The following are my notes on an international tax update from Steven Suarez given at an OBA taxation law presentation on September 22, 2020 (“Advising your clients amidst financial uncertainty: Summer 2020 tax developments”)
For the paper, see ~\Knowledge\Seminar materials\2020 09 22 OBA summer update
Cameco 2020 FCA 112, aff’g 2018 TCC 195
See Tax Notes Int’l Nov 26 201 p 877 re TCC decision. FCA reviewed in 2523 Tax Topics (July 14, 2020).
CRA will apply for leave to SCC? Probably.
Gov’t doesn’t like this result.
See Agracity Ltd. 2020 TCC 91. Similar result as in Cameco.
TCC decision
800 pages! (Probably just 800 paragraphs)
CESA was Euro sub of Cameco (Cdn corporation). CESA took risk of changes in uranium prices.
FA rules contemplate foreign sales subs for selling to 3d parties outside Canada.
TCC. Sham? para 603. Owen: No. Some conduct not consistent with contracts, but de minimis. It’s not a standard of perfection.
247(2)(b) and (d). 2 elements. 1. Series of transactions would not have been undertaken at arm’s length. 2. Done for tax benefit.
Owen: choice of series overly broad so that no comparable circumstances. Para 714. Ok for parent to give up business opportunity to sub if parent fairly compensated. Consistent with FA regime.
247(2)(a) and (c). “Normal” transfer pricing. Expert evidence. Crown says nothing should be allocated to CESA. Owen accepted expert evidence of taxpayer. CESA took real risk. Crown is using hindsight.
FCA
Crown didn’t try sham at the FCA. But used other two arguments.
Para 43-44 re 247(2)(b).
Can’t ignore legal agreements (if parties act in accordance with their documents). Then apply 247. 247 as written does not have OECD focus on economics.
FA rules must be used as context.
S 247 not intended to force multinationals to behave as if each is a standalone entity. Rather, just want to ensure that Cdn members do not pay too much or too little for goods or servies with foreign related parties.
If CRA wants a different rules, it needs a different law.
Multilateral Instrument
Came out of BEPS process.
Country can amend multiple treaties with one instrument. Canada did that Aug 29/19 designated 84 tax treaties. Not covered US (it didn’t sign MLI), Switzerland and Germany. Entered into force Dec 1/19.
Applicable to withholding taxes as of Jan 1/20. So applies to Lux, Netherlands, UK, Ireland, Singapore.
For other items, for tax years beginning after May 31/20.
Minimum standards on treaty abuse. Principal purpose test and/or limitation of benefits test.
Mandatory binding arbitration.
Art 6(1) Treaties not just about double taxation. Also to reduce evasion or treaty shopping.
Art 7(1) Principal purpose test (PPT). Now applies to a covered tax treaty.
Cap gains will be governed by PPT.
More resources. See slide 20.
