At all times, the central management and Parentco, and its newly-incorporated subsidiary (Splitco), consisted of two actively-traded classes of common shares, whose respective performance tracked two businesses. Parentco transferred one of the two businesses to Splitco in consideration for Splitco common shares, and distributed those shares (the "Distribution Shares") on one of the two classes of its common shares (the “Original Shares”) on a tax-exempt basis under the Code. The Original Shares ultimately were cancelled. In commenting as to whether the distribution was an eligible distribution, the Directorate stated:
[T]he common law principles of central management and control of a corporation must be used in determining the residence of Parentco and Splitco. …
Furthermore, to the extent that the conditions in paragraphs 86.1(2)(e) and (f) have been satisfied and the Distribution was made in respect of all of the Common Shares of the capital stock of Parentco owned by the particular taxpayer at the time of the Distribution, it is our view that the Distribution is an eligible distribution to that taxpayer within the meaning of subsection 86.1(2).