After Bco, the parent of Aco, entered into an agreement to acquire two corporations, but before those corporations were acquired, Aco started incurring the fees of a firm respecting the proposed integration of the two targets into the Bco group business. Following the closing, the fees were invoiced to it and, in accordance with its practice, included in management fees charged by it to those corporations. The Directorate stated:
Aco was justified in deducting the integration costs in the computing its business income and not treating them as capital expenditures because it seems to us that the integration costs paid by Aco were not incurred to acquire the shares of the subsidiaries or to change the structure of Aco but were incurred by Aco for the same purpose as the payment of expenses in respect of its other subsidiaries, i.e., to receive management fees or to be reimbursed for the expenses. This expense does not have the character of an enduring benefit to Aco since the management fees were received in the same or subsequent year. In addition, incurring the integration fees on behalf of the Acquired Corporations was part of the management operations of Aco's business.
It further indicated that its general position would be that the expenses on-charged to the acquired subsidiaries would be deductible to them, but such determination would require more details.