The Federal Court of Appeal has upheld the verdict of a lower Court that the foreign affiliate anti-avoidance rule does not lead to the loss of the tax deduction in respect of exempt surplus dividends received from a US affiliate using a tax efficient structure for financing the transaction.
The case was The Queen vs. Lehigh Cement Ltd. (2014 FCA 103). The court upheld the decision of the Tax Court of Canada, concluding that the foreign affiliate anti-avoidance rule is concerned with taxpayers conducting transactions in shares of a non-resident corporation with the intention of manipulating its status as a FA, controlled FA, or related corporation.
