Pascal Tétrault

The Respondent moved to amend its replies in two appeals to add a repricing argument under section 247(2) of the Income Tax Act, while the Appellant moved to stay a third related appeal pending a judicial review application.

The Tax Court dismissed the Respondent's motion to amend without prejudice, finding that the proposed amendment pleading a zero percent interest rate between arm's length parties disclosed no reasonable prospect of success and lacked necessary factual particulars.

The Court also dismissed the Appellant's motion for a stay, concluding that the interests of justice favoured having all related appeals proceed together.

The Respondent moved to amend its Amended Reply to add an alternative transfer pricing argument under paragraphs 247(2)(a) and (c) of the Income Tax Act.

The Tax Court granted the motion, finding that the amendment would assist in determining the real questions in controversy and would not cause non-compensable prejudice to the Appellant.

The Appellant was awarded costs for the motion and any additional pre-trial steps required.

The appellant limited partnership claimed input tax credits (ITCs) for expenses incurred by a related real estate investment trust (REIT) during public offerings and property acquisitions.

The Minister disallowed the ITCs on the basis that the expenses were incurred by the REIT, not the appellant.

The Tax Court of Canada allowed the appeal in part, finding that while the appellant could not claim ITCs for expenses related to the REIT's public offerings, it was entitled to ITCs for expenses related to property acquisitions and valuations, as the REIT acted as the appellant's agent for those purposes.

The appellant, having been successful in its appeal, sought costs on a partial indemnity basis.

The appellant requested a lump sum of $946,098, representing 50% of its legal fees plus disbursements.

The respondent argued for a much lower amount, suggesting $145,200 for legal fees based on the Tariff.

The Court considered the factors under section 147 of the Tax Court of Canada Rules (General Procedure), including the substantial amount in issue, the importance and complexity of the issues, and the volume of work.

The Court awarded the appellant $575,000 in legal fees, with disbursements to be determined by the taxing officer, excluding a specific disbursement for discovery counsel.

Following a successful appeal, the appellant sought costs on a partial indemnity basis.

The respondent argued for a significant reduction in the costs award, citing duplication of efforts with related appeals and unnecessary steps taken by the appellant.

The Tax Court of Canada rejected the respondent's arguments, finding that the appellant was entitled to pursue its own appeal and that the volume of work was justified by the complexity of the issues.

The Court awarded the appellant $700,000 in legal fees, plus disbursements to be taxed.

Following the dismissal of the appellant's appeal, the parties made written submissions on costs.

The respondent sought a lump sum of $538,351, representing 75% of its legal fees and disbursements.

The appellant argued this was unreasonable and proposed $271,812.37.

The Tax Court of Canada analyzed the factors under section 147 of the Rules, noting the respondent's complete success, the substantial amounts in issue, and the complexity of the beneficial ownership issues.

The Court awarded the respondent $300,000 in legal fees on a partial indemnity basis, plus $11,812.37 for expert witness disbursements.

The appeals concerned the tax consequences of dividends paid by Husky Energy Inc. to two non-resident corporations under securities lending arrangements.

The Minister assessed Husky for failing to withhold Part XIII tax at the 15% rate under the Canada-Barbados Income Tax Convention, and assessed the successor corporations of the Barbados entities for the shortfall.

The Tax Court held that the Luxembourg entities were not the beneficial owners of the dividends under the Canada-Luxembourg Income Tax Convention because they were contractually obligated to pay the dividend amounts to the Barbados entities.

Consequently, Husky was liable for Part XIII tax at the 25% rate.

However, because the Minister only assessed the Barbados successor corporations and not the Luxembourg entities, the appeals of the Barbados successor corporations were allowed and their assessments vacated.

Husky's appeal was dismissed.

The Minister reassessed the appellant under the transfer pricing rules in section 247 of the Income Tax Act, reallocating all profits earned by a related Barbados corporation from the sale of a herbicide to the appellant's income.

The Minister argued the transactions were a sham, or alternatively, that they should be recharacterised or adjusted because arm's length parties would not have entered into them or agreed to the same terms.

The Tax Court of Canada allowed the appeal, finding no evidence of deceit to support a sham.

The court held that the Barbados corporation bore real risks, owned the inventory, and performed valuable functions.

Furthermore, the appellant demolished the Minister's assumptions by providing unrefuted expert evidence that the service fee paid to the appellant was within a reasonable arm's length range.

The reassessments and associated penalties were vacated.