2012 Ruling 2012-0439381R3 - Cross-border spin-off butterfly

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Spin-off butterfly of assets from a corporation to another.

Position: Favourable rulings given.

Reasons: In compliance with the law and previous positions.

XXXXXXXXXX
2012-043938

XXXXXXXXXX, 2012

Madam,

RE: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of XXXXXXXXXX (the “Taxpayer”). We also acknowledge the information provided in your emails of XXXXXXXXXX.

We understand that to the best of your knowledge and that of the Taxpayer and XXXXXXXXXX(“DC Parent”), none of the issues described herein:

i) is in an earlier return of the Taxpayer or a related person;

ii) is being considered by a tax services office or taxation centre in connection with a previously filed tax return of the Taxpayer or a related person;

iii) is under objection by the Taxpayer or a related person;

iv) is before the courts or, if a judgement has been issued, the time limit for the appeal to a higher court has expired; and

v) is the subject of a ruling previously considered by the Income Tax Rulings Directorate.

Unless otherwise noted, all references herein to sections or components thereof are references to the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.), as amended, or the Income Tax Regulations, C.R.C., c. 945, as appropriate.

Unless otherwise noted, all references to monetary amounts are in Canadian dollars and all references to Paragraphs are references to the numbered paragraphs in this Ruling.

DEFINITIONS

Unless otherwise noted, the following terms have the meanings ascribed to them below:

(a) “ACB” means adjusted cost base, as defined in section 54;

(b) “Act” means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof;

(c) “agreed amount” means the amount agreed on by the transferor and transferee in respect of the transfer of an eligible property in a joint election filed pursuant to subsection 85(1);

(d) “arm’s length” has the meaning assigned by section 251;

(e) “Butterfly Percentage” means the proportion, expressed as a percentage, that the net FMV of the business property owned by DC that relates to the DC Spin-off Business is of the net FMV of all of the business property of DC, determined in the manner described in Paragraphs 72 and 73 immediately before the transfer of property by DC to Newco described in Paragraph 74;

(f) “capital property” has the meaning assigned by section 54;

(g) “Capital Reorganization” means the reorganization of capital as described in Paragraph 60;

(h) “CBCA” means the Canada Business Corporations Act, R.S.C. 1985, c.C-44, as amended;

(i) “CDA” means “capital dividend account” as defined in section 89;

(j) “DC” means XXXXXXXXXX, as described in Paragraph 12;

(k) “DC Common Shares” means the issued and outstanding common shares of the capital stock of DC, as described in Paragraph 15a);

(l) “DC New Common Shares” means the common shares which DC will be authorized to issue, as described in Paragraph 59a);

(m) “DC New Preferred Shares1” means the preferred shares which DC will be authorized to issue, as described in Paragraph 59b);

(n) “DC New Shares” means the DC New Common Shares and the DC New Preferred Shares1 collectively, as described in Paragraph 60;

(o) “DC Parent” means XXXXXXXXXX, as described in Paragraph 11;

(p) “DC Preferred Shares” means the issued and outstanding preferred shares of the capital stock of DC, as described in Paragraph 15b);

(q) “DC Redemption Note” means the demand promissory note in the principal amount of the aggregate DC PS1 Redemption Amount issued by DC in favour of TC, as described in Paragraph 81a);

(r) “DC PS1 Redemption Amount” has the meaning set out in Paragraph 59b)(i);

(s) “DC Retained Assets” means the assets owned and used by DC in carrying on the DC Retained Businesses, as described in Paragraph 25;

(t) “DC Retained Businesses” means the portion of the Retained Businesses operated by DC as described in Paragraph 24;

(u) “DC Retained Liabilities” means the liabilities incurred by DC in carrying on the DC Retained Businesses, as described in Paragraph 26;

(v) “DC Shares” means the DC Common Shares and the DC Preferred Shares collectively, as described in Paragraph 15;

(w) “DC Spin-off Assets” means the assets owned and used by DC in carrying out the DC Spin-off Business, as described in Paragraph 27;

(x) “DC Spin-off Business” means the portion of the Spin-off Business that is operated by DC, as described in Paragraph 24;

(y) “DC Spin-off Liabilities” means the liabilities incurred by DC in carrying out the DC Spin-off Business, as described in Paragraph 28;

(z) “DC Subco1” means XXXXXXXXXX, as described in Paragraph 16a);

(aa) “DC Subco2” means XXXXXXXXXX (formerly XXXXXXXXXX), as described in Paragraph 16b);

(bb) “DC Subco3” means XXXXXXXXXX, as described in Paragraph 17;

(cc) “DC Sub-Subco1” means XXXXXXXXXX (formerly XXXXXXXXXX), as described in Paragraph 16b)(i);

(dd) “depreciable property” has the meaning assigned by subsection 13(21);

(ee) “distribution” has the meaning assigned by subsection 55(1);

(ff) “dividend rental arrangement” has the meaning assigned by subsection 248(1);

(gg) “eligible capital property” has the meaning assigned by section 54;

(hh) “eligible property” has the meaning assigned by subsection 85(1.1);

(ii) “FMV” means “fair market value”, being the highest price available in an open and unrestricted market between informed prudent parties acting at arm’s length and without compulsion to act, expressed in terms of cash;

(jj) “Forco1” means XXXXXXXXXX, as described in Paragraph 3;

(kk) “Forco2” means XXXXXXXXXX, as described in Paragraph 4;

(ll) “Forco3” means XXXXXXXXXX, as described in Paragraph 5;

(mm) “Forco4” means XXXXXXXXXX, as described in Paragraph 6;

(nn) “Forco5” means XXXXXXXXXX, as described in Paragraph 7;

(oo) “Forco6” means XXXXXXXXXX, as described in Paragraph 8;

(pp) “Forco7” means XXXXXXXXXX, as described in Paragraph 9;

(qq) “Forco8” means XXXXXXXXXX, as described in Paragraph 10;

(rr) “Foreign Pubco” means XXXXXXXXXX, as described in Paragraph 1;

(ss) “Foreign Pubco Group” means Foreign Pubco and the direct and indirect subsidiaries that are controlled by Foreign Pubco;

(tt) “Foreign Spinco Parent” means XXXXXXXXXX Newco, as described in Paragraph 32;

(uu) “Foreign Spinco1” means XXXXXXXXXX, as described in Paragraph 56;

(vv) “Foreign Spinco2” means XXXXXXXXXX, as described in Paragraph 53;

(ww) “Foreign Spinco3” means XXXXXXXXXX, as described in Paragraph 48;

(xx) “Foreign Spinco4” means XXXXXXXXXX, as described in Paragraph 43;

(yy) “Foreign Spinco5” means XXXXXXXXXX, as described in Paragraph 39;

(zz) “forgiven amount” has the meaning assigned by subsection 80(1) or 80.01(1);

(aaa) “Group” means the XXXXXXXXXX group of companies, as described in Paragraph 2;

(bbb) “guarantee agreement” has the meaning assigned by subsection 112(2.2);

(ccc) “inventory” has the meaning assigned by subsection 248(1);

(ddd) “LLC” means a Limited Liability Company;

(eee) “Newco” means the corporation described in Paragraph 70;

(fff) “Newco Common Shares” means the common shares of the capital stock of Newco;

(ggg) “Paragraph” refers to a numbered paragraph in this Ruling;

(hhh) “prepaid expenses” means the rights arising out of the prepayment of expenses;

(iii) “principal amount” has the meaning assigned by subsection 248(1);

(jjj) “private corporation” has the meaning assigned by subsection 89(1);

(kkk) “proceeds of disposition” has the meaning assigned by section 54;

