If a ULC is prohibited from increasing its paid-up capital, it will instead declare and pay a stock dividend of additional common shares having full paid-up capital, with the number of its common shares thereafter immediately being consolidated, and cash being distributed as a paid-up capital distribution on the common shares. Before a ruling was given that Art. IV.7(b) of the US Convention did not apply to this transaction (or the alternative transaction entailing a paid-up capital increase), there was a statement that:
Notwithstanding that the payment of the stock dividend...will be treated as a taxable dividend under the Act, the integration of the payment of the stock dividend and the subsequent share consolidation will result in no income, profit or gain arising or being recognized under the taxation laws of the United States. Similarly, no amount of income, profit or gain would arise or be recognized under the taxation laws of the United States as a result of those transactions if Canco ULC Amalco were not fiscally transparent under the taxation laws of the United States for the purpose of the Convention.