After the terms of the debt owing by the taxpayer to a non-resident affiliate were amended so that they would comply with various requirements of the withholding tax exemption in s. 212(1)(b)(vii), the non-resident affiliate sold to an arm's length Belgian bank the right to be paid all interest payable under the debt for a sum of approximately $42.7 million, with the non-resident affiliate being required to buy back the sold interest coupon for a specified price in the event of a default by the taxpayer.
In rejecting a submission of the Crown that this transaction resulted in a misuse of such withholding tax exemption because the transaction did not result in the taxpayer "accessing funds in an international capital market" (para. 25) (which the Crown suggested was the purpose of the exemption, based on a brief statement in the related Budget papers respecting its introduction) Sharlow, J.A. noted (at para. 37) that the Crown had been unable to "establish by evidence and reasoned argument that the result of the impugned transaction is inconsistent with the purpose of the exemption, determined on the basis of a textual, contextual and purposive interpretation of the exemption" (emphasis in the original) and that "no trace of the alleged fiscal policy can be discerned or reasonably inferred from subparagraph 212(1)(b)(vii) itself, from the statutory scheme of which subsection 212(1)(b)(vii) is a part, or from any other provision of the Income Tax Act that could possibly be relevant to the textual, contextual and purposive interpretation of subparagraph 212(1)(b)(vii)." (para. 39).