Ahead of a special dividend, Husky’s Barbados shareholders transferred a block of Husky shares to related Luxembourg companies under a securities lending agreement. The Luxembourg entities received the dividend, and the structure relied on the 5% Canada–Luxembourg treaty rate. On paper, the arrangement aligned with standard lending mechanics. In practice, the Luxembourg entities were fully hedged, provided no collateral, and passed the dividend value back to Barbados. The Federal Court of Appeal concluded that the Luxembourg companies were not the beneficial owners, and the higher Canadian withholding rate applied.
The Court compared the structure’s documented design with its real operation across jurisdictions. Full hedging, the absence of collateral, and the flow-through of dividend value showed where control and benefit rested. Differences in how the arrangement was described in Canada, Luxembourg, and Barbados contributed to a fragmented picture. Once the dispute reached the appeal stage, the interpretation often turned on how clearly the case theory aligned the documented structure with its economic operation and cross-border reporting. The economic pattern carried more weight than the labels in the agreements.
Inconsistencies across documents, operations, and cross-border reporting often expand audit scrutiny and widen the range of potential withholding outcomes. During the dispute, competing case theories shape how the arrangement’s economic reality is understood. The court chooses the case theory that fits the facts and makes the most sense of how the arrangement actually operated, and that most closely reflects control of value.
Case Reference: Husky Energy Inc. v. HMK, 2025 FCA 176