Basic repaint test for squashed layers. The entire squashing layer should not need repainting when only a portion of it is invalidated. Test interactively by using --show-paint-rects and hovering over elements to change their color.

CASE 1, original layer tree:
{
  "layers": [
    {
      "name": "Scrolling Contents Layer",
      "bounds": [800, 600],
      "contentsOpaque": true,
      "backgroundColor": "#FFFFFF"
    },
    {
      "name": "LayoutBlockFlow (positioned) DIV class='composited'",
      "bounds": [100, 100],
      "contentsOpaque": true,
      "backgroundColor": "#808080",
      "transform": 1
    },
    {
      "name": "Squashing Layer (first squashed layer: LayoutBlockFlow (positioned) DIV id='A' class='overlap1')",
      "position": [80, 80],
      "bounds": [260, 260],
      "transform": 1
    }
  ],
  "transforms": [
    {
      "id": 1,
      "transform": [
        [1, 0, 0, 0],
        [0, 1, 0, 0],
        [0, 0, 1, 0],
        [60, 60, 0, 1]
      ]
    }
  ]
}

CASE 2, overlap1 changes color:
{
  "layers": [
    {
      "name": "Scrolling Contents Layer",
      "bounds": [800, 600],
      "contentsOpaque": true,
      "backgroundColor": "#FFFFFF"
    },
    {
      "name": "LayoutBlockFlow (positioned) DIV class='composited'",
      "bounds": [100, 100],
      "contentsOpaque": true,
      "backgroundColor": "#808080",
      "transform": 1
    },
    {
      "name": "Squashing Layer (first squashed layer: LayoutBlockFlow (positioned) DIV id='A' class='overlap1')",
      "position": [80, 80],
      "bounds": [260, 260],
      "invalidations": [
        [0, 0, 100, 100]
      ],
      "transform": 1
    }
  ],
  "transforms": [
    {
      "id": 1,
      "transform": [
        [1, 0, 0, 0],
        [0, 1, 0, 0],
        [0, 0, 1, 0],
        [60, 60, 0, 1]
      ]
    }
  ]
}

CASE 3, overlap1 and overlap2 change color:
{
  "layers": [
    {
      "name": "Scrolling Contents Layer",
      "bounds": [800, 600],
      "contentsOpaque": true,
      "backgroundColor": "#FFFFFF"
    },
    {
      "name": "LayoutBlockFlow (positioned) DIV class='composited'",
      "bounds": [100, 100],
      "contentsOpaque": true,
      "backgroundColor": "#808080",
      "transform": 1
    },
    {
      "name": "Squashing Layer (first squashed layer: LayoutBlockFlow (positioned) DIV id='A' class='overlap1')",
      "position": [80, 80],
      "bounds": [260, 260],
      "invalidations": [
        [80, 80, 100, 100],
        [0, 0, 100, 100]
      ],
      "transform": 1
    }
  ],
  "transforms": [
    {
      "id": 1,
      "transform": [
        [1, 0, 0, 0],
        [0, 1, 0, 0],
        [0, 0, 1, 0],
        [60, 60, 0, 1]
      ]
    }
  ]
}

CASE 4, overlap2 and overlap3 change color:
{
  "layers": [
    {
      "name": "Scrolling Contents Layer",
      "bounds": [800, 600],
      "contentsOpaque": true,
      "backgroundColor": "#FFFFFF"
    },
    {
      "name": "LayoutBlockFlow (positioned) DIV class='composited'",
      "bounds": [100, 100],
      "contentsOpaque": true,
      "backgroundColor": "#808080",
      "transform": 1
    },
    {
      "name": "Squashing Layer (first squashed layer: LayoutBlockFlow (positioned) DIV id='A' class='overlap1')",
      "position": [80, 80],
      "bounds": [260, 260],
      "invalidations": [
        [160, 160, 100, 100],
        [80, 80, 100, 100]
      ],
      "transform": 1
    }
  ],
  "transforms": [
    {
      "id": 1,
      "transform": [
        [1, 0, 0, 0],
        [0, 1, 0, 0],
        [0, 0, 1, 0],
        [60, 60, 0, 1]
      ]
    }
  ]
}

CASE 5, overlap3 and overlap1 change color:
{
  "layers": [
    {
      "name": "Scrolling Contents Layer",
      "bounds": [800, 600],
      "contentsOpaque": true,
      "backgroundColor": "#FFFFFF"
    },
    {
      "name": "LayoutBlockFlow (positioned) DIV class='composited'",
      "bounds": [100, 100],
      "contentsOpaque": true,
      "backgroundColor": "#808080",
      "transform": 1
    },
    {
      "name": "Squashing Layer (first squashed layer: LayoutBlockFlow (positioned) DIV id='A' class='overlap1')",
      "position": [80, 80],
      "bounds": [260, 260],
      "invalidations": [
        [160, 160, 100, 100],
        [0, 0, 100, 100]
      ],
      "transform": 1
    }
  ],
  "transforms": [
    {
      "id": 1,
      "transform": [
        [1, 0, 0, 0],
        [0, 1, 0, 0],
        [0, 0, 1, 0],
        [60, 60, 0, 1]
      ]
    }
  ]
}