2021 Ruling 2020-0875391R3 - Post-acquisition restructuring -- summary under Subsection 15(1.5)

The Taxpayer (a Canadian public corporation with a widely-dispersed shareholder base) and Pubco (a corporation, governed by the laws of (foreign) Country 2 and dealing at arm’s length with the Taxpayer) engaged in transactions to permit the Taxpayer, with funding provided by Pubco, to acquire Target (a public limited company governed by the laws of (foreign) Country 1) so that: the Taxpayer will retain Target’s Canadian, Country 1, and certain other international businesses; Pubco will acquire 100% of Target’s businesses in Country 3 and Country 4; and the Taxpayer and Pubco will initially jointly own Target’s business in Country 2 and Country 5 branch business and subsequently sell them to an arm’s length party. An indirect subsidiary of Target (Country 1 Subco) held Canco 1 and also, through Country 2 Holdco, Country 2 Opco, whose shares are excluded property and which holds a number of branches and subsidiaries in Country 2, Country 3, Country 4 and Country 5.

After various transactions that resulted in Country 2 Opco being indirectly controlled indirectly by the Taxpayer and Pubco, there will be the “Demerger”, i.e., the division of Country 2 Opco between Demergerco 1 and Demergerco 2 (i.e., Country 2 limited liability companies formed by Country 2 Holdco and Pubco, respectively):

1. Country 2 Opco will transfer its Country 2 and Country 5 assets and liabilities (including Country 2 subsidiaries) to Demergerco 1, which in turn will issue to Country 2 Holdco, in respect of the shares of Country 2 Opco owned by Country 2 Holdco, shares having an aggregate FMV equal to the net FMV of the property transferred to Demergerco 1.
2. Country 2 Opco will make a transfer of the balance of its assets and liabilities (including Country 3 and 4 subsidiaries) to Demergerco 2, with Demergerco 2 issuing shares of equivalent FMV to Country 2 Holdco.
3. Country 2 Opco will be dissolved.
4. Country 2 Holdco will distribute its shares of Demergerco 1 to JV Co as a dividend in specie.
5. The shares of Demergerco 1 will be sold to an arm’s length purchaser.