2010 Ruling 2010-0353901R3 - Common Contractual Funds

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: 1. Whether the proposed Irish common contractual fund is a trust for purposes of subsection 94(1) of the Act. 2. Whether the custodian is required to withhold and remit Part XIII and Part XIII.2 tax in respect of amounts paid or credited to the custodian by a payor resident in Canada.

Position: 1. The CCF will not be a trust. 2. The custodian must withhold and remit the applicable Part XIII and Part XIII.2 tax on behalf of the Canadian payor.

Reasons: 1. The unitholders are co-owners of the property held by the CCF. 2. The custodian withholds and remits withholding taxes on behalf of the Canadian payor.

XXXXXXXXXX 									2010-035390

XXXXXXXXXX , 2010

Dear XXXXXXXXXX :

Re: Advance Income Tax Ruling Request
XXXXXXXXXX ("Canco")

This is in response to your XXXXXXXXXX request for an advance income tax ruling on behalf of Canco, the trusts that hold and administer the registered pension plans on behalf of Canco and the pension funds of related companies located outside of Canada.

To the best of your knowledge and that of Canco and the trusts, none of the issues involved in this ruling is:

(i) dealt with in an earlier return of Canco or any persons related to Canco,

(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of Canco or any persons related to Canco,

(iii) under objection by Canco or any persons related to Canco, or

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

Unless otherwise stated, all statutory references herein are to the Income Tax Act, R.S.C. 1985, c.1, (5th Supplement) (the "Act"), as amended to the date of this advance income tax ruling.

The rulings given herein are based solely on the facts, proposed transactions and the purpose of the proposed transactions described below. Facts and proposed transactions described in the documents submitted with your request that are not set out below do not form part of the facts and proposed transactions on which this ruling is based and any reference to these documents is provided solely for the convenience of the reader.

Definitions

(a) "Canco" means XXXXXXXXXX .;

(b) "CBCA" means the Canada Business Corporations Act;

(c) "Common Contractual Fund" or "CCF" means a common contractual fund authorised by the Financial Regulator under the Investment Funds, Companies and Miscellaneous Provisions Act 2005 (Ireland), as it may be amended, supplemented or consolidated from time to time, and meeting the conditions set out in Section 739I of the Taxes Consolidation Act (Ireland);

(d) "Convention" means the Canada - United States Tax Convention (1980) as Amended by the Protocols Signed on June 14, 1983, March 28, 1984, March 17, 1995, July 29, 1997 and September 21, 2007;

(e) "CRA" means the Canada Revenue Agency;

(f) "Custodian" means XXXXXXXXXX or any successor thereto approved by the Financial Regulator as custodian of the Fund, Sub-Fund1 and Sub-Fund2;

(g) "Custody Agreement" means the agreement to be entered into between the Manager and the Custodian as amended, supplemented or otherwise modified from time to time in accordance with the requirements of the Financial Regulator;

(h) "Deed of Constitution" means the contract to be entered into between the Manager and the Custodian providing for the constitution of the Fund;

(i) "Financial Regulator" means the Irish Financial Services Regulatory Authority or any successor regulatory authority with responsibility for authorising and supervising CCFs;

(j) "Foreign Countries" means the XXXXXXXXXX ;

(k) "Foreign Countries' Pension Funds" means the XXXXXXXXXX ;

(l) "Foreign Country" means the United States of America;

(m) "Foreign Country's Pension Fund" means the XXXXXXXXXX

(n) "Foreign Jurisdiction" means XXXXXXXXXX ;

(o) "Foreign Parent" means XXXXXXXXXX ;

(p) "Fund" means the XXXXXXXXXX ;

(q) "Manager" means XXXXXXXXXX or any successor thereto duly appointed with the prior approval of the Financial Regulator as manager of the Fund, Sub-Fund1 and Sub-Fund2;

(r) "non-resident" has the meaning assigned by subsection 248(1) of the Act;

