Supreme Court of Canada overturns Shell decision

Author: | Published: 1 Jan 2000

In a decision welcomed by Canadian taxpayers and their financial advisors involved in tax-motivated transactions, the Supreme Court of Canada has overturned the Federal Court of Appeal's decision in Her Majesty The Queen v Shell Canada. That decision, discussed in the November 1998 issue of the International Financial Law Review , denied Shell a portion of the tax benefit which the transaction was specifically structured to achieve.

The facts, in brief, were as follows. In 1988, Shell required $100 million for general corporate purposes. To obtain these funds at the lowest after-tax cost possible, Shell first borrowed New Zealand dollars at the prevailing market rate for New Zealand dollars (15.4% per annum) and then swapped these funds into US dollars. At the same time, Shell entered into a series of US dollar/New Zealand dollar forward currency transactions to fix the US dollar cost of funding the interest payments and the final principal payment on the New Zealand dollar loan....