30 November 1997 Ruling 9822043 - XXXXXXXXXX - CARRYING ON BUSINESS IN CANADA

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: Whether the fact that a non-resident corporation has a related Canadian company perform certain accounting and clerical services for it under a sub-contract would, in and of itself, cause the non-resident company or its non-resident clients with which it has an administrative service contract to be carrying on business in Canada.

Position: No.

Reasons: Based on the specific facts and proposed transactions the Canadian company is not acting in a capacity of an agent for the non-residents and is not simply an extension of the non-residents.

Favourable rulings have been given with respect to virtually identical proposed transactions (see #970492, #961814, #961247, #941218 and #920799).

XXXXXXXXXX
XXXXXXXXXX 982204
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1998

Dear Sirs:

Re: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above named parties (the “Parties”). We also acknowledge the additional information that you provided in your letter of XXXXXXXXXX in respect of the facts, proposed transactions and requested rulings described in your original letter.

To the best of your knowledge and that of the Parties involved:

(i) none of the issues involved in the requested rulings is being considered by a tax services office or taxation centre in connection with a return already filed, or

(ii) none of the issues involved in the requested rulings is the subject under any notice of objection or is under appeal.

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”) All terms used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated and all references herein to sections or components thereof are references to the Act unless otherwise indicated.

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

Facts

1. The Fund is an open-end investment fund incorporated under the laws of XXXXXXXXXX and has not been continued under the laws of Canada. The Fund does not have any office or physical presence in Canada.

2. The Fund is one of a group of investment funds known as the XXXXXXXXXX.

3. Pursuant to the articles of incorporation of the Fund, the property and business of the Fund is administered and managed by a managing director, which is currently a corporation, subject to approval by a board of advisors.

4. The Fund has a board of advisors (the “Board”), none of the members of which are or will be resident in Canada. No meetings of the Board are or will be held in Canada.

5. Shares of the Fund (the “Shares”) are and will continue to be offered for sale at the net asset value of the Shares plus a subscription charge and are generally redeemable at the end of each calendar quarter, at the option of the holder, at the net asset value of the Shares less a redemption charge. The Shares are offered in many countries. The Shares are and will not be marketed for sale in Canada although sophisticated Canadian investors may purchase the Shares from the Fund or its agents located outside of Canada. Currently, persons with addresses in Canada hold less than XXXXXXXXXX% of the outstanding shares of the Fund.

6. The Fund invests in both public and non-public companies, including XXXXXXXXXX. The Fund may also invest a portion of its assets in marketable portfolio securities throughout the world. Lastly, the Fund is authorized to devote up to XXXXXXXXXX% of its estimated net assets XXXXXXXXXX. Liquid assets of the Fund are invested, on an interim basis, XXXXXXXXXX. The Fund has not acquired shares of any Canadian corporations but is not precluded from doing so in the future.

7. XXXXXXXXXX is a limited duration company incorporated in the XXXXXXXXXX and is a subsidiary of the Fund. None of the directors of XXXXXXXXXX are resident in Canada and no meetings of the board of directors of XXXXXXXXXX are or will be held in Canada. XXXXXXXXXX does not have any office or physical presence in Canada.

8. Investments in other XXXXXXXXXX Funds and the macro-trading activities are undertaken directly by the Fund. The other investments are made through XXXXXXXXXX.

9. The managing director of the Fund is XXXXXXXXXX is also the managing director of other XXXXXXXXXX Funds. XXXXXXXXXX is a corporation incorporated in the XXXXXXXXXX. None of the directors of XXXXXXXXXX are resident in Canada and no meetings of the board of directors of XXXXXXXXXX are or will be held in Canada. XXXXXXXXXX does not have any office or physical presence in Canada.

10. As managing director of the Fund, XXXXXXXXXX is responsible for the provision of various services to the Fund including administrative and internal accounting functions, shareholder relations and registrar and transfer agency functions for the Shares.

11. All of the issued and outstanding shares of XXXXXXXXXX are owned by XXXXXXXXXX is a corporation incorporated under the laws of the XXXXXXXXXX. None of the directors of XXXXXXXXXX are resident in Canada and no meetings of the board of directors of XXXXXXXXXX are or will be held in Canada. XXXXXXXXXX does not have any office or physical presence in Canada.

12. XXXXXXXXXX renders accounting, administrative and clerical services to XXXXXXXXXX as managing director of the XXXXXXXXXX Funds. XXXXXXXXXX also renders such services to many other investment funds resident in the XXXXXXXXXX.

13. XXXXXXXXXX is the principal investment advisor of the Fund. XXXXXXXXXX is a limited liability company incorporated under the laws of XXXXXXXXXX and has not been continued under the laws of Canada. As the investment advisor of the Fund, XXXXXXXXXX is responsible for designing and implementing the investment strategy of the Fund. XXXXXXXXXX has the authority to select other investment advisors to manage a portion of the Fund’s portfolio. None of such investment advisors selected by XXXXXXXXXX is or will be resident in Canada. XXXXXXXXXX, a resident of the United States, is the Chairman of XXXXXXXXXX.

14. XXXXXXXXXX deal at arm’s length with the shareholders of the Fund and XXXXXXXXXX.

15. XXXXXXXXXX, a corporation related to XXXXXXXXXX, was incorporated outside of Canada. It is not a resident of Canada for purposes of the Act and has no office or physical presence in Canada. It owns all the outstanding shares of Canco.

