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minimal income tax liabilities in The Netherlands, Canada, or the
United States.
2. Formation of LIL and LIIBV; Dutch Tax Rulings
On September 25, 1985, LTL formed LIL, a Canadian
corporation. LTL has always been the sole shareholder of LIL.9
LTL and its subsidiaries contributed equity to LIL which was its
sole source of funds during the years in issue.10
DeGroote, Haworth, and Cairns were directors of LIL from
September 25, 1985, to August 31, 1988. From September 25, 1985,
to August 31, 1988, DeGroote was president and Haworth was vice
president for finance. Cairns was vice president and secretary
from September 25, 1985, to December 10, 1987, and secretary from
December 10, 1987, to August 31, 1988. Jerry Pekaruk (Pekaruk)
was controller from September 25, 1985, to December 10, 1987.
Robert E. Duncan (Duncan) was vice president from December 10,
1987, to August 31, 1988. Haworth supervised Pekaruk and Duncan.
On December 2, 1985, Coopers & Lybrand received the first of
several Dutch tax rulings that LIL's interest-free loans to LIIBV
would be treated as capital contributions rather than profits for
purposes of Dutch income and withholding taxes.
On December 30, 1985, LIL formed LIIBV in The Netherlands as
a 100-percent owned subsidiary. LIIBV was a corporation for U.S.
9 From the time LIL was formed, LIL owned all of the stock
of LIBL, a Barbados corporation.
10 LIL also received a dividend from LIIBV in February 1988.
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