(s) "Parent" means XXXXXXXXXX ;

(t) "Prospectus" means the prospectus pursuant to which a Sub-Fund1 Unitholder or the Sub-Fund2 Unitholder will acquire their units in the Fund, Sub-Fund1 and/or Sub-Fund2;

(u) "Regulations" means the Income Tax Regulations, C.R.C., c. 95, as amended;

(v) "Sub-Fund1" means XXXXXXXXXX to be established by the Manager in accordance with section XXXXXXXXXX of the Deed of Constitution for the benefit of the Trusts and the Foreign Countries' Pension Funds;

(w) "Sub-Fund2" means XXXXXXXXXX to be established by the Manager in accordance with section XXXXXXXXXX of the Deed of Constitution for the benefit of the Foreign Country's Pension Fund;

(x) "Sub-Fund1 Unit(s)" means a unit of account, representing a proportionate undivided co-ownership interest in the assets of Sub-Fund1, as tenants in common with the other Sub-Fund1 Unitholders and includes any fraction of a Sub-Fund1 Unit. Sub-Fund1 Units may be further divided into different classes. Sub-Fund1 Units serve to determine the proportion of underlying assets of Sub-Fund1 which each Sub-Fund1 Unitholder owns;

(y) "Sub-Fund2 Unit(s)" means a unit of account representing the Foreign Country's Pension Fund's undivided interest in the assets of Sub-Fund2. Sub-Fund2 Units may be further divided into different classes. Sub-Fund2 Units serve to determine the underlying assets of Sub-Fund2 which the Foreign Country's Pension Fund owns;

(z) "Sub-Fund1 Unitholder(s)" means any person holding units of Sub-Fund1 or, where appropriate, holding a particular class of Sub-Fund1 Units, including any person who is a joint holder of a Sub-Fund1 Unit, as long as that person is legally entitled to an undivided co-ownership interest with the other holder in the property of Sub-Fund1;

(aa) "Sub-Fund2 Unitholder" means the Foreign Country's Pension Fund;

(bb) "subsidiary wholly-owned corporation" has the meaning assigned by subsection 248(1) of the Act;

(cc) "Tax Treaty" has the meaning assigned by subsection 248(1) of the Act;

(dd) "TCA" means the Taxes Consolidation Act (Ireland), 1997 as amended;

(ee) "Trustee" means XXXXXXXXXX ;

(ff) "Trusts" means the trusts that hold the assets of each of the registered pension plans of Canco: XXXXXXXXXX and

(gg) "Unitholder" means any person holding units of Sub-Fund1 or Sub-Fund2.

Facts

1. Parent is a corporation formed under the laws of the Foreign Jurisdiction and is a non-resident. Parent is a XXXXXXXXXX company with its headquarters in the Foreign Country. XXXXXXXXXX

2. Canco is a corporation formed under the CBCA and is a subsidiary wholly-owned corporation of Parent. XXXXXXXXXX

3. Each of the Trusts is constituted and operated exclusively to administer, or provide benefits under, its respective registered pension plan. The Trustee is the trustee of each of the Trusts.

4. Each of the Foreign Countries' Pension Funds is constituted and operated exclusively to administer or provide benefits under one or more pension, retirement or employee benefits plan. The Foreign Countries' Pension Funds are either totally or partially exempt from taxation pursuant to the taxation laws of the Foreign Countries. The Foreign Countries' Pension Funds are not resident in Canada.

5. The Foreign Country's Pension Fund is a "master trust" that is constituted and operated exclusively to administer or provide benefits under one or more pension, retirement or employee benefits plans in the Foreign Country. The Foreign Country's Pension Fund is fully exempt from taxation under the taxation laws of the Foreign Country. The Foreign Country's Pension Fund is not resident in Canada.

6. CCFs are governed by Irish law Statutory Instrument dated 29 May, 2003 S.I. No. 211 of 2003, the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2003 and The Investment Funds, Companies and Miscellaneous Act, 2005 (the "Regulations"). This legislation provides that a CCF is not a corporate entity or a trust but rather a contractual arrangement under which the unitholders of the CCF participate in the co-ownership of property.