(lll) “Proposed Transactions” means the transactions described in Paragraphs 30 to 83;

(mmm) “PUC” means paid-up capital and has the meaning assigned by subsection 89(1);

(nnn) “RDTOH” means Refundable Dividend Tax on Hand as that expression is defined in subsection 129(3);

(ooo) “Regulations” means the Income Tax Act Regulations promulgated under the Act;

(ppp) “related persons” means, in relation to a particular person, another person who is related to the particular person by virtue of subsection 251(2), as modified for the purposes of section 55 by paragraph 55(5)(e);

(qqq) “restricted financial institution” has the meaning assigned by subsection 248(1);

(rrr) “Retained Businesses” has the meaning set out in Paragraph 20;

(sss) XXXXXXXXXX;

(ttt) XXXXXXXXXX;

(uuu) “series of transactions or events” has the meaning assigned by subsection 248(10);

(vvv) “short-term preferred share” has the meaning assigned by subsection 248(1);

(www) “specified financial institution” has the meaning assigned by subsection 248(1);

(xxx) “specified investment business” has the meaning assigned by subsection 125(7);

(yyy) “specified shareholder” has the meaning assigned by subsection 248(1), as modified by subsection 55(3.3) for the purposes mentioned in that subsection;

(zzz) “Spin-off Business” has the meaning set out in Paragraph 20;

(aaaa) “Spin-off” means the distribution of the shares of Foreign Spinco Parent as a dividend in kind to the shareholders of Foreign Pubco, as more particularly described in Paragraph 83;

(bbbb) “stated capital” in respect of the share capital of a corporation, has the meaning assigned by the statute by which the corporation is governed;

(cccc) “subsidiary wholly-owned corporation” has the meaning assigned by subsection 248(1);

(dddd) “substantial interest” has the meaning assigned by subsection 191(2);

(eeee) “taxable Canadian corporation” has the meaning assigned by subsection 89(1);

(ffff) “taxable Canadian property” has the meaning assigned by subsection 248(1);

(gggg) “taxable dividend” has the meaning assigned by subsection 89(1);

(hhhh) “taxable preferred share” has the meaning assigned by subsection 248(1);

(iiii) “TC” means the Canadian corporation which will be a subsidiary wholly-owned corporation of Foreign Spinco Parent following the Proposed Transactions, as more particularly described in Paragraph 65;

(jjjj) “TC Common Shares” means the common shares which TC will be authorized to issue, as described in Paragraph 65a);

(kkkk) “TC Preferred Shares” means the preferred shares which TC will be authorized to issue, as described in Paragraph 65b);

(llll) “TC Redemption Amount” has the meaning set out in Paragraph 65b(i);

(mmmm) “TC Redemption Note” means the demand promissory note in the principal amount of the aggregate TC Redemption Amount issued by TC in favour of DC, as described in Paragraph 81b);

(nnnn) “term preferred share” has the meaning assigned by subsection 248(1);

(oooo) “Three-Party Share Exchange” means the share exchange described in Paragraph 66;

FACTS

Foreign Pubco’s Corporate Structure

1. Foreign Pubco is a corporation governed by the laws of XXXXXXXXXX. The outstanding common stock of Foreign Pubco is publicly traded and XXXXXXXXXX

As of the close of business on XXXXXXXXXX, there were approximately XXXXXXXXXX common shares of the capital stock of Foreign Pubco issued and outstanding. As of the close of business on XXXXXXXXXX, the market capitalization of Foreign Pubco was approximately XXXXXXXXXX.

Foreign Pubco is widely held, and, to the best of Foreign Pubco’s knowledge, no one shareholder or group of related shareholders of Foreign Pubco owns more than XXXXXXXXXX% of the common shares of the capital stock of Foreign Pubco. Therefore, to the best of DC’s knowledge, there is no specified shareholder in Foreign Pubco on XXXXXXXXXX.

Foreign Pubco conducts XXXXXXXXXX for Business #1, as described in Paragraph 19a) below.

2. Foreign Pubco is the parent of a group of domestic and foreign corporations, hereinafter referred to as the “Group”, totalling over XXXXXXXXXX entities. Consequently, for the purpose of the Ruling, any entities that are not part of the Proposed Transactions described in Paragraphs 30 to 83 have not been disclosed.

3. Foreign Pubco owns all of the issued and outstanding common shares of the capital stock of Forco1, being XXXXXXXXXX voting common shares. Forco1 is a corporation that is a resident of the XXXXXXXXXX. Forco1 was incorporated under the laws of XXXXXXXXXX. Forco1 is not a XXXXXXXXXX.

Forco1 is a XXXXXXXXXX holding company and a member of Foreign Pubco’s XXXXXXXXXX consolidated group. Forco1 owns indirectly most of the Group’s foreign operations through its domestic subsidiaries.

4. Forco1 owns all of the issued and outstanding common shares of the capital stock of Forco2, being XXXXXXXXXX voting common shares. Forco2 is a corporation that is a resident of XXXXXXXXXX. Forco2 was incorporated under the laws of XXXXXXXXXX. Forco2 is not a XXXXXXXXXX.

Forco2 is a XXXXXXXXXX holding company and a member of Foreign Pubco’s XXXXXXXXXX consolidated group.

5. Forco2 owns all of the issued and outstanding common shares of the capital stock of Forco3, being XXXXXXXXXX voting common shares. Forco3 is a corporation that is a resident of XXXXXXXXXX. Forco3 was incorporated under the laws of XXXXXXXXXX. Forco3 is not a XXXXXXXXXX.

Forco3 is a XXXXXXXXXX holding company and a member of Foreign Pubco’s XXXXXXXXXX consolidated group.

6. Forco3 owns all of the issued and outstanding common shares of the capital stock of Forco4, being XXXXXXXXXX voting common shares. Forco4 is a corporation that is a resident of XXXXXXXXXX. Forco4 was incorporated under the laws of XXXXXXXXXX. Forco4 is not a XXXXXXXXXX.

Forco4 is a XXXXXXXXXX holding company and a member of Foreign Pubco’s XXXXXXXXXX consolidated group. Forco4 owns indirectly most of the Group’s foreign operations.

7. Forco4 owns all of the issued and outstanding ordinary shares of the capital stock of Forco5, being XXXXXXXXXX voting Class A ordinary shares and XXXXXXXXXX non-voting Class B ordinary shares. Forco5 is a corporation that is a resident of XXXXXXXXXX. Forco5 was incorporated under the laws of XXXXXXXXXX.

Forco5 is a XXXXXXXXXX holding company, XXXXXXXXXX. Forco5 has legal ownership of XXXXXXXXXX% of the shares of Forco7.

8. Forco5 owns all of the issued and outstanding ordinary shares of the capital stock of Forco6, being XXXXXXXXXXvoting Class A ordinary and XXXXXXXXXX Class B ordinary shares. Forco6 is a corporation that is a resident of XXXXXXXXXX. Forco6 was incorporated under the laws of XXXXXXXXXX.

Forco6 is a XXXXXXXXXX holding company, XXXXXXXXXX. Forco6 has legal ownership of XXXXXXXXXX% of the shares of the capital stock of Forco7. XXXXXXXXXX.

9. Forco6 owns XXXXXXXXXX% of Forco7’s capital stock and the remaining XXXXXXXXXX% is owned by Forco5, being XXXXXXXXXX voting ordinary limited shares, XXXXXXXXXX non-voting preferred shares and XXXXXXXXXX voting ordinary unlimited shares outstanding in the aggregate. Forco7 is XXXXXXXXXX that is a resident of XXXXXXXXXX.

