Judicial And Legislative Developments Threaten Indirect Canadian Acquisitions

The case of Univar,¹ in which the Tax Court of Canada upheld a $30 million tax assessment on an alleged $600 million surplus strip,² raises domestic and international surplus stripping issues and highlights controversies swirling around the March 22 and July 29 proposals to amend the particular rule at the core of that June 22 decision.³

In October 2007 a U.K. private equity group (purchaser) acquired Univar NV (NV), a publicly traded Dutch group, for about $2 billion cash. NV owned a Canadian subsidiary (Univar Canada) through two U.S. subsidiaries (for these purposes, INC). Univar Canada was worth some $900 million, with corporate capital (paid-up capital, or PUC) of just under $1 million (see note 6). This low PUC means that if the shares of Univar Canada had been redeemed after the takeover for $900 million, there would be a deemed dividend of $899 million.⁴