CRA provided s. 55(3)(a) rulings conditional on the U.S. parents receiving, and waiving the right to object, to GAAR assessments to reduce outside Canadian basis that they “paid for” by paying 5% Canadian withholding tax
In particular, the proposed transactions entailed the U.S. parent (XXXco1) of a Canadian corporation (Canco1) transferring a portion of its Class A common shares of Canco1 to a U.S. subsidiary (USco3) of XXXco1, and then having Canco1 pay a stock dividend on its Class A common shares (now held on a pro rata basis by XXXco1 and USco3) consisting of a new class of Class B common shares, so that the existing Class A common shares were diluted down to a nominal value, and the value of the newly issued Class B common shares (now embedding most of the value in the stack) being subject to 5% withholding tax.
Focusing on the fact that the Class A common shares of Canco1 held by XXXco1 and USco3 still had significant basis notwithstanding that they now had nominal value, CRA ruled that s. 245(2) would apply to deny the tax benefit arising from such ACB to USco3 and XXXco1, and made its rulings conditional on XXXco1 and USco3 receiving a GAAR assessment under s. 152(1.11) to reduce their ACB to a nominal amount and waiving under s. 165(1.2) their right to object thereto.