Forco7 is a XXXXXXXXXX holding company, XXXXXXXXXX.

10. Forco7 owns all of the issued and outstanding common shares of the capital stock of Forco8, being XXXXXXXXXX voting common shares. Forco8 is XXXXXXXXXX that is a resident of XXXXXXXXXX.

Forco8 is a XXXXXXXXXX holding company, XXXXXXXXXX.

11. Forco8 owns all of the issued and outstanding common shares of the capital stock of DC Parent, being XXXXXXXXXX voting common shares. DC Parent is XXXXXXXXXX that is a resident of XXXXXXXXXX.

DC Parent is engaged directly and through its subsidiaries in Business #1, as described in Paragraph 19a) below.

DC Parent’s Corporate Structure

12. DC Parent directly owns all of the issued and outstanding shares of the capital stock of DC as described in Paragraph 15 since a restructuring of the Group that ended in XXXXXXXXXX. Before the XXXXXXXXXX restructuring, DC was a wholly-owned subsidiary of Forco4 and as a result of the restructuring, the shares of the capital stock of DC were transferred to DC Parent. The XXXXXXXXXX restructuring was completed for international purposes and was not related to the Proposed Transactions. The XXXXXXXXXX restructuring was not done in contemplation of the butterfly and it does not form part of a series of transactions that includes the Proposed Transactions.

DC is a corporation amalgamated pursuant to the laws of Canada. DC is and will be, at any relevant time and for all purposes of the Act, a taxable Canadian corporation and a private corporation. The amalgamation took place on XXXXXXXXXX among XXXXXXXXXX. DC was formed as a result of a series of amalgamations with a number of predecessor corporations. None of these amalgamations occurred as part of a series of transactions that will include any of the Proposed Transactions.

13. DC’s registered head office is situated at XXXXXXXXXX. DC’s business number is XXXXXXXXXX and DC files its federal income tax return at the XXXXXXXXXX Taxation Centre. DC is audited by the XXXXXXXXXX Tax Services Office. DC’s taxation year ends on XXXXXXXXXX.

14. The authorized share capital of DC consists of:

a) An unlimited number of voting, fully participating common shares, each of which is entitled to one vote per share; and

b) An unlimited number of non-voting, non-participating, and non-cumulative preferred shares, redeemable at the amount paid thereon.

15. The issued and outstanding share capital of DC (collectively referred to as the “DC Shares”) consists of:

a) XXXXXXXXXX common shares (the “DC Common Shares”); and

b) XXXXXXXXXX preferred shares (the “DC Preferred Shares”).

The DC Common Shares are not short-term preferred shares or taxable preferred shares.

16. DC directly owns all of the issued and outstanding shares of:

a) DC Subco1, which is a corporation continued under the laws of Canada, is a taxable Canadian corporation and a private corporation.

On XXXXXXXXXX, DC Subco1 was wound-up into DC on a tax-deferred basis pursuant to subsection 88(1). The winding-up of DC Subco1 was not done in contemplation of the butterfly and does not form part of a series of transactions that includes any of the Proposed Transactions.

Although DC Subco1 has no assets or liabilities, DC Subco1 has not been formally dissolved as of XXXXXXXXXX. The shares of DC Subco1, which have no FMV, will not be part of the property transferred by DC to Newco as described in Paragraph 74;

b) DC Subco2, which is a corporation incorporated under the laws of XXXXXXXXXX, is a taxable Canadian corporation and a private corporation.

On XXXXXXXXXX, DC Subco2 was wound-up into DC on a tax-deferred basis pursuant to subsection 88(1). The winding-up of DC Subco2 was not done in contemplation of the butterfly and does not form part of a series of transactions that includes any of the Proposed Transactions.

Although DC Subco2 has no assets or liabilities, DC Subco2 has not been formally dissolved as of XXXXXXXXXX. The shares of the capital stock of DC Subco2, which have no FMV, will not be part of the property transferred by DC to Newco as described in Paragraph 74.

Prior to being wound-up into DC, DC Subco2 owned all of the issued and outstanding shares of the capital stock of DC Sub-Subco1:

(i) DC Sub-Subco1 was amalgamated under the laws of XXXXXXXXXX. DC Sub-Subco1 is a taxable Canadian corporation and a private corporation. The amalgamation took place on XXXXXXXXXX.

On XXXXXXXXXX, DC Sub-Subco1 was wound-up into DC Subco2 on a tax-deferred basis pursuant to subsection 88(1). The winding-up of DC Sub-Subco1 was not done in contemplation of the butterfly and does not form part of a series of transactions that includes any of the Proposed Transactions.

Although DC Sub-Subco1 has no assets or liabilities, DC Sub-Subco1 has not been formally dissolved.

17. On XXXXXXXXXX, DC Subco3, which was a wholly-owned subsidiary of DC, was formally dissolved. DC Subco3, which was a corporation incorporated under the laws of Canada, was a taxable Canadian corporation and a private corporation.

The formal dissolution of DC Subco3 was not done in contemplation of the butterfly and does not form part of a series of transactions that includes any of the Proposed Transactions.

18. Under DC Parent’s corporate structure, there are other entities residing in various jurisdictions which are not part of any of the Proposed Transactions described in Paragraphs 30 to 83.

Foreign Pubco’s Primary Businesses

19. The principal business of the Group is XXXXXXXXXX. Foreign Pubco is engaged, directly and through its subsidiaries, in four primary businesses around the world:

a) XXXXXXXXXX(Business #1): in XXXXXXXXXX, the net sales of Business #1 represented approximately XXXXXXXXXX% of Foreign Pubco’s consolidated net sales.

Business #1 is dedicated to XXXXXXXXXX. Business #1 has two distinct divisions, XXXXXXXXXX.

XXXXXXXXXX.

b) XXXXXXXXXX (Business #2): in XXXXXXXXXX, the net sales of Business #2 represented approximately XXXXXXXXXX% of Foreign Pubco’s consolidated net sales.

Business #2 includes XXXXXXXXXX.

c) XXXXXXXXXX (Business #3): in XXXXXXXXXX, the net sales of Business #3 represented approximately XXXXXXXXXX% of Foreign Pubco’s consolidated net sales.

Business #3 includes XXXXXXXXXX.

d) XXXXXXXXXX (Business #4): in XXXXXXXXXX, the net sales of Business #4 represented approximately XXXXXXXXXX% of Foreign Pubco’s consolidated net sales.

Business #4 includes XXXXXXXXXX.

20. The Proposed Transactions involve the separation of Business #1’s XXXXXXXXXX, which is referred to hereinafter as the “Spin-off Business”. Business #1’s XXXXXXXXXX along with Businesses #2 to #4 are collectively referred to hereinafter as the “Retained Businesses”.

21. On XXXXXXXXXX, the Group distributed its XXXXXXXXXX business to Foreign Pubco’s shareholders, hereinafter referred to as the “XXXXXXXXXX”. As part of the global divestiture, DC sold its XXXXXXXXXX business’ assets to XXXXXXXXXX in XXXXXXXXXX separate transactions. For Canadian tax purposes, the XXXXXXXXXX was done as a taxable sale of assets and not on a tax-deferred basis. The businesses that were retained by the Group in that transaction are the same businesses that it conducts today.

The XXXXXXXXXX was not done in contemplation of the butterfly and does not form part of a series of transactions that includes any of the Proposed Transactions.