7. A CCF is established by a deed of constitution that must be approved by and filed with the Financial Regulator. The provisions of the deed of constitution are considered to have been accepted by unitholders of the CCF as a term of the acquisition of the units. Irish law sets out the basic provisions which must be included in the deed of constitution.

8. Subsection 739I of the TCA, as amended by the Finance Act 2003 (Ireland), governs the taxation of CCFs. In particular, income, gains and losses in relation to the investment undertaking are treated as arising or accruing to each unitholder of the CCF in proportion to the property of the CCF that is owned by the unitholder.

9. The Manager was incorporated in Ireland as a limited liability company and is a non-resident. Foreign Parent indirectly owns all of the issued and outstanding shares of the Manager. The main business activity of the Manager is the provision of fund management services. The Manager will be responsible for investing the assets, the general administration and the distribution of the units of the Fund, Sub-Fund1 and Sub-Fund2. The registered office of the Manager is located in XXXXXXXXXX .

10. The Custodian XXXXXXXXXX is a non-resident. Foreign Parent owns all of the issued and outstanding shares of the Custodian. The main business activity of the Custodian is the provision of custodial services. The Custodian will be responsible for the safe-keeping of all of the assets of the Fund, Sub-Fund1 and Sub-Fund2. The registered office of the Custodian is located in XXXXXXXXXX .

11. Foreign Parent is XXXXXXXXXX formed in the Foreign Country. Foreign Parent provides investment management, asset and fund administration and fiduciary services to corporations, institutions and individuals.

Proposed Transactions

12. The Custodian and the Manager will enter into the Deed of Constitution under which the Manager and the Custodian will confirm their obligations and responsibilities with respect to the Fund.

13. The Fund will be constituted by the Manager in accordance with the Deed of Constitution to serve as an investment vehicle for the Trusts, the Foreign Country's Pension Fund and the Foreign Countries' Pension Funds. The Fund will meet the definition of CCF in subparagraph 739I(i)(a)(ii) of the TCA. The Fund will be constituted as an open ended "umbrella fund" with provision for sub-funds. Each sub-fund will have its own portfolio of assets that will be invested in accordance with the investment objectives and policies of the particular sub-fund and to which all income, expenditures and liabilities, attributable or allocated, shall be applied and charged. Units will be issued in respect of each sub-fund with each unit representing a proportionate undivided co-ownership interest in the property of the sub-fund.

14. Initially, the Fund will only have two sub-funds. Sub-Fund1 and Sub-Fund2 will each invest in global equities, including Canadian equities. The Trusts and the Foreign Countries' Pension Funds will invest in Sub-Fund1. Sub-Fund1 Units will be issued to the Trusts and the Foreign Countries' Pension Funds pursuant to the Prospectus and are not transferable. The Foreign Country's Pension Fund will be the only Unitholder of Sub-Fund2. Sub-Fund2 Units will be issued to the Foreign Country's Pension Fund pursuant to the Prospectus and are not transferable.

15. The Deed of Constitution will provide that the Sub-Fund1 Unitholders will participate in the property of Sub-Fund1 and that the Sub-Fund2 Unitholder will participate in the property of Sub-Fund2, including without limitation, income arising thereon and profits derived therefrom, as co-owners/owner, such that income and profits accrue to the Sub-Fund1 Unitholders and the Sub-Fund2 Unitholder as they arise. The Manager has the authority to distribute such income and profits to the Sub-Fund1 Unitholders and the Sub-Fund2 Unitholder as "gross income payments" as set out in section 14 of the Deed of Constitution.

