• Service: Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 5/2/2014

Canada - Foreign affiliate anti-avoidance rule and tax-efficient financing 

May 2: The Federal Court of Appeal unanimously upheld a decision of the Tax Court of Canada, finding for the taxpayer by concluding that the foreign affiliate (FA) anti-avoidance rule does not deny a deduction for exempt surplus dividends that a Canadian corporation received from its U.S. affiliate through a tax-efficient financing structure. The Queen v. Lehigh Cement Ltd. (2014 FCA 103).

The Federal Court of Appeal agreed with the Tax Court of Canada, but on different grounds. The appellate court significantly narrowed the scope of the FA anti-avoidance rule, and concluded that the rule is targeted at taxpayers whose principal purpose of acquiring or disposing of shares of a non-resident corporation is to manipulate its FA, controlled FA, or related corporation status.

Read an April 2014 report prepared by the KPMG member firm in Canada: Lehigh Cement - FCA Narrows Scope for FA Anti-Avoidance Rule

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