Double taxation can arise under the FAD rules if a Canadian Buyco delivers shares issued to it by its non-resident parent to the target ((10(f)) corporation’s shareholders

Where a U.S. public corporation uses a Canadian Buyco to acquire the shares of a Canadian target (most of whose assets are foreign affiliates) in consideration for shares that will represent more than 10% of its outstanding shares, there will a technical investment by the Canadian Buyco in a foreign affiliate (its U.S. parent) if the share consideration is first issued by the U.S. parent to Buyco, before Buyco delivers that consideration to the shareholders of the target. Thus, there would be a double deemed dividend under s. 212.3(2): first, for this transitory investment; and second, for the “real” investment of Buyco in the target.

This result can be avoided by using a triangular arrangement pursuant to which the U.S. parent issues the share consideration directly to the target shareholders.

It generally will be advantageous to use a Canadian Buyco rather than make a direct acquisition, where the Canadian target does not have signficant Canadian assets.

Neal Armstrong. Summaries of Ian Crosbie, "Recent Transactions of Interest, Part I," draft 2015 Annual Conference paper under s. 212.3(2) and s. 88(1)(c.3)(i).