Before a Canadian public corporation (“Husky”) paid a dividend on its shares, two significant shareholders of Husky resident in Barbados (the “Barbcos”) transferred their shares under securities lending agreements to companies resident in Luxembourg with which they did not deal at arm’s length (the “Luxcos”). On payment to the Luxcos of the dividends on those shares, Husky withheld at the Luxembourg treaty-reduced rate of 5% (based on the Luxcos being the beneficial owners of the dividends and controlling at least 10% of the voting power in Husky).
After finding that Husky was liable under s. 215(6) for not having withheld at the non-Treaty rate of 25%, Owen J went on to consider the GAAR assessments of the successors to the Barbcos for the difference between the 15% withholding tax they would have borne without the securities loans, and the claimed rate of withholding at the 5% rate. However, before turning to this issue, Owen J noted in passing that the Minister had assumed a tax benefit to Husky based on a reduction in the withholding rate under the Luxembourg Treaty to 5%. In this regard, he referred (at para. 309) to Copthorne for the proposition that if a tax benefit was to be determined by comparing the subject transaction to an alternative:
[T]he alternative arrangement must be one that might reasonably have been carried out but for the existence of the tax benefit.
He then intimated (at paras. 316-319) that he considered a tax benefit to be doubtful here since it was difficult to posit an alternative reasonable transaction under which dividends had instead been paid to the Barbcos but Husky had failed to withhold at the 15% Barbados rate and noted (at para. 317) that the "record shows that Husky withheld at the 15% rate on all dividends paid to the Barbcos" and that "Husky has no tax liability to reduce unless Husky fails to withhold at the applicable rate". He further noted that this point was moot because he had already found that the 5% rate did not apply.