Corporate Reorganization Not GAARable

On June 3rd, 2009, the Tax Court found in favour of the taxpayer in Collins & Aikman Products Co. et al v. The Queen.

The taxpayer, Collins & Aikman Products Co. (Products), was a U.S. multinational car parts manufacturer with significant Canadian operations. Products appeal was heard on common evidence with the appeals of its Canadian affiliates, Collins & Aikman Canada Inc. (Canada) and Collins & Aikman Holdings Canada Inc. (Holdings).

In late 1993 and early 1994, Products reorganized, through a series of transactions, its Canadian business operations. Following the reorganization, Products owned all of the shares of Holdings which in turn owned all of the shares of Canada. Thereafter, Canada paid dividends to Holdings and Holdings reduced its stated capital and repaid capital to Products. As Holdings did not have a bank account, funds were, in each case, distributed electronically from Canada, as agent for Holdings, directly to Products bank account.