Non-application of the anti-avoidance rule aimed at foreign affiliates

Author: John J. Lennard

On April 23, 2014, the Federal Court of Appeal rendered its long-awaited decision in Canada v. Lehigh Cement Limited (2014 FCA 103), in which it gave a strict interpretation of the anti-avoidance rule provided for in paragraph 95(6)(b) of the Income Tax Act, which applies when a person or partnership acquires or disposes of shares and “it can reasonably be considered that the principal purpose of the acquisition or disposition is to permit a person to avoid, reduce or defer the payment of tax […] that would otherwise be payable.” This decision is significant because, for a certain period of time, the Canada Revenue Agency showed a tendency to apply this provision on a general basis when assessing the structures of foreign affiliates of Canadian taxpayers.

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