The recognition of a business or investment vehicle as a partnership under the laws of a foreign jurisdiction or its classification as a partnership under foreign tax laws does not mean that it will be considered a partnership for purposes of the Act. According to the Canada Revenue Agency (CRA), the status of a foreign entity for Canadian tax purposes involves a “two-step approach”, namely, determining the characteristics of the foreign business association under foreign commercial law, and comparing these characteristics with those of recognized categories of business association under Canadian commercial law in order to classify the foreign business association under one of those categories.
One of the aspects of a partnership as it is understood under Canadian law is that a partnership is a relationship and not an entity, even if certain acts may be taken in the name of the partnership. In contrast, under some foreign partnership laws, the partnership is considered to have separate legal entity status. This has resulted in uncertainty as to the status of some partnerships formed under foreign legislation for purposes of the Act.
The CRA now accepts that separate legal entity status under the foreign law is not determinative of the status of an arrangement for Canadian tax purposes. The CRA has confirmed that it considers partnerships formed under the Delaware Revised Uniform Partnership Act (DRUPA) and the Delaware Revised Uniform Limited Partnerships Act (DRULPA), Australian limited partnerships and French “sociétés en nom collectif ”to be partnerships.
An election by a corporation to be taxed as a partnership for tax purposes in a foreign jurisdiction is not relevant to the determination of its status as a partnership for purposes of the Act, although the election may be relevant to determining its eligibility for treaty benefits.
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Shared from: Bulletin for International Taxation
