On April 29, 2009, the Tax Court of Canada held in Lehigh Cement Limited v. The Queen that the general anti-avoidance rule ("GAAR") applied to a series of transactions which resulted in interest payments by Lehigh on debt held by a related non-resident corporation being restructured as interest payments to an arm's length non-resident bank in order to access the former "5/25" domestic withholding tax exemption for interest on certain arm's length corporate debt.
Although the 5/25 exemption was replaced in 2008 with a much broader withholding tax exemption for most arm's length interest payments, Lehigh is interesting in that it takes a similar approach to the Lipson and Landrus cases decided earlier this year in which the courts focused on the object, spirit and purpose of the relevant statutory provisions and the "overall results" of a series of transactions in determining whether those transactions were abusive for purposes of the GAAR. The trial judge also expressed his view that the three sets of reasons for judgment (one majority, two dissenting) of the divided Supreme Court in Lipson "do not qualify what the Supreme Court stated in its unanimous decision in Canada Trustco" concerning the GAAR.
The full text of the Tax Court's judgment is available
at:
http://decision.tcc-cci.gc.ca/en/2009/2009tcc237/2009tcc237.html
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