Federal Appeal


Income tax

Tax avoidance

General anti-avoidance rule did not apply as Minister did not demonstrate that transaction was abusive

CVC acquired Netherlands public corporation, indirectly acquiring Canadian subsidiary. CVC indirectly stripped surplus from Canadian subsidiary without paying withholding tax, using taxpayer, as holding company, to facilitate outcome. Transaction took advantage of relieving exemption in s. 212.1(4) of Income Tax Act. Minister of National Revenue assessed taxpayer, finding that transaction violated General Anti-Avoidance Rule (GAAR) and attracted withholding tax. Tax Court judge dismissed taxpayer’s appeal and determined that avoidance transaction was abuse of Act. Taxpayer appealed. Appeal allowed. GAAR did not apply to these transactions because Minister did not demonstrate that transaction was abusive. There was alternative means by which same result could have been achieved without triggering any tax or violating GAAR if shares of Canadian subsidiary would have been sold to arm’s length purchaser. Purpose of s. 212.1 of Act was not to prevent removal from Canada, by arm’s length purchaser of Canadian corporation, of surplus accumulated by Canadian corporation before acquisition of control. In this case, avoidance transactions were part of series of transactions by which control of Canadian subsidiary was indirectly acquired in arm’s length transaction. Whether surplus of Canadian subsidiary was removed by completing alternative transactions or by completing transactions as done in this case, same surplus was removed from Canada and did not frustrate purpose of s. 212.1 of Act. Transactions did not frustrate s. 212.1 of Act as it was written at time of transaction, so amendments, enacted nine years after transactions, could not be used to find that avoidance transaction was abusive. Technical notes, budget information, and comparison between ss. 84.1 and 212.1 of Act only addressed non-arm’s length sales of shares.

Univar Holdco Canada ULC v. The Queen (2017), 2017 CarswellNat 5539, 2017 FCA 207, J.D. Denis Pelletier J.A., Wyman W. Webb J.A., and D.G. Near J.A. (F.C.A.); reversed (2016), 2016 CarswellNat 11075, 2016 CarswellNat 2472, 2016 TCC 159, 2016 CCI 159, Valerie A. Miller J. (T.C.C. [General Procedure]).

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