16. Canco is a corporation incorporated under the Business Corporations Act (XXXXXXXXXX). Canco’s Business Number is XXXXXXXXXX and it’s fiscal year-end is XXXXXXXXXX.

17. Canco has an office in XXXXXXXXXX and currently employs XXXXXXXXXX people. Canco employs only persons that are presently resident in Canada. The board of directors of Canco is comprised of XXXXXXXXXX members, both of whom are resident in Canada. All meetings of the board of Canco are and will be held in Canada. No employees of either XXXXXXXXXX or any related corporation of XXXXXXXXXX, other than Canco, direct the day to day activities of Canco.

18. XXXXXXXXXX entered into an administrative services agreement dated XXXXXXXXXX (the “Administrative Services Agreement”) with Canco pursuant to which Canco currently provides, in consideration for a commercially reasonable fee, certain administrative services in respect of other XXXXXXXXXX Funds.

Proposed Transactions

19. It is proposed that Canco provide with respect to the Fund the same services it currently provides with respect to other XXXXXXXXXX Funds. In order to do so, the Administrative Services Agreement will be amended to provide that it applies to the Fund. Currently, the services with respect to the Fund are provided by XXXXXXXXXX. As a result of the proposed amendments to the Administrative Services Agreement, the following, and only the following, services will be provided by Canco in respect of the Fund:

(a) preparing and maintaining all customary financial and accounting books in appropriate form and in sufficient detail to support an annual independent audit of the financial condition of the Fund in accordance with instructions provided by XXXXXXXXXX;

(b) making books and records available for audit purposes and answering questions with respect to the same;

(c) based on accounting records, calculating the fees and expenses of the supervisory directors in connection with attending meetings, non-Canadian taxes, non-Canadian filing fees and other costs and expenses incurred for the account of the Fund (other than transaction costs and related expenses relating to the investment program);

(d) preparing quarterly and annual financial statements for the Fund;

(e) computing the market value and net asset value of the assets held by the Fund each month;

(f) calculating proceeds for the redemption of shares of the Fund;

(g) calculating the amount of dividends that may be paid by the Fund in accordance with guidelines provided by XXXXXXXXXX;

(h) calculating the fees payable to XXXXXXXXXX in accordance with relevant formulae;

(i) preparing monthly reports containing statements of assets and liabilities, operations, changes in net assets and subsidiary or detailed reports, as may be requested by XXXXXXXXXX;

(j) placing on ledgers any capital transaction information i.e. share subscriptions and redemptions based on information received from XXXXXXXXXX; and

(k) any other accounting and accounting related functions incidental to the foregoing.

20. The Administrative Services Agreement will be amended, and services will commence to be rendered by Canco in respect of the Fund, promptly after the Ruling requested has been granted.

21. XXXXXXXXXX will itself continue to provide all other administrative and clerical services currently provided to XXXXXXXXXX as the managing director of the Fund.

22. Pursuant to the Administrative Services Agreement, as amended, Canco will continue to have no right to directly affect the legal relations of XXXXXXXXXX as regards to other persons or the Fund. Specifically, it will continue to have no authority to make contracts on behalf of XXXXXXXXXX. Furthermore, the Administrative Services Agreement, as amended, will continue to specifically provide that there will be no agency relationship between XXXXXXXXXX and Canco.

23. Canco will employ the persons who will perform the services described in the Administrative Services Agreement, as amended, and will be the lessee of office space. That is, the various contracts entered into by Canco in the course of carrying on its business in Canada will create rights and obligations that are personal to Canco vis-à-vis the third parties.

24. No resolution has been or will be passed by XXXXXXXXXX appointing Canco as its agent nor has or will a resolution be passed by Canco accepting an appointment of agency of XXXXXXXXXX.

25. The accounts of Canco will continue to show its profits as its own, with no liability to account therefor to XXXXXXXXXX.

26. Canco is a registered employer with Revenue Canada and will continue to deduct and remit to Revenue Canada income tax, employment insurance contributions and CPP contributions from remuneration it pays to its employees.

Purpose of the Proposed Transaction

The Fund and XXXXXXXXXX have requested Canco to provide services in respect of the Fund for the same reason Canco provides such services in respect of other investment funds. Canada continues to be an appropriate jurisdiction in which to carry on an administrative services business because of its excellent telecommunications network, educated labour force, and its location in the same time zones as regions in the United States where much of the portfolio management for investment funds is carried out. Canco now has XXXXXXXXXX years experience providing these services in respect of investment funds. The Administrative Services Agreement, amended as described herein, provides an excellent opportunity for Canco to continue to grow and employ additional residents of Canada.

Rulings Given

Provided that the above statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and that the proposed transactions are carried out as set forth herein, the following ruling is given:

A. The furnishing of services by Canco under the Administrative Services Agreement, as amended, in and by itself, will not cause XXXXXXXXXX, or the Fund to be carrying on business in Canada for the purpose of paragraph 2(3)(b).

The above ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996 issued by Revenue Canada, Customs, Excise and Taxation and is binding on Revenue Canada, Customs, Excise and Taxation provided that the amended agreement described in paragraph 19 of the Proposed Transactions is signed by XXXXXXXXXX.

The above ruling is based on the law as it presently reads and does not take into account any proposed amendments to the Act which, if enacted into law, could have an effect on the ruling provided herein.

Comments

Nothing in this ruling should be construed as implying that Revenue Canada, Customs, Excise and Taxation has agreed to or reviewed any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the ruling given above.

Yours truly,

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

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