporated in XXXXXXXXXX under the laws of Canada, XXXXXXXXXX. Aco's executive offices are located at XXXXXXXXXX. Aco is a public corporation and its shares are listed on the XXXXXXXXXX Stock Exchange and XXXXXXXXXX Stock Exchange.

2. XXXXXXXXXX.

3. Bco was incorporated as a SA in XXXXXXXXXX under the French Act, is registered in France, has its head office located in France and is the surviving corporation following several mergers, most recently:

(a) XXXXXXXXXX and its wholly-owned XXXXXXXXXX subsidiary in XXXXXXXXXX; and

(b) Bco and XXXXXXXXXX . in XXXXXXXXXX.

4. As of the date of this letter, Aco owns a XXXXXXXXXX% interest in Bco, and XXXXXXXXXX (through its wholly-owned subsidiary, Cco) owns the remaining XXXXXXXXXX%. In a press release dated XXXXXXXXXX, Aco announced that Aco, the government of XXXXXXXXXX and XXXXXXXXXX had entered into a letter of understanding allowing for the acquisition by the government of XXXXXXXXXX from XXXXXXXXXX of up to a XXXXXXXXXX% interest in Bco (being XXXXXXXXXX entire interest following an expected recapitalization of Bco). The acquisition is subject to the negotiation of definitive agreements, among other conditions.

5. Aco has also entered into an agreement in principle with a consortium of XXXXXXXXXX companies providing for their acquisition of up to a XXXXXXXXXX% interest in Bco. This acquisition is subject to, among other things, the negotiation of definitive agreements and the acquisition of the shares of Bco by the government of XXXXXXXXXX currently owned by Cco.

6. Upon completion of the transactions described in paragraphs 4 and 5, Aco is expected to own XXXXXXXXXX % of the equity of Bco, the XXXXXXXXXX consortium XXXXXXXXXX% and the government of XXXXXXXXXX%. Bco will at all relevant times be a controlled foreign affiliate of Aco in which Aco will have a qualifying interest.

7. XXXXXXXXXX.

8. XXXXXXXXXX.

Proposed Transactions

9. The shareholders of Bco will pass a unanimous shareholders' resolution to have the legal form of Bco converted from a SA to a SAS (the "Conversion").

10. The statutory auditors of Bco will certify that Bco's equity is at least equal to its stated capital at the time of the Conversion as required by the French Act.

11. The Conversion will qualify as a "transformation régulière" pursuant to section

L210-6 of the French Act and therefore Bco will survive as the same legal entity.

12. The French and XXXXXXXXXX tax regimes applicable to Bco prior to the Conversion will continue to apply to Bco following the Conversion without modification.

13. The rights of Aco as a shareholder of Bco will not change as a result of the Conversion. More specifically, the shares of Bco held by Aco will continue to have the same dividend, voting and liquidation rights, and the nature of the shares that will be owned by Aco will continue to be ordinary shares.

14. Immediately after the Conversion, Bco will carry on the same business as was carried on before the Conversion. Bco will continue to maintain its head office in XXXXXXXXXX. Employees of Bco located at its head office in XXXXXXXXXX will carry out the activities described in paragraph 19 of the 2001 Tax Ruling.

15. Following the Conversion, the articles of Bco will provide for the following:

(a) The share capital of Bco will remain the same as immediately before conversion;

(b) The shares of Bco will continue to be held through a book entry system which includes the name and domicile of the holder of the shares and the number of shares owned by the holder;

(c) The shareholders of Bco must approve a transfer of shares other than a transfer to another shareholder. If the shareholders refuse to approve the transfer, procedures are in place to have the shares acquired by the other shareholders of Bco;

(d) Bco will continue to be managed by a board of directors that is vested with all of the powers necessary to manage Bco;

(e) An annual shareholders meeting must take place within XXXXXXXXXX months after year-end. Extraordinary shareholders meetings can also be called;

(f) The existence of Bco will be limited to 99 years, as provided by the French Act. The 99-year period will be the same as the period applicable to Bco under the French Act prior to the Conversion; and

(g) Bco's statutory auditor will remain the same.

Purpose of the Proposed Transactions

16. The purpose of the proposed transactions is to convert Bco from a SA to a SAS in order to, among other things, simplify the corporate governance and capitalization of Bco and to facilitate the implementation of agreements among Aco, Bco and the other shareholders of Bco.

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purposes of the proposed transactions, and provided further that the proposed transactions are carried out as described above, our Rulings are as follows:

We confirm that

A. Provided that it qualifies as a "transformation régulière" within the meaning of section L210-6 of the French Act, the Conversion will not, in and of itself, render any of the rulings provided in the Tax Rulings inapplicable or void.

B. Bco will continue to be a corporation for the purposes of the Act following the Conversion with the following consequences:

(i) Aco's ownership interest in Bco will continue to be considered as shares of Bco for the purposes of the Act and any distribution of Bco's profits to Aco as a result of its ownership interest in Bco will be considered as a dividend for the purposes of the Act;

(ii) Aco's equity percentage in respect of Bco will be unaffected by the Conversion, in and of itself;

(iii) Bco's status as a foreign affiliate and/or controlled foreign affiliate of Aco will be unaffected by the Conversion, in and of itself; and

(iv) The Conversion, in and of itself, will have no bearing as to whether Aco holds a qualifying interest in Bco and whether Aco and Bco are related for the purposes of the Act.

C. Provided that it qualifies as a "transformation régulière" within the meaning of section L210-6 of the French Act, the Conversion will not result in a disposition of the shares of Bco held by Aco.

D. Provided that it qualifies as a "transformation régulière" within the meaning of section L210-6 of the French Act, the Conversion will not result in a disposition of the property and assets of Bco.

E. Provided that it qualifies as a "transformation régulière" within the meaning of section L210-6 of the French Act, the Conversion, in and of itself, will not affect the exempt surplus, exempt deficit, taxable surplus, taxable deficit and underlying foreign tax account balances of Bco in respect of Aco.

Nothing in this Advance Income Tax Ruling should be construed as implying that we are ruling on any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the Rulings given above. More particularly, no Ruling is provided herein with respect to:

(i) The qualification of the Conversion as a "transformation régulière" within the meaning of section L210-6 of the French Act;

(ii) The transactions referred to in paragraphs 4, 5, 6, 8 and 12 above;

(iii) The qualification of Bco as a foreign affiliate and controlled foreign affiliate of Aco and whether the interest held in Bco by Aco qualifies as a qualifying interest; and

(iv) The application of section 245 of the Act.

With respect to Ruling A above, it is to be noted that we have not reconsidered the facts and issues raised in the Tax Rulings and that the confirmation given herein that the Conversion would not, in and of itself, render any of the Tax Rulings void or inapplicable should not be interpreted as confirming that the Tax Rulings are still applicable or that they have been reissued as of the date of the present letter.

The Rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 and are binding on the CRA provided that the proposed transactions are completed within 6 months of the date of issuance of the present letter.

Yours truly,

XXXXXXXXXX
Section Manager
For Division Director
International & Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch