report of proceedings sixtieth tax conference canadian … · 42.1 peter l. mitchell and marlene...

Report of Proceedings

of the

SIXTIETH

TAX CONFERENCE

convened by the

CANADIAN TAX FOUNDATION

at Calgary Telus Convention Centre, Calgary

November 30-December 2, 2008

#CTF Canadian Tax Foundation

AC E F L'Association canadienne d'études fiscales

A forum for tax analysis and research Une tribune pour I'analyse et la recherche fiscales

Contents

Recent Developments 1:1 Ed Kroft and Deen Olsen, "GAAR: Recent Developments" 2:1 Carman R. McNary, William L. Softley, and Gerald Grenon, "Current Cases"

Legislative and Administrative Developments 3:1 Wayne Adams, Daryl Boychuk, Peter Dunn, Douglas S. Ewens, and

Trent Henry, "Canada Revenue Agency Round Table" 4:1 Wayne Adams, Daryl Boychuk, Peter Dunn, Douglas S. Ewens, and

Trent Henry, "Table ronde de 1'Agence du revenu du Canada" 5:1 Brian Arnold, Larry Chapman, Allan Lanthier, Jack Mintz, and Richard G.

Tremblay, "Reforming Canada's System of International Taxation: A Perspective from Practitioners and Academics"

Corporate Taxation 6:1 William J. Bies and Ron Nóbrega, "Recent Transactions of Interest" 7:1 Michelle Chan and Charles Taylor, "Provincial General Anti-Avoidance Rules

and Governments' Responses to Interprovincial Tax Planning" 8:1 F. Brenton Perry, "Income Trusts: Reorganizations and Planning for 2011" 9:1 Jerald M. Wortsman, Leonard Nesbitt, and Jeffrey T. Love, "Recent Transactions

in Corporate Finance: Assumption, Tender Offer, and Other Secondary Market Transactions"

10:1 Ron Mar, Edward Rowe, and Carrie Aiken Bereti, "Basic Issues in Resource Taxation"

11:1 Darcy Moch and Warren Pashkowich, "Advanced Issues in Resource Taxation" 12:1 Patrick Lindsay and Mark R. Robinson, "Requirements To Produce Documents

and Information: Policy and Practice" 13:1 Guy Du Pont and Alexandre Genest, "The BCE Litigation: Revisiting the Duties

of Directors, Plans of Arrangement, and the Oppression Remedy" 14:1 John Cuthbertson, "Recent Developments in Corporate Law" 15:1 Anu Nijhawan and Steven Sieker, "Topical Issues in Equity-Based Employee

Compensation" 16:1 Kevin A. Hinz, "International Financial Reporting Standards and Accounting

for Income Taxes: The Journey to 2011 and Beyond" 17:1 Maureen Y. Berry and Jarrett Freeman, "Righting REITs"

International Taxation 18:1 Bill Brebber and George Guedikian, "The Fifth Protocol to the Canada-US

Treaty: Derivative Benefits for Canadian Businesses" 19:1 Douglas J. Powrie, "Tax Avoidance and Tax Treaties: Residence and Beneficial

Ownership" 20:1 Mark Meredith, "Treaty Interpretation and Assertions of Abuse" 21:1 Tony Swiderski, "US Non-Statutory Anti-Avoidance Concepts: Toward a Better

Understanding of Step Transaction Principles" 22:1 Tom Nelson, "Taxation of US Sales Income of Non-Treaty Offshore Companies"

ix

X CONTENTS

23:1 Andrew F. McCrodan and Salvador M. Borraccia, "The Dilemma of GlaxoSmithKline: Unreasonable in the Circumstances?"

24:1 Alan Ross, Howard Quon, and Enzo Vigna, "Tax-Optimizing the Supply Chain" 25:1 Michael Colborne and Shawn D. Porter, "The Limitation-on-Benefits Article in

the Fifth Protocol to the Canada-US Tax Convention" 26:1 Corrado Cardarelli, "The Fifth Protocol to the Canada-US Income Tax

Convention: Provisions Relating to Hybrid Entities, Service Businesses, and Pension Plans"

27:1 Jay Niederhoffer, Tan Ong, and Anthony Tam, "Canada-China Corporate Income Tax Planning Strategies"

28:1 Firoz K. Talakshi and James Samuel, "Foreign Affiliate Surplus: What You See Isn't Always What You Get"

29:1 Angelo Nikolakakis, "The Taxation of Foreign Affiliates in the Resource Sectors" 30:1 C. Jurjan Wouda Kuipers, "European Union: International Tax Update"

Other Specialist Areas 31:1 Jeremy Forgie, Jeffrey Sommers, and George Vandebeek, "Tax-Free Savings

Accounts" 32:1 Maria Mavroyannis, "A Survey of Environmental Taxes and Incentives" 33:1 Jim Yager and Ryan Carey, "Dynasty Trusts for American Beneficiaries of

Canadians" 34:1 R. Daren Baxter, "Current Issues in Trust and Estate Planning" 35:1 Neil E. Bass, Chia-yi Chua, Wendy A. Brousseau, and Angelo Gentile, "Trends

in Sales Tax Litigation" 36:1 Kim G.C. Moody, Matt Clark, and Nicolas F. Baass, "The Restrictive Covenant

Proposals: Brain Overload" 37:1 Thomas A. Bauer, "Restructuring Debt Obligations" 38:1 Douglas Richardson and David Weekes, "Recent Developments in Corporate

Reorganizations" 39.1 Robin Goodman and Joel Cuperfain, "Life Insurance Planning" 40:1 William Fowlis and Edward C. Northwood, "Canadians Acquiring US

Residential Real Property: Cross-Border Considerations" 41:1 Geoff Hill, Joanne Hausch, and Albert De Luca, "R & D Update 2008" 42.1 Peter L. Mitchell and Marlene Legare, "GST and Cross-Border Shipments of

Natural Gas by Pipeline" 43:1 John Bain, "Islamic Finance and Commodity Tax"

Detailed Contents

RECENT DEVELOPMENTS

GAAR: Recent Developments, Ed Kroft and Deen Olsen 1:1 Abstract 1:1 Introduction 1:1 Cases Decided Since November 2007: MacKay, Landrus, and Remai 1:2

MacKay 1:2 Landrus 1:3 Remai 1:5 GAAR Scorecard 1:7

Pending Decisions: Lipson, OGT Holdings, Garron Family Trust, Collins & Aikman, and Lehigh Cement 1:7

Lipson 1:7 OGT Holdings 1:11 Garron Family Trust 1:12 Collins & Aikman 1:13 Lehigh Cement 1:13

Cases in the Court Process: Copthorne and Others 1:14 Copthorne 1:14 Other Cases 1:16

Issues Under Review at the Audit/Appeals Level 1:17 Where Do We Stand Pending Lipson and MacKay? 1:19

Tax Benefit: Subsection 245(1) 1:19 Avoidance Transaction: Subsection 245(3) 1:20 Abusive Tax Avoidance: Subsection 245(4) 1:21 Canada Trustco and Subsection 245(4): Misuse or Abuse 1:21

The Future: Some Predictions Regarding GAAR in Practice 1:22 Notes 1:22

Current Cases, Carman R. McNary, William L. Softley, and Gerald Grenon 2:1 Abstract 2:1 introduction 2:1 620 Connaught Ltd. v. Canada 2:2 Dunsmuir v. New Brunswick 2:3 Redeemer Foundation v. Canada 2:6 R v. McLarty 2:8 Saskferco Products v. Canada 2:9 Glaxo SmithKline v. The Queen 2:10 ^Valsh v. The Queen 2:11 489599 BC Ltd. v. The Queen 2:12 Miscellaneous Cases 2:12 ^otes 2:15

xi

xiv DETAILED CONTENTS

The Quebec Truffle Overview Discussion

Financing Companies Revisited: The Ontario Version Overview Discussion

The Q-Yes Plan Overview Discussion

Others Regimes Overview Quebec: International Financial Centres British Columbia: International Financial Activities

The Governments' Response General Comments Quebec Federal

Overview Changes to Corporate Audits Changes to Interpretation: The Ruling Process Discussion

Policy Choices in Other Jurisdictions The United States

Framework State Planning Strategies The Government's Response to State Planning Strategies . Concluding Observations

Australia Framework Concluding Observations

The European Union Framework Harmonization of the Tax System Concluding Observations

Recommendations and Concluding Remarks Notes

Income Trusts: Reorganizations and Planning for 2011, F. Brenton Perry Abstract Introduction Basic Income Trust Structures Summary of SIFT Legislation Acquisition, Merger, and Reorganization Transactions Under the

Existing Legislation Acquisitions and Mergers Under the Existing Legislation . . . Conversion Transactions Under the Existing Legislation

The Conversion Proposals Basic Framework of the Proposals

DETAILED CONTENTS xv

Key Features of the Proposals 8:10 Conversion Transactions Under the Proposals 8:11

Exchange-Method Transactions 8:11 Distribution Method 8:12

New Definitions 8:13 Exchange Method: Proposed Subsection 85.1(8) 8:15 Distribution Method: Proposed Subsection 107(3.1) 8:19 Trust Liquidations Under Proposed Section 88.1:

Corporate-Style Liquidations 8:22 Trust Liquidations Under Proposed Subsection 107(3.1):

Trust-Style Liquidations 8:26 Employee Options 8:28

Strategic Alternatives 8:28 Basic Considerations 8:28 Non-Distributive Business Enterprise 8:29 Distributive Business Enterprise 8:30 Alternative Distributive Structures 8:30

Dividend-Paying Corporation 8:30 Public Debt Instruments 8:31 Public Royalty Interests 8:32 Privatization 8:32

Strategic Alternatives: Conclusion 8:33 Notes 8:33

Recent Transactions in Corporate Finance: Assumption, Tender Offer, and Other Secondary Market Transactions, Je raid M. Wortsman, Leonard Nesbitt, and Jeffrey T. Love 9:1 Abstract 9:1 Introduction 9:1 ABCP Restructuring 9:2

Third-Party ABCP and the Plan 9:2 Twenty Trusts to Three Trusts 9:3 Background to Securitization 9:4

Traditional Securitization 9:4 Credit Arbitrage Transaction 9:4 Affected ABCP 9:6 Rolling 9:6 Liquidity Facility 9:6 Ratings 9:6 Structural Issues 9:7

Background of the Restructuring 9:7 August 2007 9:7 The Montreal Accord 9:7 The Investors Committee and the CCAA Proceedings 9:8

Details of the Plan 9:8 Overview 9:8 The Three Master Asset Vehicles 9:8 Asset Transfers 9:9 Debt Assumption 9:10

Debt Exchange The Plan Notes CDS Restructuring Margin Funding Facilities The Releases Benefits of the Plan

Tax Issues with the Restructuring Tax Ruling Deemed Same Trust No Disposition of Debt Other Issues

Principal Protected Notes PPNs: An Introduction

Link to a Reference Asset Payment Mechanism PPN Regulations Distribution Networks Secondary Market Sales of PPNs Facts Assumed in the Discussion

The Interest Accrual Rules Statutory Provisions Legislative History and Purpose of the Interest Accrual Rules

The CRA's Administrative Position on Interest Accrual and PPNs Application of Interest Accrual Rules Under Study by the CRA . Text

Regulation 7000(2)(d) 9:37 Regulation 7000(3) 9:39

Context 9:41 Amounts Determinable and Ascertainable at Time of Acquisition 9:41 Amounts Payable by Issuer 9:41

Purpose and Policy 9:42 Bid Price Accrual Would Be Inconsistent with the Realization

Principle 9:42 Result of Basing Accrual on Bid Price: One-Way Mark-to-Market

Regime 9:46 Tender Offers 9:49

The Hypothetical Tender Offer: Mechanics and Structure 9:49 The Existing Debt 9:49 The Tender Offer 9:50

Tax Issues and Planning Points 9:51 Novation or Rescission of the Debt 9:51 Debt Parking 9:5g GAAR 9:65 Future Foreign Currency Exposure 9:66 Unwinding the Tender Offer Structure 9:67

Some Additional Transactions 9:69 Hybrid Bond Transactions 9:69

9:11 9:12 9:13 9:13 9:14 9:14 9:14 9:14 9:15 9:16 9:25 9:26 9:27 9:28 9:29 9:29 9:30 9:30 9:31 9.32 9:32 9:33 9:35 9:36 :37

DETAILED CONTENTS xvii

Convertible and Exchangeable Debt 9:73 Background 9:73 Recent Cases 9:74

Coupon-Stripping Transactions 9:76 Background 9:76 Tax Issues Raised by the CRA 9:77

Notes 9:81

Basic Issues in Resource Taxation, Ron Mar, Edward Rowe, and Carrie Aiken Bereti 10:1 Abstract 10:1 Introduction 10:1 Canadian Resource Property 10:2 Deduction of Capital Expenditures 10:4

Resource Tax Pools 10:4 Canadian Oil and Gas Property Expense 10:4 Canadian Development Expense 10:6 Canadian Exploration Expense 10:10 Foreign Resource Expenses 10:17

Capital Cost Allowance 10:17 The Resource Allowance 10:19 Tax Credits 10:20 Acquisitions of Control or of Substantially All of a Corporation's Assets 10:20 Partnerships 10:21 Financing Resource Activities 10:24

Flowthrough Shares 10:24 Carved-Out Income 10:26

Selected Cross-Border Issues 10:27 Gains on Shares of Resource Corporations 10:27 Taxation of Resource Royalties Held by Non-Residents 10:28

Notes 10:29

Advanced Issues in Resource Taxation, Darcy Moch and Warren Pashkowich 11:1 Abstract 11:1 Overview of the Successor Rules 11:1 Application of the Successor Rules to Members of a Partnership 11:2

Acquisition of Control of a Corporate Partner 11:3 Transfer of Successor Properties to a Partnership 11:8 Transfer of Properties from a Partnership to a Partner 11:10

Successor Rules in the Context of Amalgamations 11:10 Property Disposition Strategies 11:12 SIFT Trust Conversions 11:12

Exchange Method 11:12 Distribution Method 11:14 Comparison of Conversion Methods 11:14 Listed NPIs or Royalty Units 11:15

Notes 11:16

xviii DETAILED CONTENTS

Requirements To Produce Documents and Information: Policy and Practice, Patrick Lindsay and Mark R. Robinson 12.1 Abstract ' Introduction ' Requirements: A Necessary Regulatory Power :-Requirements: The CRA's Policy ^ ̂

The CRA's Prior Administrative Policy 12:6

The Current Situation '2.6 The International Context ^ ̂

Australia ^ ̂ Independent Accountants'Working Papers 12:8 Corporate Board Documents on Tax Compliance Risks 12:9 Privilege 12.10 Observations 12:11

United States 12:11 Tax Reconciliation, Audit, and Tax Accrual Working Papers 12:11 Privilege 12:13 Observations 12:13

New Zealand 12:13 Audit Working Papers 12:14 Tax Provisions 12:14 Privilege and Tax Advice Documents 12:15 Observations 12:15

United Kingdom 12:15 Accountants' Working Papers 12:16 External Auditors 12:16 Privilege 12:16 Observations 12:17

Canada in the International Context 12:17 The CRA's Challenge: A Balanced Requirements Policy 12:17

Policy Considerations 12:17 External Auditors 12:18 Advisers 12:19 Taxpayers 12:19

Other Countries as Models 12:20 The CRA's Draft Requirements Policy 12:21

Critically Reviewing Requirements 12:21 Valid Issuance 12:21

Mechanics 12:21 The Purpose Test 12:22 Unnamed Persons 12:27

Non-Disclosure 12:31 Privilege 12:31 Relevance and Materiality 12:34 Document Access 12:34

Challenging a Requirement 12:35 Passive Denial 12 35 Negotiation J2:35

DETAILED CONTENTS xix

Judicial Review 12:35 Subsequent Document Exclusion 12:37 Redaction 12:37

Conclusion 12:37 Notes 12:38

The BCE Litigation: Revisiting the Duties of Directors, Plans of Arrangement, and the Oppression Remedy, Guy Du Pont and Alexandre Genest 13:1 Abstract 13:1 Introduction 13:1 Background 13:2 Overview 13:5

The CBCA Oppression Remedy 13:5 Unfair Prejudice or Disregard 13:7 Bad Faith 13:7 Reasonable Expectations 13:7 The Effect of a Trust Indenture on Reasonable Expectations 13:8 Publicly Pronounced Financial Policies 13:9

Plans of Arrangement 13:10 The Arrangement Is Put Forward in Good Faith 13:12 The Arrangement Is Fair and Reasonable 13:12

The Duties of Directors 13:13 The Fiduciary Duty 13:13 The Duties of Directors in a Change-of-Control Transaction 13:13

The BCE Litigation 13:15 The Quebec Superior Court Decision 13:15

The Oppression Remedy 13:15 The Plan of Arrangement 13:16 The Quebec Court of Appeal Decision 13:17 The Supreme Court Decision 13:19

Plans of Arrangement 13:20 The Oppression Remedy 13:22 Duties of Directors 13:23

Practical Advice 13:24 Conclusion 13:25 Notes 13:25

Recent Developments in Corporate Law, John Cuthbertson 14:1 Abstract 14:1 Introduction 14:1 Security of Indemnification and Advancement Under Corporate Bylaws 14:2

Introduction 14:2 The Schoon Case 14:2 Protecting Indemnity and Advancement 14:4

Environmental Risk Disclosure 14:5 Introduction 14:5 Legal Disclosure Requirements 14:6

Primary Offering Disclosure 14:6

XX DETAILED CONTENTS

Secondary Market Disclosure 14 6

Financial Statement Disclosure 14:7

Penalties J4'7

Interpretation of Legal Disclosure Requirements 14:7

Assessing the Adequacy of Current Disclosure Practices 14:9 Emphasis on Materiality ^-9

Records Management in the Electronic Age 14.10 Volume and Nature of Electronic Data 14:11

Volume 14.11 Informal Nature 14:11 Persistence 14.11 Metadata 14:12

Impact on Litigation: The Rise of E-Discovery 14:12 Impact on Records Management: Focus on Corporate Record Keeping .... 14:12 Implications for the Tax Practitioner 14:13

Electronic Records 14:13 E-Discovery 14:13 Records Management 14:14

Amendments to the Alberta Business Corporations Act and the Nova Scotia Companies Act 14:14

Selected Changes to the ABC A 14:14 Unlimited Liability Corporations 14:14 Prohibited Shareholdings 14:14 Dissolution of Subsidiary 14:15 Splitting of Shares 14:15 Form of Dividend: Stock Dividend 14:16 Issuance of Shares: Payment for Shares 14:16

Selected Changes to the Nova Scotia Companies Act 14:16 Amalgamation 14:16 Financial Assistance for Share Purchases 14:17 Conversion to and Continuance of a ULC 14:17 Paid-Up Capital 14:17 Reducing Share Capital 14:17 Restoration of Wound-Up Companies 14:18 Auditors and Financial Statements 14:18

When To Disclose: The Timely Disclosure Requirement in Light of AiT 14:18 The Law of Disclosure 14:18 The AiT Timeline 14:19 The OSC Decision 14:20 Summary: Practice Points 14:22

Notes 14:23

Topical Issues in Equity-Based Employee Compensation, Anu Nijhawan and Steven Sieker 15-1 Abstract JJ.J Introduction Performance-Based Vesting 15-2

Canada Revenue Agency Commentary 15:3

DETAILED CONTENTS xxi

Is the CRA Correct? 15:4 Toward a Grand Unifying Theory 15:6

Corporate Mergers and Acquisitions 15:10 Prescribed Share Issues Arising on the Exercise or Surrender

of Stock Options 15:10 Regulation 6204 Generally 15:11 Regulation 6204(1)(a)(i): Dividend Entitlement 15:11 Regulations 6204(l)(a)(iv) and 6204(l)(b): Acquisition by

a Specified Person 15:13 Forced Cashout of Options 15:15 Early Cashout of DSUs 15:16

Rollovers of Phantom Units 15:16 Exchange of SARs for Stock Options 15:17 Exchange of RSUs or SARs for DSUs 15:17 Exchange of DSUs for new DSUs 15:18 Summary 15:18

SIFT Conversions: Potential Issues 15:19 Background 15:19 Subsection 7(14) 15:19

Paragraph 7(1.4)(a) 15:20 Paragraph 7(1.4)(b) 15:20 Paragraph 7(1,4)(c) 15:22

Adjustable Exercise Price Mechanism 15:23 Background 15:23 Subsection 7(1.4) Rollover 15:23

Subsection 7(1.5) 15:24 Dealing with Underwater Awards 15:25

Repricing Options 15:26 Option Exchange 15:26 Straight Repricing 15:26

Transfer of Underwater Options to a Tax-Free Savings Account 15:27 Repricing Phantom Units 15:27

Deductibility Issues: Recent Cases 15:28 The Statutory Provisions 15:28 The CRA's Published Position 15:29 Kaiser and Canada Forgings 15:29 Shoppers Drug Mart Limited 15:31

Notes 15:36

International Financial Reporting Standards and Accounting for Income Taxes: The Journey to 2011 and Beyond, Kevin A. Hinz 16:1 Abstract 16:1 Introduction 16:1 Objectives of This Paper 16:2 Accounting Standards, the AcSB, and the IASB 16:2

TheAcSB 16:2 The IASB 16:3

IAS and IFRS 16:3

xxii DETAILED CONTENTS

Moving from Canadian GAAP to IFRS ^ IASB and FASB Convergence Project and Proposed Exposure Draft Accounting for Income Taxes: Current Status and Expected Developments ... 16:4

Enacted or Substantively Enacted Rates 16:5

IAS 12 \6'5

FAS 109 16:6

Convergence Project Recommendation 16:6

Recognition of Deferred Tax Assets 16:6

IAS 12 16:6

FAS 109 and Canadian GAAP 16:7

Convergence Project Recommendation 16:7 Balance Sheet Classification of Deferred Tax Assets and Liabilities 16:7

IAS 12 16:7

FAS 109 and Canadian GAAP 16:7 Convergence Project Recommendation 16:7

Effective Tax Rate Reconciliation 16:7 IAS 12 16:7 FAS 109 and Canadian GAAP 16:8 Convergence Project Recommendation 16:8

Exception to the Temporary Difference Approach 16:8 IAS 12 16:8 FAS 109 and Canadian GAAP 16:9 Convergence Project Recommendation 16:10

Intercompany Transfer of Assets Between Members of a Consolidated Group 16:10

IAS 12 16:10 FAS 109 and Canadian GAAP 16:11 Convergence Project Recommendation 16:11

Foreign Non-Monetary Assets and Liabilities 16:12 IAS 12 16:12 FAS 109 and Canadian GAAP 16:12 Convergence Project Recommendation 16:13

Uncertain Tax Positions 16:13 IAS 12 16:13 FASB, FIN 48, and Canadian GAAP 16:14 Convergence Project Recommendation 16:15

Other Matters Considered in the Convergence Project 16:15 Other US Developments 16:15

US Road Map for the Proposed Adoption of IFRS 16:15 Foreign Private Issuers'Use of IFRS 16:16

Comments from the CRA 1617 Adjustments Arising from the Adoption of IFRS 16:18 Conclusion 1Í..91 Note«

Righting REITs, Maureen Y. Berry and Jarrett Freeman 17:1 Abstract

DETAILED CONTENTS xxiii

Background 17:2 The REIT Exemption 17:3

The NPP Test 17:4 NPP 17:5 QRP 17:6

The 95 Percent Revenue Test 17:9 The 7 5 Percent Revenue Test 17:10 The Equity Value Test 17:11

Selected Issues for REITs 17:12 Development Activities 17:12 Operating REITs 17:13 Guarantees 17:13 REIT Loans 17:14

Purification Techniques 17:14 Maintain the Status Quo 17:14 Real Property Situated Outside Canada 17:15 The Australian Stapled Unit Structure 17:16 US Seniors Housing REITs 17:16 Intercompany Payables and Receivables 17:17

Appendix 1: Summary of the Legislative Framework 17:18 Notes 17:19

INTERNATIONAL TAXATION The Fifth Protocol to the Canada-US Treaty: Derivative Benefits for Canadian Businesses, Bill Brebber and George Guedikian 18:1 Abstract 18:1 Introduction 18:2 The LOB Article 18:2 The "Derivative Benefits" Paragraph 18:3 Explanation of the Derivative Benefits Paragraph of the Treaty 18:4

Stock Ownership Test 18:4 Condition 1 for Third-Country Residents 18:5 Condition 2 for Third-Country Residents 18:5 Condition 3 for Third-Country Residents 18:7

Base Erosion Test 18:8 US Inbound Financing Opportunities 18:9

Financing Structures Reliant on Derivative Benefits Provisions of Other US Tax Treaties 18:9

Hybrid Debt Financing Structure 18:10 Intended US Federal Income Tax Results 18:10 Intended Canadian Federal Income Tax Results 18:13

Non-Interest-Bearing Loan Financing Structure 18:14 Intended US Federal Income Tax Results 18:15 Intended Canadian Federal Income Tax Results 18:15

Comparison of the Derivative Benefits Provision of the Treaty with Other US Tax Treaties 18:17

Summary and Outlook 18:18 Notes 18:19

xxiv DETAILED CONTENTS

Tax Avoidance and Tax Treaties: Residence and Beneficial Ownership, Douglas J. Powrie Abstract Introduction Resident of a Contracting State

Administrative Practice A Planner's Perspective

Beneficial Ownership The History of the OECD Commentaries Prévost Car Inc. v. The Queen Indofood International Prévost Car Applied to Indofood Facts A Planner's Perspective

Conclusion Notes Treaty Interpretation and Assertions of Abuse, Mark Meredith Abstract Principles of Treaty Interpretation

Purposive Interpretation Extrinsic Evidence

The Developing Convergence with the Interpretation of Domestic Tax Legislation

Purposive Interpretation Ambiguity and Extrinsic Interpretive Evidence

Abuse and GAAR Abuse as a Purposive Test Abuse in the Treaty Context

Speculation About the Future Notes US Non-Statutory Anti-Avoidance Concepts: Toward a Better Understanding of Step Transaction Principles, Tony Swiderski 21:1 Abstract 21:1 Introduction 21:1 The Step Transaction Doctrine 21:3

Background 21:3 The Step Transaction Doctrine: When Can Steps Be Reordered? 21:5 When Can Steps Be Collapsed or Ignored Altogether? 21:6 When Should Steps Not Be Reordered? 21:7 Form Imbued with Substance Usually Trumps a Recast with Substance ... 21:8 A Recast That Invents Steps or That Does Not Fully Explain the

Transaction Should Fail 21:8 Tax Motivation Increases the Risk of Resequencing or a Rejection

of Steps 21:9 Basic Inc 21:9 Coltec Industries 21:10

A Non-Tax Purpose Supporting Each Step Does Not Necessarily Preclude Application of the Step Transaction Doctrine 21:12

19:1 19:1 19:1 19:2 19:3 19:4 19:5 19:5 19:7 19:9 19:12 19:13 19:13 19:14

20:1 20:1 20:2 20:2 20:4

20:5 20:6 20:7 20:8 20:8 20:9 20:11

DETAILED CONTENTS xxv

The Difficulty of Extrapolating Principles from Step Transaction Precedents 21:13

The Role of Policy Context and Congressional Intent 21:14 Must the Court Decide Only Between the IRS's View and the

Taxpayer's View? 21:15 Form Matters 21:15

The Importance of Legal Form in Corporate Reorganizations 21:16 The Importance of Legal Form in Corporate Liquidations 21:17 The Importance of Legal Form in Like-Kind Exchanges 21:18 The Importance of Legal Form in Qualified Stock Purchases 21:18

Summary of Recent Cases: The IRS Is on a Roll 21:19 Deliberations on a Statutory Solution to Tackling Anti-Avoidance

Transactions 21:20 Conclusion 21:22 Notes 21:22

Taxation of US Sales Income of Non-Treaty Offshore Companies, Tom Nelson 22:1 Abstract 22:1 Introduction 22:1 Barbados SRL Structures 22:2

Changes Arising from New Article IV(7) 22:3 Barbados Treaty 22:3 General Checklist of Requirements Under the Code 22:5 Source-of-Income Requirement 22:5 Character-of-Income Requirement 22:6

Exceptions for Trademark Rights ("Embedded Intangibles") 22:6 Special Rules for Software 22:7 No US Trade or Business 22:8 Avoidance of Agency Relationship 22:8 Notes 22:9

The Dilemma of GlaxoSmithKline: Unreasonable in the Circumstances? Andrew F. McCrodan and Salvador M. Borraccia 23:1 Abstract 23:1 Introduction 23:1 Background 23:2

Evidence Reviewed 23:3 What Is the Right Answer? 23:4

The Arm's-Length Principle 23:4 Functional Analysis 23:4 Transfer-Pricing Methodology 23:5 Different Markets 23:7 Separation of the Licence and Supply Agreements 23:8 Tax Treatment of Payments 23:13 Roche v. The Commissioner 23:14

Appropriate Choice of Methods 23:15 The CUP Analysis 23:15 The Taxpayer's Resale Price Analysis 23:17

XX vi DETAILED CONTENTS

The TNMM Analysis ' The Cost-Plus Analysis

Lessons from Litigation

:::::: 23-22 Notes Tax-Optimizing the Supply Chain, Alan Ross, Howard Quon, and Enzo Vigna J Abstract Introduction Supply-Chain Management 24:2

Globalization 24 •2

Supply-Chain Elements 24-3 Taxes and the Supply Chain 24-4

Taxation Models 24.5 Tax Authority Challenges 24:9

The OECD Project on Business Restructurings 24:10 Why Is the OECD Draft Relevant? 24:10 Overview of the OECD Project 24:10 The OECD's Definition of Business Restructurings 24:11 The Four "Issues Notes" 24:12

Positive Aspects of the OECD Draft 24:12 Controversial Aspects of Issues Note 1, "Special Considerations

for Risk" 24:13 Imprecise Language 24:13 Managerial Versus Financial Capacity 24:14

Controversial Aspects of Issues Note 2, "Arm's Length Compensation for the Restructuring Itself" 24:15

Reallocation of Profit Potential 24:15 Transfer of Something of Value 24:17 Indemnification for Detriments as a Result of a Business

Restructuring 24:18 Controversial Aspects of Issues Note 4, "Recognition of Actual

Transactions Undertaken" 24:19 Permanent Establishments 24:20

Authority To Conclude Contracts 24:23 In the Name of the Enterprise 24:23 Independent Agents Acting in the Ordinary Course of Business 24:23

Interaction Between Business and Tax Considerations 24:24 Indirect Taxes and Customs Issues 24:25

Indirect Taxes 24:25 Customs Issues 24:29

Value 24:29 Tariff Treatment 24:30 Tariff Classification 24:31

Factors To Consider in Establishing an NRP Structure 24:31 Tax Factors 24:31

Availability of an Extensive Treaty Network 24:31 Availability of a Preferential Tax Rate 24:32

DETAILED CONTENTS xxvii

Stability of a Preferential Tax Rate 24:32 Conditions Required for a Preferential Tax Rate 24:32 Withholding Tax Cost of Repatriating Profits Out of the NRP 24:33 Other Tax Losses Available To Offset NRP Profits 24:33 Competent Authority Disputes 24:33 Currency in Which Tax Returns Are Filed 24:34 Personal Tax Rates of the NRP Country 24:34 Tax Cost on Exit 24:34

Business Factors 24:34 Established Infrastructure 24:34 Established Legal System 24:35 Language and Culture 24:35 Time Zone Issues 24:35 Political Stability of the NRP Country 24:36 Accounting and Finance 24:36 Skilled Service Providers 24:36 Treasury Issues 24:37 Human Resources Issues 24:38 Employees Assigned from Other Jurisdictions 24:38 Performance Assessment 24:40 IT Systems 24:40 Closing the NRP 24:41

NRP Locations 24:41 Switzerland 24:41 Ireland 24:43 Singapore 24:44

Practical Issues for the Tax Director 24:46 Potential Increase to the Effective Tax Rate and Cash Taxes 24:46 Ongoing Substance Requirements 24:47 Transfer-Pricing Exposures 24:47 Managing Transfer-Pricing Issues Associated with the NRP 24:48 Tax Holiday Issues 24:49


The Limitation-oii-Benefits Article in the Fifth Protocol to the Canada-US Tax Convention, Michael Colborne and Shawn D. Porter 25:1 Abstract 25:1 Introduction 25:1 Background 25:2 Interpretive Process 25:3

The TE 25:4 The US Model Treaty and the US Model TE 25:6

Architecture of Article XXIX A 25:8 Qualifying Person 25:9

Individuals and Governmental Entities 25:10 Publicly Traded Entities 25:10

General Rule 25:10 Primarily and Regularly Traded 25:11

xavüi DEBULED CONTENTS

Capital Structures with Multiple Voting Shares 25:12

Debt-Substitute Shares and Other Capital Sources 25:16

Exchangeable-Share Structure 25:16

Corporate Inversion Transactions 25:17

Administration 25.18 Subsidiaries of Publicly Traded Entities 25.19

General 25:19 Indirect Ownership 25.19 Lookthrough Principles 25:20 Application to Example 25:20

Ownership and Base Erosion Test 25.22 General 25.22 Ultimate Ownership or Ownership by Persons Who Qualify Without

Regard to Their Owners 25:23 Factual Difficulties in Satisfying the Ownership Test 25:26 Meaning of "Gross Income" and "Deductible Expenses" in the

Base Erosion Test 25:27 Scope of Indirect Payments Rule 25:29

The "Active Trade or Business" Test 25:31 General 25:31 Active Trade or Business 25:33 "In Connection with ... That Trade or Business" 25:33

Whether a Comprehensive Common Meaning Was Intended 25:33 Ascertaining the Meaning of "Upstream," "Downstream,"

"Parallel," and "Complementary" 25:37 Summary 25:39

"Incidental to a Trade or Business" 25:40 Income Derived from the Other Contracting State, Directly or Indirectly ... 25:40 The Substantiality Requirement 25:44 Third-Country Income 25:45 Gains 25:46

Derivative Benefits: Article XXIX A(4) 25:47 Ownership Test 25:47 Base Erosion Test 25:49

Article XXIX A(6): Competent Authority Relief 25:49 General 25:49 Judicial Review Standards and the Requirement To Make

a Determination 25:50 The CRA's Guidelines for Requesting Competent Authority Benefits 25:54 Application to Facts 25:55

Article XXIX A(7): LOB Does Not Limit the Application of GAAR 25:56 Notes 25:58

The Fifth Protocol to the Canada-US Income Tax Convention: Provisions Relating to Hybrid Entities, Service Businesses, and Pension Plans, Corrado Cardarelli 26:1 Abstract 26-1 Introduction 26'1

DETAILED CONTENTS xxix

Provisions Dealing with Hybrid Entities 26:2 Introduction 26:2 The New Lookthrough Rule for Fiscally Transparent Entities 26:3 Amendment to the 5 Percent Dividend Rule for Fiscally

Transparent Entities 26:6 The Anti-Hybrid Rules 26:7

The Rule in Article IV(7)(a) 26:9 The Rule in Article IV(7)(b) 26:13 Effective Date and Planning Considerations 26:17 Hybrid Instruments 26:19

Amendments to the Permanent Establishment Article 26:21 Introduction: The Dudney Decision 26:21 2008 Update to the OECD Model Tax Convention 26:21 The New "Services Permanent Establishment" Rule 26:22

Article V(9)(a) 26:23 Article V(9)(b) 26:23

Interaction with Other Article V Provisions 26:24 Other US Treaties with Similar Provisions 26:24 Effective Date 26:25 Repeal of Article XIV (Independent Personal Services) 26:25 Amendments to Article XV: Dependent Personal Services 26:25

Interaction of Article V(9) and Article XV(2) 26:26 Provisions Dealing with Pension Plans 26:26

Introduction 26:26 QRPs 26:26 Employees on Short-Term Assignments 26:27 Commuters 26:28 US Citizens Resident in Canada 26:28

Notes 26:29

Canada-China Corporate Income Tax Planning Strategies, Jay Niederhoffer, Tan Ong, and Anthony Tam 27:1 Abstract 27:1 Introduction 27:2 China's 2008 Tax Reform 27:2

Tax Changes Affecting FIEs 27:3 Withholding Tax Rate for Dividends 27:3 Withholding Tax on Interest, Rents, Royalties, and Capital Gains 27:3 Phase-Out of Incentives under the Old Regime 27:4

Tools To Counter Tax Avoidance 27:5 Definition of "Establishment" of a Non-Resident Enterprise 27:5 Definition of "Resident Enterprise" 27:6 Contemporaneous Transfer-Pricing Documentation Requirement 27:7 Thin Capitalization Rules 27:7 The Chinese GAAR 27:8 Controlled Foreign Corporation Rule 27:9 Interest on Special Tax Adjustments 27:10

xxx DETAILED CONTENTS

Other Rules Applicable to FIEs and Non-FIEs 27; 11

Sourcing of Income ^' Income and Expense Recognition 27:12 Treatment of Purchased Goodwill 27.12 Treatment of Enterprise Restructuring 27.12

Investment into China from Canada 27.13 Common Vehicles for Investment into China 27:13

Wholly Foreign-Owned Enterprise 27:13 Equity Joint Venture 27:14 Contractual or Cooperative Joint Venture 27:14 Foreign-Invested Joint Stock Company 27:14

Total Investment and Registered Capital Requirements 27:14 Financing 27:15 Ownership Structure 27:16

Income Streams from China 27:16 Direct Investment 27:17 Reorganization of Investment in a WFOE 27:18 Intermediary Foreign Holding Company 27:21

Investment into Canada from China 27:27 Regulatory Approval 27:28 Chinese Interest Deductibility 27:28 Ownership Structure 27:29

Direct Investment into Canada 27:29 Foreign Intermediary Holding Company 27:31


Foreign Affiliate Surplus: What You See Isn't Always What You Get, Firoz K. Talakshi and James Samuel 28:1 Abstract 28:1 Introduction 28:1 Computation of a Foreign Affiliate's Earnings from an Active Business 28:2

Becoming a Resident of a Designated Treaty Country 28:3 Use of Canadian Versus Foreign Tax Principles 28:5

Meaning of "Cost" 28:5 US Limited Liability Companies 28:8 Check-the-Box Partnerships 28:9 Absorptive Mergers 28:10

Regulation 5907(2.1) Election 28:11 Background 28:11 Mechanics of Making the Election 28:11 Implications of Making the Election 28:12 Selected Computational Issues 28:14

The 90-Day Rule 28:17 Overview 28'17

Payment of a 90-Day Dividend Through a Chain of Foreign Affiliates 28 18

Transfers of Foreign Affiliate Shares 28:20

DETAILED CONTENTS xxxi

Hybrid Instruments 28:22 Conclusion 28:27 Notes 28:27

The Taxation of Foreign Affiliates in the Resource Sectors, Angelo Nikolakakis 29:1 Abstract 29:1 Introduction 29:1 A Word or Two on the Resource Sectors 29:2 Overview of the Rules 29:2

The Foreign Affiliate Rules 29:2 Active Business Income 29:3 Passive Income 29:3 Capital Gains 29:6

The Resource Rules 29:6 Interactions Between the Foreign Affiliate Rules and the Resource Rules 29:18

General Considerations 29:18 The Investment Business Definition 29:34

General 29:34 Traders and Dealers in Rights and Other Foreign

Resource Properties 29:34 Traders and Dealers in Commodities and Futures 29:40 Traders and Dealers in Other Securities 29:41 Partnerships and Joint Ventures 29:43

Service Providers and Subdivided Enterprises 29:43 The Base-Erosion Rules 29:45 Foreign Affiliate Acquisitions and Accrued Income, Gains, and Pools 29:46 Surplus Computations 29:48 Royalty Taxes and Similar Items 29:52

Conclusion 29:55 Appendix: Repatriation Planning 29:56

Planning: Cash Utilization and Repatriation 29:56 Notes 29:61

European Union: International Tax Update, C. Jurjan Wouda Kuipers .... 30:1 Abstract 30:1 Introduction 30:1 The European Union's Institutions 30:2

The European Commission 30:2 The ECJ 30:3

The Fundamental Freedoms 30:3 The Freedom of Establishment 30:3 The Freedom of Movement of Capital 30:4 Interaction of Fundamental Freedoms 30:5

Dividend Withholding Tax 30:5 European Developments 30:5 Local Developments 30:7

Germany 30:7 Luxembourg 30:8

xxxü DETULED CONTENTS

Thin Capitalization and Interest Deductibility 30:8

European Developments 30.8 Local Developments ^0.9

Germany 309

Anti-Abuse Provisions ^0.9 European Developments 3®-® Local Developments 30.10

Denmark 30:10 The United Kingdom 30:10

Participation Exemption Regimes and CFC Rules 30:11 European Developments 30:11 Local Developments 30:11

The Netherlands 30:11 The United Kingdom 30:12

Common Consolidated Corporate Tax Base Proposal 30:12 Conclusion 30:13 Notes 30:13

OTHER SPECIALIST AREAS Tax-Free Savings Accounts, Jeremy Forgie, Jeffrey Sommers, and George Vandebeek 31:1 Abstract 31:1 Introduction: What Is a TFSA? 31:1 Legislative History 31:2 Permitted Structures of TFSAs 31:2 Group TFSAs and Service Providers 31:2 How Do TFSAs Operate? 31:3 Withdrawals 31:3 TFSAs and Loans 31:4 Investment Vehicles Allowed in a TFSA 31:4 What Happens on the Death of an Account Holder? 31:4 What Happens If an Account Holder Becomes a Non-Resident of Canada? ... 31:5 Individual Tax-Planning Considerations 31:6 Employer Considerations 31:10 Notes 31:11

A Survey of Environmental Taxes and Incentives, Maria Mavroyannis 32:1 Abstract 32:1 Introduction and Summary 32:1 Environmental Taxation 32:2

Norway 32:2 Germany 32;2 United Kingdom 32,-3 Other European Countries' Ecological Reforms 32:4 New Zealand ^2:4 China 32:5 The United States' Environmental Tax Policy 32:5 Canada's Environmental Tax Incentives 32:7

"Green" Tax Incentives 32 g

DETAILED CONTENTS xxxiii

Accelerated CCA for Clean Energy Generation 32:8 Provincial Initiatives 32:9

Carbon Pricing 32:10 Harmonized Carbon Taxes 32:10 Kyoto Regulatory Framework 32:11

Nature of CERs 32:12 Clean Development Mechanism 32:12

Accounting for GHG Emissions 32:14 Taxation 32:15 Linking to Emissions Trading 32:17

Recent Initiatives 32:17 European Union 2008 32:17 California 32:18 Australia 32:18 Brazil 32:19 Japan 32:19 Vietnam 32:19 Hong Kong 32:19 Canada 32:19

Canadian Tax and Accounting Issues 32:20 Looking Ahead—2009 and Beyond 32:21 Notes 32:21

Dynasty Trusts for American Beneficiaries of Canadians, Jim Yager and Ryan Carey 33:1 Abstract 33:1 Introduction 33:2 The Dilemma 33:2

Higher Taxation in Canada Than in the United States 33:3 The 21-Year Deemed Disposition Rule 33:3 Adverse US Tax Consequences to US Beneficiaries of Foreign Trusts 33:3

US Wealth Transfer Taxes 33:4 Establishing a US Trust 33:6 US Federal Income Taxation of Domestic Trusts 33:7 Beneficiaries'Access to Dynasty Trust Funds 33:8 Jurisdiction Selection 33:9 State Taxes 33:11 Other Administration Issues 33:13 Canadian Tax Implications and the NRT Rules 33:14

Avoiding Canadian Residence 33:14 Factual Canadian-Resident Trust 33:14 Deemed Residence for Canadian NRTs 33:14

Treaty Residence 33:17 Examples of Uses of Dynasty Trusts 33:18

Testamentary Dynasty Trust 33:18 Offshore Dynasty Trust 33:19

Dynasty Trust Structure for a Canadian Business 33:20 CFC Issues 33:20 PFIC Issues 33:22

xxxiv DETAILED CONTENTS

IQ-23 Unlimited Liability Company Solution ' Life Insurance '

Conclusion 33:26 Notes

Current Issues in Trust and Estate Planning, R. Daren Baxter 34.1 Abs«™* Implications of Changes in Trustees JH-'

Overview of Trusts ^4'^ 34-2 Trustees The Trust as a Taxpayer 34 •3

No Taxable Disposition 34 •3

Residence 34 3

De Jure Control 34-4

Association 34 6

Post Mortem Bump 34:8

Acquisition of Control on Change of Trustees 34:8 Saving Provision in Paragraph 256(7)(a) 34:11 When Do Trustees Constitute a Group? 34:12 Mitigating Techniques 34:16

Practical Ways To Deal with the 21-Year Rule 34:17 Overview of the 21-Year Rule 34:17 Determine the 21 st Anniversary 34:19 Do Nothing 34:19 Manage Potential Double Tax 34:20 Migrate the Trust to Alberta 34:21 Reduce the Value of Shares Held in Trust 34:21 Preferred Beneficiary Election To Bump Cost Base 34:21 Tax-Deferred Distribution to Capital Beneficiaries 34:22 Dealing with Income Beneficiaries 34:23 Trust-to-Trust Rollover Not Available 34:24 Indefeasibly Vested Interests 34:24 Distribute Value While Retaining Trustee Control of Assets 34:25 Roll Trust Assets to a Corporate Beneficiary 34:27 Future Corporate Beneficiary 34:27 Variation of a Trust 34:30 Limit Value Growth in Trust 34:33

Conclusion 34:33 Notes 34:33 Trends in Sales Tax Litigation, Neil E. Bass, Chia-yi Chua, Wendy A. Brousseau, and Angelo Gentile 35:1 Abstract 35:1 Introduction 35-1 The Current Landscape: Trends in Sales Tax Litigation 35:2

Increasing Use of Formal Requirements for Information 35:2 The Audit 35.2 Formal Requirements for Information 35:3

DETAILED CONTENTS xxxv

Administration of Tax Based on Non-Existent, Unclear, or Imprecise Legislation 35:8

Waivers Under the Ontario Retail Sales Tax Act 35:9 The New Input Tax Credit Rules for Financial Institutions 35:10

Retroactive Legislation 35:11 Kingstreet Investments Ltd. v. New Brunswick (Finance) 35:12 Des Chênes (Commission Scolaire) c. R 35:13 Bell Canada v. Ministry of Finance (Ontario) 35:14 Procter & Gamble v. Ontario (Minister of Finance) 35:14 Banque Canadienne Imperiale de Commerce v. R 35:15

Aggressive Assessing Positions by Sales Tax Authorities 35:16 Royal Bank v. R 35:16 Craftsman Collision Ltd. v. British Columbia 35:17 United Parcel Service Canada Ltd. v. R 35:18 Bell Canada v. Ontario and Toronto Transit Commission v. Ontario .... 35:19

Creative Ways To Resolve Disputes 35:20 Settlements 35:20 Legislative or Regulatory Amendments 35:23 Alternative Court Procedures and Judicial Review Applications 35:24

Can I Use That? 35:24 Judicial Review 35:25 Actions 35:29 Rectification 35:30

Remission Orders 35:34 Litigation Insulation 35:35

Documentation and Privilege 35:35 Understanding Privilege 35:36

Solicitor-Client Privilege 35:36 Litigation Privilege 35:37 Waiver and Limited Waiver of Privilege 35:37

Filing Compliant and Complete Objections 35:38 ITA Objection Rules 35:39 ETA Objection Rules 35:39 RSTA Objection Rules 35:40


The Restrictive Covenant Proposals: Brain Overload, Kim G.C. Moody, Matt Clark, and Nicolas F. Baass 36:1 Abstract 36:1 Introduction 36:2 Tax Treatment of Restrictive Covenants Before Fortino and Manrell 36:2 Fortino and Manrell 36:3

Fortino 36:3 The Facts 36:3 The Capital Property Argument 36:4 The Section 3 Argument 36:5

xxxvi DETAILED CONTENTS

The Section 14 Argument ^6:5 The Section 42 Argument 36.5

Manrell The Facts ^6.6 The Tax Court of Canada's Definition of Property Jo.o The Federal Court of Appeal's Definition of Property 36:7

The Impact of Manrell . ^6.9 Taxation of Restrictive Covenants in Foreign Jurisdictions 36:10

United States 36.10 New Zealand 36.11 Australia 36.11 United Kingdom 36.12

The Department of Finance Responds to Manrell 36:12 The Current Restrictive Covenant Proposals 36:13

Restrictive Covenants and the Common Law 36:14 Restrictive Covenants and the Act 36:16

Definition of "Restrictive Covenant" 36:16 The Income Inclusion Rules 36:21

Proposed Subsection 56.4(2) 36:21 Avoidance of Double Taxation 36:23

Exceptions to Proposed Subsection 56.4(2) 36:24 Exception 1: Proposed Paragraph 56.4(3)(a)—Employment Income ... 36:25 Exception 2: Paragraph 56.4(3)(b)—Cumulative Eligible Capital 36:27 Exception 3: Proposed Paragraph 56.4(3)(c)—Capital Gains 36:29

Proposed Subsection 56.4(4): The Purchaser's Treatment of Amounts Paid 36:30

Section 68 and Restrictive Covenants 36:30 Proposed Subsection 56.4(5): Non-Application of Section 68 36:32 Proposed Subsection 56.4(6): Covenants Provided by Employees 36:32 Proposed Subsection 56.4(7): Disposition of Goodwill 36:33 Proposed Subsection 56.4(8): Disposition of Property 36:34 Proposed Subsection 56.4(9): Capital Gains Election 36:35 Anti-Avoidance Rules 36:36 Joint Elections: Practical Implications 36:36 Trends in the Draft Legislation 36:37

Implications of New Section 56.4 for Business Dealings 36:38 Non-Resident Implications 36:38

Situation 1: A Non-Resident Grants a Restrictive Covenant 36:41 Situation 2: A Canadian Disposes of a Foreign Subsidiary and Grants

a Restrictive Covenant 36:41 GST and Restrictive Covenants 36:42 The CRA's Application of the Restrictive Covenant Rules 36:43 Examples 36:43

Example 1: Non-Arm's-Length Transactions 36:44 Example 2: Supply Contracts 36:44 Example 3: Escrow Shares 3645 Example 4: Dividend Payments During a Due Diligence Period 36:46

DETAILED CONTENTS xxxvii

Example 5: Confidentiality Agreements 36:47 Example 6: Trust Structures 36:47

Valuation Matters 36:48 Introduction 36:48 Valuing a Non-Competition Agreement: Methodology 36:49 Valuation Considerations for Non-Competition Agreements 36:51

Determining the Probability of Competition and the Potential Loss in Value Had the Non-Competition Agreement Never Existed 36:51

Other Valuation Issues 36:52 Valuing Other Restrictive Covenants 36:53


Restructuring Debt Obligations, Thomas A. Bauer 37:1 Abstract 37:1 The Debt-Forgiveness Rules 37:1

Overview 37:2 When the Rules Apply 37:2 Commercial Debt Obligations 37:2

Obligation Issued 37:3 Interest on Debt Must Be Deductible 37:4

Debt Settled 37:7 Novation 37:8

Forgiven Amount 37:9 Amount Paid in Satisfaction of the Principal Amount 37:9 Share-for-Debt Exchanges: Paragraph 80(2)(g) 37:10 Debt-for-Debt Exchanges: Paragraph 80(2)(h) 37:14 Amount Paid by a Third Party 37:15 Foreign-Denominated Debt: Paragraph 80(2)(k) 37:18

The Debt-Parking Rules 37:21 Specified Obligation 37:21

Debt Owned by Arm's-Length Persons 37:22 Debt Acquired from Unrelated Persons 37:22 Subsection 50(1) Writedown 37:23

Parked Obligation 37:23 Deemed Settlement After Debt Parking 37:24

Potential Traps 37:28 Writedowns Under Subsection 50(1) 37:28 Writedowns Under Other Provisions of the Act 37:29

Notes 37:30

Recent Developments in Corporate Reorganizations, Douglas Richardson and David Weekes 38:1 Abstract 38:1 Introduction 38:1 Dow Chemical Canada 38:2 Tembec Inc 38:4 Conversion of a Delaware LLC into a Delaware Limited Partnership 38:6

DETAILED CONTENTS

Recent Rulings Issued Under Paragraph 88(l)(c) The Amalgamation Ruling

Background Subsection 88(4)

The Partnership Ruling Notes

Life Insurance Planning, Robin Goodman and Joel Cuperfain Abstract Introduction A Very Brief Overview of the Taxation of Life Insurance

Taxation of Exempt Life Insurance The Exempt Test Rules

Ownership Issues: Life Insurance Shares Solutions?

Dispositions and Life Insurance Rollovers

Spousal Rollover Intergenerational Rollover Transfer from a Trust

Situations Where the Act Specifies Value Transfers Between Corporations and Shareholders Fair Market Valuation of a Life Insurance Policy Transfers of Policies to Charities

Account Value on First Death Testamentary Insurance Trusts

Trusts Uses 39:17 Avoiding Tainting the Trust and Other Tax Issues 39:19 Drafting the Trust and Issues Associated with Will Designations 39:22

How To Create a Testamentary Insurance Trust 39:23 Insurance Trusts Created in a Will 39:23

Ensuring That the Proceeds Are Excluded from the Assets of the Estate ... 39:24 Notes 39:27

Canadians Acquiring US Residential Real Property: Cross-Border Considerations, William Fowlis and Edward C. Northwood 40:1 Abstract 40:1 Introduction 40:1 Overview of the US Transfer Tax System 40:2 Applicable US Income Taxes 40:4

On Rental Income 40;4 On Capital Gains 40:5

Applicable Canadian Income Taxes 40:5 Structures for the Ownership of US Real Estate by Canadian Residents 40:6

Ownership by a Canadian-Resident Individual 40:7 Ownership by a Canadian Corporation 40:9 Ownership by a Canadian-Resident Trust 40:13

38:7 38:8 38:8 38:8 38:13 38:16

39:1 39:1 39:1 39:2 39:2 39:2 39:3 39:5 39:8 39:9 39:9 39:9 39:9 39:10 39:10 39:12 39:14 39:14 39:17

: 17

DETAILED CONTENTS xxxix

Ownership by a Canadian Partnership 40:17 Selection of an Ownership Structure: Summary 40:21


R&D Update 2008, Geoff Hill, Joanne Hausch, and Albert De Luca 41:1 Abstract 41:1 Introduction 41:1 The Consultation Process 41:2 The Government's Response 41:4

Increased Support for Small and Medium-Sized Business 41:4 Expenditure Limit 41:5 Increases in the Upper Limits of the Phase-Out 41:5 Employees Performing SR & ED Outside Canada 41:5 Administration 41:6

Other Recent Legislative Changes 41:7 Increase in the ITC Carryforward Period 41:7 Impact of Lower Tax Rates 41:7

Survey of Large R & D Performers 41:7 Overall Conclusions Drawn from the Survey 41:8 Background 41:8 Other Issues Affecting R & D Investment Decisions 41:9 Does the Canadian SR & ED Program Influence R&D

Investment Decisions? 41:10 What Will Make the SR & ED Program More Relevant? 41:10

Provincial Legislative Changes 41:11 Alberta 41:11 Ontario 41:12 Quebec 41:13

Recent Court Cases 41:14 Ability of the Minister To Change ITC Carryforward Amounts 41:14 Eligibility 41:14 Partnerships 41:14 Fee To Prepare an SR & ED Claim 41:14

CRA Administrative Positions 41:15 Outsourcing 41:15 Transportation Costs 41:15 Government Assistance 41:15 Assignment of Refund Cheque 41:15 The 18-Month Deadline 41:16 Expenditure Limit 41:16 Crown Corporations 41:16 Joint Ventures 41:17

New and Revised Guidance and CRA Forms 41:17 Global Competition for R & D Investment 41:20 Conclusion 41:24 Notes 41:24

xl DETAILED CONTENTS

GST and Cross-Border Shipments of Natural Gas by Pipeline, Peter L. Mitchell and Marlene Legare 42-j Abstract ^ 1 Introduction ' The Existing State of "Confusion" 42:2

EXP«*: 42-4 Imports In-Transit Shipments Conclusion 42.10 Notes 42:10

Islamic Finance and Commodity Tax, John Bain 43:1 Abstract 43-' Introduction 43 •' Background 43:2

The Global Islamic Financial Marketplace 43:3 The United Kingdom as an Islamic Financial Hub 43:3 Canada's Islamic Financial Marketplace 43:4

Retail Market 43:4 Institutional Market 43:4 Role of the Regulators 43:5

Commodity Tax Challenges 43:5 Islamic Financial Products: The UK Experience 43:6 Application of Canadian Commodity Taxes to Islamic

Financial Products 43:7 Islamic Financial Products 43:7

Mudaraba 43:7 Diminishing Musharaka with Ij ara 43:8 Murabaha 43:10 Sukuk-al-Ijara 43:11 Other Islamic Financial Products 43:13

Takaful 43:13 Ijara 43:13 Wakala-Based Bank Accounts 43:13 Tawaruq or Commodity Murabaha 43:14 Istisna'a 43:14

GST Compliance Issues 43:14 Conclusion 43:15 Appendix: Definitions in the ETA 43:16

Financial Institution (Subsection 149(1)) 43:16 Financial Service (Subsection 123(1)) 43-17 Exempting Provision for "Financial Service" (Section 1 of

Part VII of Schedule V) 43-18 43.1g