22. On XXXXXXXXXX, Foreign Pubco acquired the XXXXXXXXXXbusiness of XXXXXXXXXX, a publicly-traded XXXXXXXXXX company, for over $XXXXXXXXXX in cash. XXXXXXXXXX. The acquisition of XXXXXXXXXX group of companies is part of the on-going growth and strategic acquisitions made by the Group. The main purpose of the Group when it acquired the XXXXXXXXXX group was to expand XXXXXXXXXX. The acquisition of the XXXXXXXXXX group was part of a continuing effort to increase profitability and market share. In Canada, the XXXXXXXXXX operations were conducted by DC Subco1, DC Subco2 and DC Sub-Subco1, which were wound up into DC on XXXXXXXXXX as described in Paragraph 16. The integration process has started and will continue in XXXXXXXXXX. Incremental annual sales for DC are estimated at $XXXXXXXXXX as at XXXXXXXXXX.

The XXXXXXXXXX acquisition was not done in contemplation of the butterfly and does not form part of a series of transactions that includes any of the Proposed Transactions. The acquisition of the XXXXXXXXXX group would have taken place regardless of whether the Proposed Transactions were undertaken. The Proposed Transactions would have been undertaken regardless of whether the acquisition of the XXXXXXXXXX group occurred.

23. On XXXXXXXXXX, DC discontinued its operations of XXXXXXXXXX(“XXXXXXXXXX”), which specialized XXXXXXXXXX. This division does not represent a significant portion of the Group’s operations and revenues.

The XXXXXXXXXX discontinuance was not done in contemplation of the butterfly and does not form part of a series of transactions that includes any of the Proposed Transactions.

Canadian Businesses

24. The Canadian portion of the Retained Businesses, hereinafter referred to as the DC Retained Businesses, is operated in Canada directly by DC. None of the directly and indirectly owned subsidiaries of DC operate the DC Retained Businesses.

The Canadian portion of the Spin-off Business, hereinafter referred to as the DC Spin-off Business, is operated in Canada directly by DC. None of the directly and indirectly owned subsidiaries of DC operate the DC Spin-off Business.

25. The assets used by DC to carry on the DC Retained Businesses, hereinafter referred to as the DC Retained Assets, principally consist of:

XXXXXXXXXX

26. The liabilities of DC relating to the DC Retained Businesses, hereinafter referred to as the DC Retained Liabilities, principally consist of:

XXXXXXXXXX

27. The assets used by DC to carry on the DC Spin-off Business, hereinafter referred to as the DC Spin-off Assets, principally consist of:

XXXXXXXXXX

28. The liabilities of DC relating to the DC Spin-off Business, hereinafter referred to as the DC Spin-off Liabilities, principally consist of:

XXXXXXXXXX

29. DC does not own any property (other than property that should be classified as cash or near-cash) the income from which, for purposes of the Act, would be income from property or income from a specified investment business.

PROPOSED TRANSACTIONS

Global Reorganization

30. It is currently contemplated that the Group will transfer its Spin-off Business directly and indirectly to Foreign Spinco Parent, followed by the distribution of the shares of the capital stock of Foreign Spinco Parent to the shareholders of Foreign Pubco, resulting in one XXXXXXXXXX public company which will (directly and indirectly) carry on the Spin-off business (Foreign Spinco Parent) and one XXXXXXXXXX public company which will (directly and indirectly) carry on the Retained Businesses (Foreign Pubco).

The global reorganization will involve the Spin-off Business and the Retained Businesses being separated into distinct legal entities, including the direct and indirect transfer of the Spin-off Business (and shares of the capital stock of subsidiaries engaged in the Spin-off Business) to Foreign Spinco Parent.

Global Restructuring Prior to the Canadian “Butterfly”

31. Prior to the incorporation of Foreign Spinco Parent as described in Paragraph 32, Forco1, Forco2, Forco3 and Forco4 XXXXXXXXXX.

XXXXXXXXXX.

32. Foreign Pubco will incorporate Foreign Spinco Parent as a corporation under the laws of XXXXXXXXXX.

At this point in time, Foreign Spinco Parent will not have any assets or liabilities and has conducted no business.

33. Following the formation of Foreign Spinco Parent, Foreign Pubco’s portion of the Spin-off Business will be directly transferred from Foreign Pubco to Foreign Spinco Parent.

XXXXXXXXXX.

34. Following the transaction described in Paragraph 33, DC Parent will distribute the DC Shares, as described in Paragraph 15, to Forco8 as a dividend in kind.

The DC Shares do not derive their value principally from real property situated in Canada. Accordingly, the DC Shares will not constitute taxable Canadian property and, therefore, no notice to the Minister under section 116 will be sent in connection with the dispositions of the DC Shares by DC Parent.

35. Following the transaction described in Paragraph 34, Forco8 will distribute the DC Shares to Forco7 as a dividend in kind.

The DC Shares do not derive their value principally from real property situated in Canada. Accordingly, the DC Shares will not constitute taxable Canadian property and, therefore, no notice to the Minister under section 116 will be sent in connection with the dispositions of the DC Shares by Forco8.

36. Following the transaction described in Paragraph 35, Forco7 will distribute the DC Shares to Forco5 and Forco6 as a dividend in kind on a pro-rata basis based on Forco5 and Forco6’s respective ownership in Forco7 as described in Paragraph 9.

The DC Shares do not derive their value principally from real property situated in Canada. Accordingly, the DC Shares will not constitute taxable Canadian property and, therefore, no notice to the Minister under section 116 will be sent in connection with the dispositions of the DC Shares by Forco7.

37. Following the transaction described in Paragraph 36, Forco6 will distribute its proportionate share of the DC Shares to Forco5 as a dividend in kind. Immediately following the distribution of Forco6’s proportionate share of the DC Shares, Forco5 will own all of the DC Shares that are outstanding.

The DC Shares do not derive their value principally from real property situated in Canada. Accordingly, the DC Shares will not constitute taxable Canadian property and, therefore, no notice to the Minister under section 116 will be sent in connection with the dispositions of the DC Shares by Forco6.

38. Following the transaction described in Paragraph 37, Forco5 will distribute the DC Shares to Foreign Pubco as a dividend in kind through Forco4, Forco3, Forco2 and Forco1, XXXXXXXXXX.

The DC Shares do not derive their value principally from real property situated in Canada. Accordingly, the DC Shares will not constitute taxable Canadian property and, therefore, no notice to the Minister under section 116 will be sent in connection with the dispositions of the DC Shares by Forco5, Forco4, Forco3, Forco2 and Forco1.

International Restructuring

39. In contemplation of the demerger of DC Parent, Foreign Spinco5 will be incorporated under the laws of XXXXXXXXXX as a wholly-owned subsidiary of Forco8.

At this point in time, Foreign Spinco5 will not have any assets or liabilities and has conducted no business.

40. Following the incorporation of Foreign Spinco5, a demerger of DC Parent will result in DC Parent’s portion of the Spin-off Business being directly transferred from DC Parent to Foreign Spinco5.

As consideration for the demerger of DC Parent, Forco8 will receive shares of the capital stock of Foreign Spinco5.

41. Following the demerger of DC Parent, Foreign Spinco5 will have no other business operations apart from DC Parent’s portion of the Spin-off Business acquired from DC Parent in connection with the demerger.

42. The demerger will be carried out XXXXXXXXXX. Consequently, the demerger of DC Parent will not result in a disposition of the assets of DC Parent nor does the demerger result in any immediate tax consequences for Forco8.

43. In contemplation of the demerger of Forco8, Foreign Spinco4 will be incorporated under the laws of XXXXXXXXXX as a wholly-owned subsidiary of Forco7.

At this point in time, Foreign Spinco4 will not have any assets or liabilities and has conducted no business.

44. Following the incorporation of Foreign Spinco4, a demerger of Forco8 will result in Forco8’s portion of the Spin-off Business and the shares of the capital stock of Foreign Spinco5 being directly transferred from Forco8 to Foreign Spinco4.

45. Following the demerger of Forco8, Foreign Spinco4 will have no other business operations apart from Forco8’s portion of the Spin-off Business acquired from Forco8 in connection with the demerger.

46. The demerger will be carried out XXXXXXXXXX. Consequently, the demerger of Forco8 will not result in a disposition of the assets of Forco8 nor does the demerger result in any immediate tax consequences for Forco7.

47. XXXXXXXXXX.

48. In contemplation of the demerger of Forco7, Foreign Spinco3 will be incorporated under the laws of XXXXXXXXXX as a XXXXXXXXXX% owned subsidiary of Forco5 and the remaining XXXXXXXXXX% interest will be owned by Forco6.

At this point in time, Foreign Spinco3 will not have any assets or liabilities and has conducted no business.

49. Following the incorporation of Foreign Spinco3, a demerger of Forco7 will result in Forco7’s portion of the Spin-off Business and the shares of the capital stock of Foreign Spinco4 being directly transferred from Forco7 to Foreign Spinco3.

50. Following the demerger of Forco7, Foreign Spinco3 will have no other business operations apart from Forco7’s portion of the Spin-off Business acquired from Forco7 in connection with the demerger.

51. The demerger will be carried out XXXXXXXXXX. Consequently, the demerger of Forco7 will not result in a disposition of the assets of Forco7 nor does the demerger result in any immediate tax consequences for Forco5 and Forco6.

52. XXXXXXXXXX.

53. Forco6 will incorporate a new corporation, Foreign Spinco2, under the laws of XXXXXXXXXX as a wholly-owned subsidiary of Forco6. XXXXXXXXXX.

At this point in time, Foreign Spinco2 will not have any assets or liabilities and has conducted no business.

54. Following the incorporation of Foreign Spinco2, Forco6’s portion of the Spin-off Business and Forco6’s XXXXXXXXXX% interest in Foreign Spinco3 will be contributed by Forco6 to Foreign Spinco2.

55. Following the transactions described in Paragraph 54, Forco6 will distribute all of its Foreign Spinco2 shares to Forco5 as a dividend in kind.

56. Forco5 will incorporate a new corporation, Foreign Spinco1, under the laws of XXXXXXXXXX as a wholly-owned subsidiary of Forco5.

At this point in time, Foreign Spinco1 will not have any assets or liabilities and has conducted no business.

57. Following the incorporation of Foreign Spinco1, Forco5’s portion of the Spin-off Business, Forco5’s XXXXXXXXXX% interest in Foreign Spinco3, and all of the shares of the capital stock of Foreign Spinco2 will be contributed by Forco5 to Foreign Spinco1.

58. Following the transactions described in Paragraph 57, Forco5 will distribute all of its Foreign Spinco1 shares to Foreign Spinco Parent as a dividend in kind, through Forco4, Forco3, Forco2 and Forco1, XXXXXXXXXX.

Canadian “Butterfly” Restructuring

59. Following the distribution of DC Shares to Foreign Pubco in Paragraph 38, DC will reorganize its capital by amending its Articles of Incorporation pursuant to the CBCA:

a) to create a new class of common shares (the “DC New Common Shares”) having attributes slightly different from those of the existing DC Common Shares. Each DC New Common Share will be a fully-participating voting common share with the holder thereof entitled to one vote at each meeting of the shareholders of DC; and

b) to create a new class of preferred shares (the “DC New Preferred Shares1”) having the following attributes:

(i) each DC New Preferred Share1 will be redeemable, subject to applicable law, at any time at the option of DC at a redemption amount (the “DC PS1 Redemption Amount”) obtained by multiplying the aggregate FMV of the outstanding DC Shares immediately prior to the Capital Reorganization described in Paragraph 60 by the Butterfly Percentage and then dividing such product by the number of DC New Preferred Shares1 issued on the Capital Reorganization, plus any declared but unpaid dividends;

(ii) each DC New Preferred Share1 will be retractable, subject to applicable law, at any time at the option of the holder for an amount equal to the DC PS1 Redemption Amount, plus any declared but unpaid dividends;

(iii) the holder of each DC New Preferred Share1 will be entitled, upon the liquidation, dissolution or winding-up of DC, to a payment in priority to all other classes of shares of DC of an amount equal to the DC PS1 Redemption Amount thereon to the extent of the amount of value of property available under applicable law for payment to the shareholders upon dissolution, but will be entitled to no more than the amount of that payment;

and

(iv) the holder of each DC New Preferred Share1 will not be entitled to vote at meetings of shareholders of DC, other than as provided under applicable law.

60. Foreign Pubco will exchange a percentage of the XXXXXXXXXX DC Common Shares and of the XXXXXXXXXX DC Preferred Shares, equal to the Butterfly percentage, for XXXXXXXXXX DC New Preferred Shares1. Foreign Pubco will exchange the other part of the XXXXXXXXXX DC Common Shares and of the XXXXXXXXXX DC Preferred Shares for XXXXXXXXXX DC New Common Shares. The DC New Preferred Shares1 and the DC New Common Shares are collectively defined as the “DC New Shares”.

61. Immediately following the Capital Reorganization and the exchange, the aggregate FMV of the DC New Shares will be equal to the aggregate FMV of the DC Shares immediately before the Capital Reorganization.

62. Foreign Pubco holds the DC Shares as capital property. No election under subsection 85(1) will be made with respect to the Capital Reorganization.

63. For the purposes of the CBCA, the aggregate addition to the stated capital in respect of the DC New Shares issued by DC on the Capital Reorganization described in Paragraph 60 will not exceed the aggregate PUC of the DC Shares at the time of the Capital Reorganization.

Such aggregate stated capital will be apportioned between the DC New Preferred Shares1 and the DC New Common Shares in proportion to the relative aggregate FMV of such shares.

The FMV of each class of shares of the capital stock of DC will not be less than the PUC of those classes.

64. The DC Shares do not derive their value principally from real property situated in Canada. Accordingly, the DC Shares will not constitute taxable Canadian property and, therefore, no notice to the Minister under section 116 will be sent in connection with the dispositions of the DC Shares by Foreign Pubco.

65. Following the Capital Reorganization described in Paragraph 60, Foreign Spinco Parent will incorporate TC pursuant to the laws of the CBCA by subscribing for XXXXXXXXXX common shares of the capital stock of TC for cash consideration of $XXXXXXXXXX. TC will be, at any relevant time and for all purposes of the Act, a private corporation and a taxable Canadian corporation.

At this point in time, TC will not have any assets other than cash of $XXXXXXXXXX or liabilities and will not have conducted any business.

The authorized share capital of TC will consist of:

a) a class of voting, fully-participating common shares (the “TC Common Shares”); and

b) a class of preferred shares (the “TC Preferred Shares”) having the following attributes:

(i) each TC Preferred Share will be redeemable, subject to applicable law, at any time at the option of TC at a redemption amount (the “TC Redemption Amount”) equal to the aggregate FMV of the consideration paid to TC on issuance thereof divided by the number of TC Preferred Shares issued as consideration therefore, plus any declared but unpaid dividends;

(ii) each TC Preferred Share will be retractable, subject to applicable law, at any time at the option of the holder for an amount equal to the TC Redemption Amount, plus any declared but unpaid dividends;

(iii) the holder of each TC Preferred Share will be entitled, upon the liquidation, dissolution or winding-up of TC, to a payment in priority to all other classes of shares of TC of an amount equal to the TC Redemption Amount therefore to the extent of the amount or value of property available under applicable law for payment to shareholders upon dissolution, but will be entitled to no more than the amount of that payment; and

(iv) the holder of each TC Preferred Share will not be entitled to vote at meetings of shareholders of TC, other than as provided under applicable law.

Transfer of DC New Preferred Shares1 to TC

66. In the context of a three-party transfer agreement (the “Three-Party Share Exchange”) between Foreign Pubco, Foreign Spinco Parent and TC (which will be effective after the transfer of other international Spin-off businesses):

a) TC will agree to pay the purchase price for the DC New Preferred Shares1 transferred to it by Foreign Pubco as described in Paragraph 66b) by issuing TC Common Shares to Foreign Spinco Parent having an aggregate FMV at that time equal to the aggregate FMV of the DC New Preferred Shares1 so transferred by Foreign Pubco to it. TC and Foreign Spinco Parent will agree that the TC Common Shares will be issued to Foreign Spinco Parent in respect of and by virtue of the disposition by Foreign Pubco of the DC New Preferred Shares1 to TC;

b) Foreign Pubco will agree to pay the purchase price for the common shares issued to it by Foreign Spinco Parent as described in Paragraph 66c) by transferring all of the DC New Preferred Shares1 to TC having an aggregate FMV at that time equal to the aggregate FMV of the common shares so issued by Foreign Spinco Parent to it; and

c) Foreign Spinco Parent will agree to pay the purchase price for the TC Common Shares issued to it by TC as described in Paragraph 66a) by issuing common shares to Foreign Pubco having an aggregate FMV at that time equal to the aggregate FMV of the TC Common Shares so issued by TC to it.

The purchase price that TC paid for Foreign Pubco’s DC New Preferred Shares1 will be equal to the aggregate FMV of those shares at the time of their transfer to TC as described in Paragraph 66b) and will be the amount that an arm’s length person would pay for those shares.

67. Pursuant to the CBCA, the stated capital of the TC Common Shares will be increased by an amount that will not exceed the aggregate PUC of the DC New Preferred Shares1 immediately before the time they are transferred by Foreign Pubco to TC as described in Paragraph 66b).

68. The DC New Preferred Shares1 do not derive their value principally from real property situated in Canada. Accordingly, the DC New Preferred Shares1 will not constitute taxable Canadian property and, therefore, no notice to the Minister under section 116 will be sent in connection with the dispositions of the DC New Preferred Shares1 by Foreign Pubco.

69. Following the transactions described in Paragraph 66, Foreign Spinco Parent will own all of the issued and outstanding shares of the capital stock of TC. No other person will acquire shares of the capital stock of TC (except for the TC Preferred Shares which are issued by TC to DC as described in Paragraph 80 and redeemed as described in Paragraph 81b)) as part of a series of transactions that includes the transfer of the Newco Common Shares described in Paragraph 80.

Transfer of DC Spin-off Business to Newco

70. Following the Three-Party Share Exchange as described in Paragraph 66, DC will incorporate a new corporation, Newco, under the laws of Canada as a subsidiary wholly-owned corporation of DC by subscribing for XXXXXXXXXX common shares of the capital stock of Newco for cash consideration of $XXXXXXXXXX. Newco will be a private corporation and a taxable Canadian corporation at all relevant times and for all purposes of the Act.

At this point in time, Newco will not have any assets other than cash of $XXXXXXXXXXor liabilities and will not have conducted any business.

71. Immediately before the transfer of the Newco Common Shares by DC to TC as described in Paragraph 80, the aggregate FMV of the Foreign Spinco Parent common shares owned by Foreign Pubco will be equal to or approximate the amount determined by the formula, on the assumption that Foreign Pubco is the participant, DC is the distributing corporation, Foreign Spinco Parent is the acquiror and the distribution is the transfer of Newco Common Shares described in Paragraph 80,

(A x B/C) + D

As found in subparagraph (b)(iii) of the definition of “permitted exchange” in subsection 55(1).

72. Immediately before the transfer of the DC Spin-off business by DC to Newco as described in Paragraph 74, the property of DC will be classified into the following three types of property for the purposes of the definition of “distribution” in subsection 55(1), as follows:

a) Cash or near-cash property, comprising of all of the current assets of DC including cash, term deposits, trade receivables, other receivables, inventory and prepaid expenses;

b) Business property, comprising of all of the assets of DC, other than cash or near-cash, any income from which would, for the purposes of the Act, be income from an active business (other than a specified investment business), including goodwill; and

c) Investment property, comprising of all of the assets of DC, (other than cash or near-cash property), any income from which, for the purposes of the Act, would constitute income from property or from a specified investment business.

For greater certainty, for purposes of this distribution:

d) Any tax accounts of DC such as the balance of any non-capital losses of DC or the balance of any RDTOH or CDA of DC, if any, will not be considered property;

e) Advances to any person that is due and receivable within a year will be considered cash or near-cash property.

f) The shares of the capital stock of DC Subco1 and DC Subco2 will be classified as business property having a nil FMV and will be retained by DC until they are legally dissolved.

73. In determining the net FMV of the three types of property of DC immediately before the transfer of property described in Paragraph 74, the liabilities of DC will be allocated to, and will be deducted in the calculation of the net FMV of each type of property of DC, in the following manner:

a) Current liabilities of DC will be allocated to each cash or near-cash property of DC in the proportion that the FMV of each such property is of the FMV of all cash or near-cash property owned by DC. The allocation of current liabilities as described herein will not exceed the FMV of all the cash or near-cash property of DC;

b) Following the allocation of current liabilities to cash or near-cash property as described in Paragraph 73a), any remaining net FMV of any accounts receivable, trade receivables, inventories and prepaid expenses of DC will be reclassified as business property of DC and excluded from the net FMV of the cash or near-cash property, to the extent that such property will be collected, sold, used or consumed in the ordinary course of business to which such property relates;

c) Liabilities of DC, other than current liabilities, that relate to a particular property will be allocated to that particular property (and effectively to the type of property to which the particular property belongs) to the extent of its FMV. The liabilities that pertain to a type of property but not to a particular property will be allocated to that type of property, but not in excess of the net FMV of that type of property after the allocation of liabilities to a particular property as described herein; and

d) If any liabilities remain after the allocations described in (a) and (c) above are made, such excess unallocated liabilities will then be allocated to the cash or near-cash property, investment property and business property of DC, based on the relative net FMV of each type of property prior to the allocation of such excess unallocated liabilities.

For greater certainty, for purposes of this distribution:

e) The amount of any deferred income tax will not be considered a liability for the purposes of the Proposed Transactions described herein because such amount does not represent a legal obligation;

f) Any amounts owing to any person that are due and payable within a year will be considered current liabilities;

g) Income and other taxes due and payable within a year will be classified as current liabilities; and

h) Current liabilities will include amounts normally classified as current liabilities, including accounts payable, bonuses payable and the current portion of any long-term debt.

Based on the above, DC will only have cash or near-cash property and business property at the time of the transfer of property described in Paragraph 74.

74. DC will transfer property (described in Paragraph 27) to Newco such that, immediately after the transfer by DC of the Newco Common Shares to TC as described in Paragraph 80, the net FMV of each type of property so transferred to TC will approximate that proportion of the net FMV of all property of DC of that type (after allocating and deducting, in the manner described in Paragraph 73, the amount of the liabilities assumed by Newco described in Paragraph 28), determined immediately before the transfer by DC of the Newco Common Shares to TC described in Paragraph 80, that:

(i) the aggregate FMV, immediately before the transfer, of all of the DC New Preferred Shares1 owned by TC

is of

(ii) the aggregate FMV, immediately before the transfer, of all the issued and outstanding DC New Shares.

The expression “approximate that proportion” described above means that the discrepancy from that proportion, if any, would not exceed 1%, determined as a percentage of the net FMV of each type of property which TC has received (or DC has retained) as compared to what TC would have received (or DC would have retained) had it received (or retained) its appropriate pro-rata share of the net FMV of that type of property.

75. The property transferred by DC to Newco in Paragraph 74 will be the DC Spin-off Assets.

As consideration for such property, Newco will:

a) assume the DC Spin-off Liabilities; and

b) issue additional Newco Common Shares to DC, having an aggregate FMV at that time equal to the amount by which the aggregate FMV of all the property transferred to Newco exceeds the amount of the liabilities assumed by Newco in (a) above.

76. Newco will jointly elect with DC, in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to each transfer of eligible property to Newco and in respect of which the Newco Common Shares have been issued as full or partial consideration therefore as described in Paragraph 75b). The agreed amount in each election will be as follows:

a) in the case of capital property (other than depreciable property of a prescribed class) and inventory, an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii);

b) in the case of depreciable property of a prescribed class, an amount equal to the least of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii); and

c) in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii).

In addition, in each case, the agreed amount will not exceed the FMV of the property transferred, nor will it be less than the amount permitted under paragraph 85(1)(b). The amount of any liabilities assumed by Newco which are allocated to a particular property that is the subject of an election under subsection 85(1) as described herein will not exceed the agreed amount for that particular property.

The amount added to the stated capital account maintained for the Newco Common Shares will equal the amount by which the aggregate cost to Newco (determined pursuant to subsection 85(1), where relevant) of the properties transferred to Newco exceeds the aggregate amount of the liabilities assumed by Newco described in Paragraph 75a).

77. For the purpose of the joint election described in Paragraph 76, the reference in subparagraph 85(1)(e)(i) to the “undepreciated capital cost to the taxpayer of all property of that class immediately before the disposition” shall be interpreted to mean that proportion of the undepreciated capital cost to DC of all of the property of that class immediately before the disposition that the FMV at that time of the asset that is transferred is of the FMV at that time of all property of that class.

78. DC and Newco will file a joint election in the prescribed form and within the prescribed time period under section 22 in respect of any accounts receivable owing to DC that are included in the property transferred to Newco described in Paragraph 74.

79. Further, DC and Newco may elect within the prescribed time period to have the rules in subsection 20(24) apply to any amounts paid by DC to Newco for undertaking future obligations of DC.

Transfer of Newco Common Shares to TC

80. Immediately after the transfer of property by DC to Newco as described in Paragraph 74, DC will transfer all of the Newco Common Shares to TC in consideration for TC Preferred Shares having an aggregate FMV at that time equal to the aggregate FMV of the Newco Common Shares so transferred to TC. TC will jointly elect with DC, in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of the Newco Common Shares to TC. The agreed amount in the election will equal the ACB to DC of the Newco Common Shares.

TC will add to the stated capital maintained for the TC Preferred Shares of its capital stock, an amount that will not exceed the agreed amount. For greater certainty, the increase to the stated capital of the TC Preferred Shares of the capital stock of TC issued to DC will not exceed the maximum amount that could be added to the PUC of the shares, pursuant to subsection 85(2.1).

Cross-Redemption

81. Immediately following the transfer of the Newco Common Shares described in Paragraph 80, on a contemporaneous basis:

a) DC will redeem all of the DC New Preferred Shares1 owned by TC for an amount equal to the DC PS1 Redemption Amount. In satisfaction of the DC PS1 Redemption Amount, DC will issue to TC a promissory note, payable to TC on demand without interest or fixed terms of repayment, having a principal amount equal to the aggregate DC PS1 Redemption Amount (the “DC Redemption Note”). TC will accept the DC Redemption Note in full payment of the redemption price of DC New Preferred Shares1 owned by TC; and

b) TC will redeem all the TC Preferred Shares owned by DC for an amount equal to the TC Redemption Amount. In satisfaction of the TC Redemption Amount, TC will issue a promissory note, payable to DC on demand without interest or fixed terms of repayment, having a principal amount equal to the aggregate TC Redemption Amount (the “TC Redemption Note”). DC will accept the TC Redemption Note in full payment of the redemption price of the TC Preferred Shares owned by DC.

Set-Off

82. Immediately following the transactions described in Paragraph 81, the principal amount owing by DC to TC under the DC Redemption Note and the principal amount owing by TC to DC under the TC Redemption Note will be set off in full against each other and each such note will be marked “paid in full” and cancelled.

Public Spin-off

83. Foreign Pubco will distribute the shares of the capital stock of Foreign Spinco Parent pro-rata to the shareholders of Foreign Pubco as a dividend in kind (the “Spin-off”).

ADDITIONAL INFORMATION

84. No property has been or will become the property of DC or its subsidiaries, and no liabilities have been or will be incurred by DC or its subsidiaries, in contemplation of and before the transfer described in Paragraph 80, otherwise than as described herein.

85. As part of the series of transactions or events that includes the Proposed Transactions, the Taxpayer and the Foreign Pubco Group do not intend to cause:

a) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);
b) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);
c) an acquisition in the circumstances described in subparagraph 55(3.1)(b)(iii).

86. At no time, during the course of a series of transactions that includes the dividends described in this Ruling, will:

a) 10% or more of the FMV of the Foreign Spinco Parent common shares be derived from the DC New Preferred Shares1 or the TC Common Shares; and

b) the shares of the capital stock of Foreign Pubco, Forco1, Forco2, Forco3, Forco4, Forco5, Forco6, Forco7, Forco8 and DC Parent be acquired by any person or partnership who was not related to the vendor or as part of the series, ceased to be related to the vendor (taking into consideration paragraph 55(3.2)(c), if applicable).

For greater certainty, the Proposed Transactions will be part of the same series of transactions.

87. None of the corporations referred to herein is or will be, at any time prior to the completion of the Proposed Transactions described herein:

a) a corporation described in any of paragraphs (a) to (f) of the definition of “financial intermediary corporation” in subsection 191(1);
b) a “restricted financial institution” as defined in subsection 248(1); or
c) a “specified financial institution” as defined in subsection 248(1).

88. None of the shares of the capital stock of DC, Newco or TC has been or will be, at any time prior to the completion of the Proposed Transactions described herein:

a) the subject of any undertaking that is referred to in subsection 112(2.2) as a “guarantee agreement”;
b) a share that is issued or acquired as part of a transaction, event or series of transactions or events of the type described in subsection 112(2.5); or
c) the subject of a dividend rental arrangement.

89. The Proposed Transactions will not result in DC or a related person described herein being unable to pay its existing tax liabilities.

90. Each of DC and TC will have the financial capacity to honour, upon presentation for payment, the amount payable under the promissory note issued by it as part of the Proposed Transactions.

PURPOSES OF THE PROPOSED TRANSACTIONS

91. XXXXXXXXXX

RULINGS GIVEN

Provided that the preceding statements constitute complete and accurate disclosure of all the relevant Facts, Proposed Transactions, Additional Information and Purposes of the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described above, our rulings are as follows:

A. The provisions of section 86 will apply to the exchange by Foreign Pubco of the DC Shares, as described in Paragraph 60.

As a result, the proceeds of disposition in respect of the DC Preferred Shares exchanged and the total cost to Foreign Pubco of the shares received as consideration for the DC Preferred Shares will be deemed to be equal to the ACB to Foreign Pubco of the DC Preferred Shares before the exchange (the cost of each class received as consideration for the DC Preferred Shares being determined according to paragraph 86(1)(b)). The proceeds of disposition in respect of the DC Common Shares exchanged and the total cost to Foreign Pubco of the shares received as consideration for the DC Common Shares will be deemed to be equal to the ACB to Foreign Pubco of the DC Common Shares before the exchange (the cost of each class received as consideration for the DC Common Shares being determined according to paragraph 86(1)(b)).

B.

(a) The provisions of paragraph 212.1(1)(a) or subsection 84(1) will not apply to deem a dividend to be paid by TC or to be received by Foreign Pubco nor Foreign Spinco Parent as a result of the Three-Party Exchange described in Paragraph 66;

(b) the provisions of paragraph 212.1(1)(b) will apply to reduce the PUC of the TC Common Shares that TC issued to Foreign Spinco Parent to an amount equal to the PUC, immediately before the transfer, of the DC New Preferred Shares1 that Foreign Pubco transferred to TC described in Paragraph 66b) if the PUC of those TC Common Shares exceeds the PUC of those DC New Preferred Shares1; and

(c) the aggregate ACB to TC of the DC New Preferred Shares1 that TC acquired from Foreign Pubco on the Three-Party Exchange described in Paragraph 66b) will be equal to the aggregate FMV of those shares at the time of their acquisition by TC.

C. Upon filing the appropriate elections, the provisions of subsection 85(1) will apply to:

(a) the transfer by DC of eligible property to Newco described in Paragraph 74; and

(b) the transfer by DC of the Newco Common Shares to TC described in Paragraph 80,

such that the agreed amount in respect of each transfer of eligible property will be deemed to be the transferor’s proceeds of disposition and the transferee’s cost thereof by virtue of paragraph 85(1)(a). In respect of depreciable property, to the extent that the transferor’s capital cost exceeds the transferor’s proceeds of disposition of the property, the transferee’s capital cost of each such property will be determined in accordance with subsection 85(5). For greater certainty, the provisions of paragraph 85(1)(e.2) will not apply to the transfers of property described in Ruling C (a) and (b).

For the purpose of the transfer described in Ruling C (a) above, the reference in subparagraph 85(1)(e)(i) to “the undepreciated capital cost to the taxpayer of all property of that class immediately before the disposition” shall be interpreted to mean the portion of the undepreciated capital cost of all property of that class immediately before the transfer that the FMV of the assets of that class transferred to Newco is of the FMV of all assets of that class.

D. Subsection 84(3) will apply:

(a) on the redemption, as described in Paragraph 81a), of the DC New Preferred Shares1 owned by TC, to deem DC to have paid, and TC to have received; and

(b) on the redemption, as described in Paragraph 81b), of the TC Preferred Shares owned by DC, to deem TC to have paid, and DC to have received,

a dividend on the DC New Preferred Shares1 and the TC Preferred Shares, respectively, equal to the amount, if any, by which the aggregate amount paid upon such redemption exceeds the aggregate PUC, in respect of the shares redeemed, immediately before such redemption; and any such dividend:

(c) will be included, pursuant to subsection 82(1) and paragraph 12(1)(j), in computing the income of the corporation deemed to have received such dividend;

(d) will be deductible, pursuant to subsection 112(1), by the corporation deemed to have received such dividend;

(e) will not be a dividend to which any of subsections 112(2.1), (2.2), (2.3) or (2.4) apply to deny the subsection 112(1) deduction described in (d) above;

(f) will be excluded, pursuant to paragraph (j) of the definition of “proceeds of disposition” in section 54, in determining the proceeds of disposition to the recipient corporation of the shares which are redeemed;

(g) will not be subject to tax under Part IV, except as provided in paragraph 186(1)(b); and

(h) will not be subject to tax under Part IV.1 or VI.1.

E. The provisions of subsection 112(3) will apply to reduce any loss which would otherwise be determined for the particular holder as a result of the redemption of the DC New Preferred Shares1 and the redemption of the TC Preferred Shares described in Paragraph 81.

F. By virtue of the provisions of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in Ruling D (a) and (b), provided that:

(a) 10% or more of the FMV of the Foreign Spinco Parent common shares that Foreign Pubco owns was not, at any time during the course of any series of transactions or events that includes the dividends described in Ruling D (a) and (b), derived from the DC New Preferred Shares1 or the TC Common Shares;

(b) The shares of the capital stock of Foreign Pubco, Forco1, Forco2, Forco3, Forco4, Forco5, Forco6, Forco7, Forco8 and DC Parent was not acquired by any person or partnership who was not related to the vendor or as part of the series, ceased to be related to the vendor (taking into consideration paragraph 55(3.2)(c), if applicable); and

(c) as part of the series of transactions or events that includes the dividends described in Ruling D (a) and (b) above, there is not:

(i) an acquisition of property in circumstances described in paragraph 55(3.1)(a);

(ii) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);

(iii) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii); or

(iv) an acquisition of shares of DC in the circumstances described in subparagraph 55(3.1)(b)(iii),

which has not been described herein and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).

G. The set-off and cancellation of the DC Redemption Note held by TC and the TC Redemption Note held by DC described in Paragraph 82 will not give rise to a forgiven amount and neither DC nor TC will realize any gain or incur any loss therefrom.

H. By virtue of subsection 1102(14) of the Regulations, each property which immediately before the transfer described in Paragraph 74, is depreciable property of a prescribed class or separate prescribed class of DC and which is acquired by Newco on the transfer described in Paragraph 74 will be deemed to be depreciable property of the same prescribed class or separate prescribed class of Newco.

I. Provided that the condition specified in paragraph 1100(2.2)(f) or (g) of the Regulations is satisfied, paragraph 1100(2.2)(h) of the Regulations will apply so that no amount will be included by Newco under paragraph 1100(2)(a) of the Regulations in respect of depreciable property of a prescribed class that is property acquired by Newco from DC, on the transfer described in Paragraph 74.

J. The provisions of subsections 15(1), 56(2), 56(4), 69(4) or 246(1) will not apply to any of the Proposed Transactions described in Paragraphs 30 to 83, in and of themselves.

K. The provisions of subsection 245(2) will not be applied as a result of the Proposed Transactions, in and of themselves, to redetermine the tax consequences confirmed in the rulings given above.

The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and are binding on the CRA provided that the Proposed Transactions are completed before XXXXXXXXXX.

The above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act and the Regulations which, if enacted, could have an effect on the rulings provided herein.

COMMENTS

1. We make no comment as to whether the DC Shares or the DC New Preferred Shares1 would or would not constitute taxable Canadian property.

2. Unless otherwise confirmed, nothing in this letter should be construed as implying that CRA has confirmed, reviewed, made any determination, or accepted any method for the determination in respect of:

(a) the PUC of any share or the ACB or FMV of any property referred to herein; or

(b) any other tax consequence relating to the facts, Proposed Transactions or any transaction or event taking place either prior to the Proposed Transactions or subsequent to the Proposed Transactions, whether described in this letter or not, other than those specifically described in the rulings given above.

Nothing in this letter should be construed as confirmation, express or implied, that, for the purpose of any of the rulings given above, any adjustment to the FMV of the properties transferred or the redemption amount of the shares issued as consideration, whether pursuant to a price adjustment clause or otherwise, will be effective retroactively to the time of the transfer and issuance of shares. Furthermore, none of the rulings given in this letter are intended to apply to or in the event of the operation of a price adjustment clause, since such adjustment will be due to circumstances that do not constitute proposed transactions that are seriously contemplated. The general position of the CRA with respect to price adjustment clauses is stated in Interpretation Bulletin IT-169.

An invoice for our fees in connection with this ruling request will be forwarded to you under separate cover.

Yours truly,

XXXXXXXXXX
for Division Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch