Canada’s Federal Court of Appeals has affirmed the Tax Court’s ruling, in Canada v. Lehigh Cement Limited, that a taxpayer’s acquisition of shares in a a non-resident company did not result in avoidance of tax. In so doing the Court rejected the tax authority’s argument that the foreign affiliate anti-avoidance rule should be read broadly, concluding that:
“Paragraph 95(6)(b) is targeted at those whose principal purpose for acquiring or disposing of shares in a non-resident corporation is to meet or fail the relevant tests for foreign affiliate, controlled foreign affiliate or related-corporation status in subdivision i of Division B of Part I of the Act with a view to avoiding, reducing or deferring Canadian tax.”
