CRA rules that a s. 87(4) rollover can give rise to a deemed dividend under the CRIC rules

The foreign affiliate dumping rules indicate that the amalgamated corporation resulting from a s. 87 amalgamation of related corporations generally is not considered on the amalgamation to have made an investment in foreign affiliate shares held by a predecessor.  However, there is no rule deeming there to be no indirect investment in the shares of the foreign affiliate by a Canadian corporate shareholder as a result of such shareholder being deemed by s. 87(4) to have acquired its shares of the amalgamated corporation at the adjusted cost base of its shareholding of a predecessor.  Furthermore, there is no rule to preclude multiple deemed dividends under s. 212.3(2) (or PUC suppressions under s. 212.3(7)) if there is a succession of amalgamations.  See Example 18a-C.

CRA has ruled that two amalgamations of a Canadian Target - the first with a Canadian subsidiary of Target, and the second with the Canadian "Bidco" which acquired its shares and which was owned by a non-resident parent through an intermediate Canadian chain - gave rise to two deemed dividends if the foreign affiliates of Target exceeded the 75% valuation threshold set out in the indirect investment rule in s. 212.3(10)(f).

Neal Armstrong.  Summaries of 2012 Ruling 2012-0451421R3 under ss. 212.3(18)(a) and 88(1)(d).