The taxpayer ("CBR Canada") directly (as to 99%) and indirectly (through a wholly-owned Alberta subsidiary as to 1%) used $US 100 million borrowed from two arm's length non-resident banks (with the principal but not the interest obligation under the first loan then being assigned by the first bank to a Belgian subsidiary of the taxpayer's ultimate Belgian parent – "CBR SA") by making capital contributions to a US LLC, which used those funds to make interest-bearing loans to a U.S. sister corporation ("CBR US") of CBR Canada. CBR US used those funds to repay interest-bearing intercompany loans (in the case of the proceeds indirectly derived from the first loan to the taxpayer) or to pay a dividend to its U.S. parent (in the case of the second loan).
CBR Canada deducted the interest on the two bank loans to it, and claimed the s. 113(1)(a) deduction respecting the payment to it of dividends from the LLC derived from the interest on the loans owing by CBR US; with CBR US deducting such interest under the Code (as well as withholding U.S. withholding tax of 10%). The Minister denied the s. 113(1)(a) deduction under s. 95(6)(b).
Stratas JA found that s. 95(6)(b) did not apply. After noting (at para. 46) that s. 95(6)(b) "requires us to focus on the principal purpose for the acquisition or disposition of the shares, not the principal purpose of the series of transactions of which the acquisition or disposition forms a part," and (at para. 56) that the tax avoidance specifically addressed is "the manipulation of share ownership of the non-resident corporation," he stated (at para. 68):
[P]aragraph 95(6)(b) is targeted at those whose principal purpose for acquiring or disposing of shares in a non-resident corporation is to meet or fail the relevant tests for foreign affiliate, controlled foreign affiliate or related-corporation status in subdivision i... .
Here, there was no such manipulation of status (para. 72), and the Tax Court instead had found that the purpose of the LLC was to achieve US tax savings (para. 71).