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The Tax Court confirmed Part XIII withholding tax and penalties on rental payments to a UK company, finding it was the beneficial owner and not an agent for Norway.
The continuance of DAC to the British Virgin Islands, combined with the prior rollover, was an avoidance transaction that abused the object, spirit and purpose of subsection 250(5.1) and the anti-deferral measures in sections 123.3 and 123.4 because it was used to circumvent Parliament’s objective of preventing tax deferral on investment income earned through a CCPC; accordingly the GAAR applies and the Minister’s reassessment denying the tax benefit is authorized.
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The court held that RCA contributions formed part of the appellants’ gross compensation under their employment contracts, must be allocated between jurisdictions under the source-by-source rule (40% Canada), and only then may the RCA exclusion in subparagraph 6(1)(a)(ii) be applied against the Canadian-source portion; accordingly the reassessments were set aside and referred back with specified Canadian taxable employment incomes.
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Applying Rule 147(3) factors collectively, the court found the Respondent wholly successful, with substantial amounts in issue, important and complex treaty issues, and significant volume of work; however a near-full indemnity (92%) was unreasonable. The court therefore awarded a reasonable partial indemnity contribution of $300,000 toward the Respondent's legal fees and allowed $11,812.37 for the expert who filed a report and testified but disallowed the disbursement for the non-testifying expert.
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The Court, exercising its Rule 147 discretion on a reasonable partial indemnity basis, found HWLH entitled to a contribution to its legal fees because of its success, the substantial amounts in issue, importance and novelty of the issues, and the volume and complexity of work; the court declined the Crown's proposed duplicative reductions, disallowed $32,547.56 of counsel fees for preparing HWLH's costs submissions to be taxed under the Tariff, rejected deductions for successful voir dire work and fees of David Weekes, and awarded a lump sum contribution of $700,000 for legal fees while remit…
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Tax Court judgment on Part XIII withholding, treaty relief, beneficial ownership, and GAAR in a cross-border dividend structure involving Luxembourg and Barbados entities.
The motion to hold the appeal in abeyance was dismissed because the appellant failed to show compelling reasons: the MAP request had been denied, the risk of future double taxation affecting the appealed years was speculative and limited, and it was premature to delay the tax appeals; the Court ordered the parties to file a joint timetable to proceed in parallel.
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The Federal Court of Appeal held that the Tax Court did not err in law or procedure: the Minister's application of the treaty provision to find a deemed permanent establishment was upheld, the Tax Court properly heard and understood the appellant's arguments, correctly ruled on admissibility of new evidence, and there was no breach of procedural fairness; therefore the appeal is dismissed.
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The Court allowed the appeal, holding that the US withholding taxes paid by Emergis were taxes on interest paid by USGP and cannot reasonably be regarded as taxes paid in respect of income from shares of the foreign affiliate LLC; s.20(12)'s text does not displace corporate separateness and, on text, context and purpose, Emergis is entitled to deduct the withholding taxes under s.20(12).
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On the evidence the Minister failed to prove the alleged misrepresentations for 2008–2011 and failed to establish they were attributable to neglect, carelessness or wilful default; many contested transfers were repayments or intercorporate loans and some amounts were assessed in incorrect taxation years; accordingly the extended reassessments and all assessed penalties were not justified and the reassessments are vacated.
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