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that varying the dollar amounts involved in the various
steps by a significant amount (say $1 million) will
help reduce exposure. The actual amounts to be paid
will be determined after final projections are com-
pleted. It is our understanding from previous conver-
sations with Doug Saunders that this transaction will
avoid the Canadian withholding tax.
On June 15, 1993, the June 15, 1993 memorandum was sent by
facsimile to Mr. Wettlaufer. On June 24, 1993, a copy of the
June 15, 1993 memorandum was sent by facsimile to Mr. Saunders
who was in Paris, France.
After reviewing the June 15, 1993 memorandum, Mr. Saunders
suggested certain changes to the steps of the proposed transac-
tion outlined in that memorandum. Mr. Saunders suggested that,
instead of contributing cash to ITC, petitioner should purchase
preferred stock from ITC and ITC should redeem that preferred
stock. Mr. Saunders made that suggestion because he was con-
cerned that the contribution of cash described in the June 15,
1993 memorandum would not result in paid-in capital for Canadian
withholding tax purposes. In that event, the payment of a
dividend by ITC to petitioner would have the undesirable result
of triggering the imposition of such a tax.
Mr. Bond prepared a memorandum to petitioner’s tax file
dated June 28, 1993 (June 28, 1993 file memorandum). That
memorandum incorporated the suggestion made by Mr. Saunders to
avoid imposition of the Canadian withholding tax. The June 28,
1993 file memorandum stated in pertinent part:
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