This was a cross-border butterfly of a Canadian spin business (already packaged into a subsidiary of DC) by DC to TC, an indirect subsidiary of Foreign SpinCo, before Foreign SpinCo was distributed up the chain for inclusion in the assets of New Foreign PubCo, which would then be dividended by the current parent (Foreign PubCo) to its public shareholders. Rather than using the usual 3-party exchange in order to avoid the application of s. 55(3.2)(h) (see Desjardins and Diksic), here a 4-party exchange was contemplated among affiliated corporations, i.e., including both the immediate non-resident parent (Foreign SpinCo Sub) and non-resident grandparent (Foreign SpinCo) of TC in a circular exchange of consideration - so that TC issued its shares to Foreign SpinCo Sub in consideration for the acquisition of special shares of DC from DC's non-resident parent ( Foreign Sub 5 ).
In the context of this 4-party share exchange, the increase in the paid-up capital in respect of the shares of TC issued to Foreign Spinco Sub occurred "by virtue of the disposition" of the special shares of DC by Foreign Sub 5 to TC. Accordingly, s. 212.1(1)(b) (now, s. 212.1(1.1)(b)) applied to grind the PUC of the shares so issued by TC to an amount equal to the PUC of the DC special shares.