LITIGATION – CORPORATE TAXOVERVIEW
Corporate tax litigation is generally understood to involve representing corporate clients in connection with disputes involving tax authorities. Counsel practising in this area represent clients in disputes involving:
- the taxation of commercial transactions or agreements;
- the taxation of particular corporate structures, reorganizations, etc;
- industry-specific taxation;
- particular types of tax, such as GST, withholding, etc;
- tax planning or estate/trust structures for high net worth individuals;
- the determination of proper tax jurisdiction or challenges to the exercise of purported tax jurisdictions; and
- international tax matters such as transfer pricing.
Several developments during the year are worthy of special attention.A. GST Reassessments
In August 2010, the Federal Court of Canada denied a motion by the CRA to strike a taxpayer's application for a writ of prohibition preventing a reassessment.
In Tele-Mobile Company Partnership v. Canada Revenue Agency, the CRA sought to reassess GST on international roaming fees charged by Telus and associated companies since 2004. While acknowledging that an actual reassessment decision could only be appealed to the Tax Court of Canada, the Federal Court determined that unlike under the Income Tax Act, the Excise Tax Act grants the Minister discretion in determining whether to conduct an assessment or reassessment. The exercise of that discretion was, in the view of the Court, subject to judicial review.
The Federal Court of Appeal allowed the CRA's appeal. The Court observed that granting prohibition would force the Minister to forgive a tax liability solely because of alleged hardships to the taxpayer, and that the Court could not do.B. Non-Discrimination Clauses in Tax Treaties
The prevention of discriminatory taxation is an important feature of tax treaties. Until September of 2011, however, a Canadian court had yet to deal materially with the non-discrimination article of Canada's bilateral tax treaties.
The first ruling, from the Tax Court of Canada, came in Saipem UK Limited v. The Queen. The issue was whether the limitation on the deductibility of carry-forward losses in subsection 88 (1.1) of the Income Tax Act was discriminatory because it only applied to parent companies who were 90 per cent Canadian-owned.
The Court ruled that the provision was not discriminatory as it did not discriminate strictly on nationality. The residence of the taxpayers was one of the factors that had to be taken into account when determining whether discrimination existed.
The court ruled that the equal treatment principles only applied to the taxation of the business activities of the permanent establishment in question. It did not, however, extend to provisions that took into account the relationship between an enterprise and other enterprises and that allowed the transfer of losses.C. Limitation Periods
In June 2011, the Federal Court of Appeal ruled that taxpayers can apply to have interest owing under the Income Tax Act cancelled so long as the interest has accrued within 10 years of the taxpayer's application. The Court's ruling in Bozzer v. The Queen rejected the interpretation put forward by the Minister of National Revenue, which would have had the 10-year limitation period found in ss. 220(3.1) of the Income Tax Act calculated from the end of the taxation year in which the underlying tax debt arose.