16. The Sub-Fund1 Units and the Sub-Fund2 Units will not have any voting rights except the right, on written notice signed by Unitholders holding XXXXXXXXXX % of the units of Sub-Fund1 and Sub-Fund2, to require the Manager to resign. None of the Unitholders or their successors will have any rights with respect to the representation or management of the Fund, Sub-Fund1 or Sub-Fund2. The failure or insolvency of a Unitholder will have no effect on the existence of the Fund, Sub-Fund1 or Sub-Fund2.

17. The liability of each Unitholder will be limited to the issue price of the units subscribed to in Sub-Fund1 and Sub-Fund2, respectively.

18. The Custodian's safekeeping responsibilities include the responsibility to ensure that the appropriate amount of withholding tax is deducted and remitted to the relevant tax authorities and that any requirements under Part II of the Regulations, in respect of investment income earned by Sub-Fund1 Unitholders resident in Canada, are fully complied with. The Custodian will withhold and remit amounts on behalf of the Sub-Fund1 Unitholders in respect of their Part XIII tax liabilities. The Custodian will determine the amount of Part XIII tax to withhold, on amounts paid or credited on a particular day, based on the percentage of Sub-Fund1 Unitholders that are resident in a country other than Canada. The Custodian will then apply that percentage to the aggregate amount of Sub-Fund1's Canadian source receipts that are taxable under Part XIII of the Act to determine the amounts received by non-residents. The Custodian will then apply the provisions of any relevant Tax Treaty to determine the amount of tax to withhold in respect of the amounts received by a Sub-Fund1 Unitholder. At the end of each month the Custodian will compute the total amount withheld on behalf of the Sub-Fund1 Unitholders for that month as determined above and remit that amount to the CRA by the 15th day of the following month. Within the time limits prescribed by the Regulations, the Custodian will provide each of those Sub-Fund1 Unitholders with an NR4 Supplementary form reporting the total amount of Part XIII tax withheld and remitted on their behalf and will forward to the CRA a copy of the NR4 Supplementary issued by the Fund and a NR4 Summary for the year.

19. The Custodian will withhold and remit amounts on behalf of the Sub-Fund2 Unitholder in respect of the Sub-Fund2 Unitholder's Part XIII tax liabilities. The Custodian will determine the amount of Part XIII tax to withhold, on Canadian source receipts paid or credited on a particular day to the Sub-Fund2 Unitholder. The Custodian will then apply the provisions of the Convention to determine the amount of tax to withhold in respect of the amounts received by the Sub-Fund2 Unitholder. At the end of each month the Custodian will compute the total amount withheld on behalf of the Sub-Fund2 Unitholder for that month and remit that amount to the CRA by the 15th day of the following month. Within the time limits prescribed by the Regulations, the Custodian will provide the Sub-Fund2 Unitholder with an NR4 Supplementary form reporting the total amount of Part XIII tax withheld and remitted and will forward to the CRA a copy of the NR4 Supplementary issued by the Fund and a NR4 Summary for the year.

20. The Custodian will also determine, for Sub-Fund1, the percentage of Sub-Fund1 Unitholders that are resident in Canada. The Custodian will then apply that percentage to the aggregate amount of Sub-Fund1's Canadian source receipts to determine the amount received by each Canadian resident Sub-Fund1 Unitholder ("T5 Amount"). Within the time limits prescribed by the Regulations, the Custodian will provide a T5 Supplementary form reporting the T5 Amount to each SubFund1 Unitholder that is resident in Canada and will forward to the CRA a copy of the T5 Supplementary issued to the Sub-Fund1 Unitholders as well as a T5 Summary for the year.

Purpose of the Proposed Transactions

21. The purpose of the pooling of the investment portfolios of the pension funds of Canco, Parent and companies related to Parent in a CCF is to:

(a) achieve economies of scale resulting in cost savings to the Trusts, the Foreign Country's Pension Fund and the Foreign Countries' Pension Funds including a reduction in management fees, administration costs and custodian fees.

(b) achieve investment and risk diversification through the use of a larger pool of investment managers.

Rulings

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose of the proposed transactions, and provided further that the proposed transactions are completed in the manner described above, our rulings are as follows:

A. Neither of the Fund, Sub-Fund1 nor Sub-Fund2 will be considered to be a trust to which subsection 94(1) of the Act applies.

B. Each Sub-Fund1 Unitholder that owns a direct, proportionate and undivided interest in each property of Sub-Fund1 will, for purposes of the Act, be treated as directly earning or realizing, as the case may be, its proportionate share of income, losses, capital gains and capital losses from the property of Sub-Fund1, whether or not any amounts are distributed to the Sub-Fund1 Unitholder, and the character, source and timing of income, losses, capital gains and capital losses earned or realized by each Sub-Fund1 Unitholder will not be affected by the fact that the property is being administered by the Manager.

C. The Sub-Fund2 Unitholder owns a direct, proportionate and undivided interest in each property of Sub-Fund2 such that the Sub-Fund2 Unitholder will, for purposes of the Act, be treated as directly earning or realizing, as the case may be, the income, losses, capital gains and capital losses from the property of Sub-Fund2, whether or not any amounts are distributed to the Sub-Fund2 Unitholder, and the character, source and timing of income, losses, capital gains and capital losses earned or realized by the Sub-Fund2 Unitholder will not be affected by the fact that the property is being administered by the Manager.

D. Any distributions made to a Unitholder by the Manager, as described in paragraph 15 above, will not be treated as income to the Unitholder.

E. Provided that a Sub-Fund1 Unitholder is a non-resident, for the purposes of applying Parts XIII and XIII.2 of the Act any amount paid or credited to the Custodian by a payer resident in Canada, in respect of the property of Sub-Fund1, will be an amount paid or credited to each Sub-Fund1 Unitholder in proportion to the particular Sub-Fund1 Unitholder's ownership of the property of Sub-Fund1.

F. Provided that the Sub-Fund2 Unitholder is a non-resident, for the purposes of applying Parts XIII and XIII.2 of the Act any amount paid or credited to the Custodian by a payer resident in Canada, in respect of the property of Sub-Fund2, will be an amount paid or credited to the Sub-Fund2 Unitholder.

G. For the purposes of computing any capital gain or capital loss under Part I of the Act by a Sub-Fund1 Unitholder, the redemption of Sub-Fund1 Units by the Manager will be considered to result in a disposition of the Sub-Fund1 Unitholder's proportionate undivided interest in the property of Sub-Fund1.

H. A non-resident Unitholder that is a resident of a Tax Treaty jurisdiction and eligible for benefits under the Tax Treaty, will be entitled to the benefits of that Tax Treaty in respect of the Unitholder's income or gains relating to the Unitholder's proportionate undivided interest in the assets of a sub-fund to the extent such income or gains qualify for relief under the relevant provisions of that Tax Treaty.

I. To the extent that the Custodian withholds and remits tax under Part XIII or Part XIII.2 of the Act on behalf of a non-resident Unitholder, any amount remitted by the Custodian in respect of the non-resident Unitholder's Part XIII or Part XIII.2 tax liability will be considered as being paid on behalf of such Unitholder and in respect of such Unitholder's Part XIII or Part XIII.2 tax liability.

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5, issued by the CRA on May 17, 2002, and are binding on the CRA provided that the proposed transactions are entered into before XXXXXXXXXX .

The above-noted rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.

Nothing in this ruling should be construed as implying that the CRA has considered, examined, agreed to or ruled on:

(a) whether any Sub-Fund1 Unitholder is a resident of a country with which Canada has entered into a Tax Treaty;

(b) whether the Sub-Fund2 Unitholder is a resident of the Foreign Country for purposes of the Convention;

(c) whether any income referred to herein is taxable under Part I of the Act;

(d) the manner in which any article of a Tax Treaty applies to any Sub-Fund1 Unitholder;

(e) the manner in which any article of the Convention applies to the Sub-Fund2 Unitholder;

(f) any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.

Yours truly,

for Director
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch