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Goodmans Publications

A Continental Divide

February-3-2021

Lawyer Aida Kimiagar, Mitchell Sherman
Area Tax

Summary

Excerpt from “A Continental Divide”, XXIII(2) Corporate Finance (Federated Press) 2-6 (2020), Mitchell Sherman and Aida Kimiagar

Pangaea, which derives from the Greek word meaning “all the earth”, is the name given to the super-continent that encompassed almost all of the earth’s land mass some 300 million years ago. Pangaea One is the name of the taxpayer in the recent decision1 of the Federal Court of Appeal (FCA) which considered the application of section 56.4 of the Income Tax Act (Canada).2 Pangaea, the super-continent, divided into two pieces and then created what eventually became the continents of today’s world. Ironically, the aptly-named taxpayer also divided its consideration from a sale transaction into two pieces, and as a consequence suffered Canadian withholding tax3 that should not otherwise have applied to the transaction. The creation and subsequent division of Pangaea shaped modern civilization and profoundly affected much of the world’s history. Though of lesser significance in relative terms, the decision of the FCA in Pangaea One has the potential to shape, in a negative way, the tax consequences of many standard commercial transactions.

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1 Pangaea One Acquisition Holdings XII S.A.R.L. v The Queen, 2020 FCA 21 [ Pangaea One ].
2 Income Tax Act, RSC 1985, c. 1 (5th Supp.), as amended, hereinafter referred to as the Act. Unless otherwise stated, statutory references in this article are to the Act.
3 See section 212(1)(i).