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FEDERAL INCOME TAX - Corporations - Capital tax - Transfer of property - Tax avoidance - General anti-avoidance rule - Misuse and abuse - Avoidance transaction - Appeals

Thursday, November 02, 2017 @ 8:36 AM  

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Appeal by Univar Holdco Canada ULC (Holdco) from a reassessment of tax based on the application of the general anti-avoidance rule (GAAR). In 2007, Univar NV was a Netherlands public company that carried on a global business of acquiring chemicals in bulk and then processing, blending and repackaging them to sell to its customers. It carried on business in several countries, including Canada. Univar Canada Ltd. (Univar Canada) was a corporation that formed part of the Univar NV group prior to the purchase by CVC Capital Properties (CVC) of 99.4 per cent of Univar NV’s shares. Univar Canada’s shares were all held by Univar North American Corporation, an American company. Several transactions resulted in the acquisition of Univar Canada by Holdco. The American parent of Holdco held a note payable to Holdco for $589,262,400. The paid up capital (PUC) of the shares of Holdco was $302,436,000. As such, the total of the PUC of the share and the note held by the American Parent of Holdco was equal to the fair market value of the shares of Univar Canada. Prior to the transactions, the amount that could be extracted by the American parent without incurring Canadian tax was $911,729, while after the transactions it was $891,698,400. The parties to the transactions relied on the Canada-United States Tax Convention to exempt from Canadian taxation any capital gain arising from the transactions, and on the exception in section 212.1(4) of the Income Tax Act (Act) to avoid the deemed dividend that would otherwise arise when the shares of Univar Canada were transferred to Holdco. The Tax Court judge determined that the avoidance transaction was an abuse of the Act.

HELD: Appeal allowed. The judge erred in refusing to consider an alternate transaction the taxpayer could have undertaken that would have had the same result, to allow CVC to extract the surplus in Univar Canada without triggering any tax, in determining whether the avoidance transaction was abusive. Whether the surplus of the Canadian corporation was removed by completing an alternate transaction, or by completing the transactions that were done in this case, the same surplus was removed from Canada. These transactions therefore did not frustrate the purpose of section 212.1 of the Act. Amendments made to the Act in 2016 could not be used to make a finding that the 2007 transactions were abusive.

Univar Holdco Canada ULC v. Canada, [2017] F.C.J. No. 951, Federal Court of Appeal, J.D.D. Pelletier, W.W. Webb and D.G. Near JJ.A., October 13, 2017. Digest No. TLD-October302017007