Classic Transfer Pricing Case: General Electric Capital Canada Inc. v. The Queen 2009 (Part II)By Robert Robillard - 28 May 2014
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In General Electric Capital Canada Inc. v. The Queen, 2009 TCC 563 (CanLII), the CRA assessment was vacated : the guarantee fee is equal or below an arm’s length price.
“ GE Capital US (“GECUS”) charged the Appellant a fee for guaranteeing its debts owing to third-party creditors. The Appellant deducted that fee in respect of its 1996 to 2000 taxation years. The Minister of National Revenue (the “Minister”) reassessed the Appellant, denying the deduction of the fee and adding Part XIII withholding tax because he believed the Appellant received no economic benefit from the guarantee and, as a result, the “arm’s length” price for the guarantee would be zero. Part XIII tax is charged on the basis that the payment of the fee is deemed to be a dividend. The issue to be determined by this Court is whether the “arm’s length” price for the service is at least 100 basis points (the Appellant’s position) or zero (the Minister’s position).”[…]  I am of the view that a 1% guarantee fee is equal to or below an arm’s length price in the circumstances, as the Appellant received a significant net economic benefit from the transaction. The net economic benefit exceeds the 1.83% calculated under the yield approach. Without a guarantee, the Appellant would have been unable to procure standby letters of credit in an amount sufficient to cover its commercial paper program. It is undisputed that the Appellant did not reimburse GECUS for the costs incurred by the latter under its standby facility. The Appellant would have been unable, in the absence of the guarantee, to execute its business plan, as the Canadian commercial paper market was geared to the highest investment-grade issuers.”
Robert Robillard, CPA, CGA, MBA, M.Sc. Econ.
Transfer Pricing Chief Economist, RBRT Inc.
514-742-8086; robert.robillard “at” rbrt.ca
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