Rev. Rul. 57-519

Advice has been requested concerning the applicability of the documentary stamp tax imposed by section 4331 of the Internal Revenue Code of 1954 where the transfer of debentures of a Canadian corporation is completed in Canada and registered in record books maintained by a trustee-registrar in the United States.

A company incorporated under the laws of Canada has no office and does no business in the United States. The company issued a series of fully registered debentures to holders both in Canada and in the United States. Pursuant to the terms of the indenture executed by the company under which the debentures were issued, a trust company in the United States and a trust company in Canada were appointed trustee-registrar and co-registrar, respectively. Each of the registrars was authorized to make transfers of debentures upon the books of the company, and for that purpose a duplicate set of debenture ledgers was kept by them.

In order to expedite transfers in Canada, the trustee authenticated and delivered to the co-registrar a supply of debentures registered in blank. Sales and transfers of the debentures made and completed in Canada and entered upon the books of the co-registrar were also registered on the books of the trustee-registrar in the United States pursuant to notice given by the co-registrar. Surrenders of the debentures by Canadian holders for cancellation and/or reissuance were made to the co-registrar in Canada.

Section 4331 of the Code imposes a tax on each sale or transfer of any certificates of indebtedness issued by a corporation. Under the provisions of sections 113.33(1) and 113.63 of Regulations 71, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, the sale or transfer of bonds or debentures by a foreign corporation within the territorial jurisdiction of the United States is subject to documentary stamp tax. The question arises whether the recording of the debenture transfers completed in Canada on the books of the trustee-registrar in the United States constitutes an act of transfer within the jurisdiction of the United States.

Under the indenture the co-registrar was completely and fully authorized to effectuate legal and valid transfers and exchanges of the debentures. Upon receipt of a debenture from the co-registrar, the transferee was in all respects the legal owner and entitled to all the benefits which attached to ownership. Notification to the trustee-registrar of the transfer and registration on the books of the latter were merely ministerial acts not necessary either to complete or to validate the Canadian transfer.

Therefore, the debentures were issued by a foreign corporation and the transfers and exchanges in question were effected outside the jurisdiction of the United States. Accordingly, it is held that such transfers and exchanges are not subject to the documentary stamp tax imposed by section 4331 of the Code. Revenue Ruling 55-259, C.B. 1955-1, 513, is distinguishable in that it relates to transfers of stock of a domestic corporation and, consequently, is governed by section 113.33(k) of Regulations 71, which specifically provides that the transfer of stock on the books of a domestic corporation is subject to tax regardless of where the sale is made or the stock certificate delivered.

Sales or transfers of securities to or by a State, a political subdivision or an instrumentality thereof. See Rev. Rul. 57-349, page 770.