Two Petitioners, Laidlaw Transportation, Inc. Essay

992 Words Jul 20th, 2015 4 Pages
Facts: Two petitioners, Laidlaw Transportation, Inc. (LTI) and Laidlaw Industries, Inc. (LII), received $975,153,806 advances from a related Dutch corporation, Laidlaw International Investments B.V. (LIIBV) during the years in the issue. And petitioners paid $133,515,459 interests to LIIVB in these years and claimed that the advances they received are debt so that they could deduct the interest expense on their tax return. However, the IRS determined the LIIBV advances should be equity rather than debt and the petitioners cannot deduct the $133,515,459 as interest.

These three corporations were direct or indirect U.S. subsidiaries of Laidlaw Transportation, Inc. (LTL), a Canadian corporation holding international interest in bus transportation and waste disposal business. In order to expand its presence, LTL acquired a lot of privately held business in bus transportation or waste disposal service. In addition to compete with its competitors in the US market, LTL also developed a cross-border intercompany loan plan to finance these acquisitions and benefited from the “double deduction” of interest expense in both Canadian and the U.S. The plan involved the formation of a Canadian subsidiary LIL wholly-owned by LTL and a Netherlands subsidiary LIIBV of LIL. It was operated that (1) LTL would borrow money to invest LIL so that LTL can deduct the interest it paid; (2) LIL would transfer these funds to LIIBV as a capital contribution and an interest-free loan; (3) LIIBV would…

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