Classic Transfer Pricing Case: Canada v. General Electric Capital Canada Inc. 2010 (Part III)By Robert Robillard - 2 June 2014
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In Canada v. General Electric Capital Canada Inc., 2010 FCA 344 (CanLII), the Federal Court of Appeal maintains the decision of the Tax Court of Canada. The assessments against CANCO are vacated. The guarantee fees paid to USCO does “not exceed the amount which a person dealing at arm’s length person would have paid in similar circumstances.”
“ This is an appeal from a decision by Hogan J. of the Tax Court of Canada (the Tax Court Judge), vacating assessments issued by the Minister of National Revenue (the Minister) against General Electric Capital Canada Inc. (the respondent) pursuant to Parts I and XIII of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp) (the Act) with respect to its 1996 to 2000 taxation years. The Part I assessments denied the full amount of the deductions claimed by the respondent in computing its income with respect to fees paid to General Electric Capital US (GECUS), its parent company, for guaranteeing its capital market borrowings on the basis that such fees would not have been paid by an arm’s length party for the guarantee provided. The Part XIII assessments reflect consequential adjustments which result from the fees being deemed to be dividends in the hands of GECUS for purposes of Part XIII in such circumstances.  This case concerns the application of the now repealed subsection 69(2) and paragraphs 247(2)(a) and (c) which replace it. These provide the Minister with the authority to make transfer pricing adjustments where, inter alia, a taxpayer has paid to a non-resident person with whom it is not dealing at arm’s length as payment for property or services an amount greater than the amount which a person dealing with an arm’s length purchaser would have paid.  The Tax Court Judge found as a fact that the guarantee fees paid by the respondent to GECUS did not exceed the amount which a person dealing at arm’s length person would have paid in similar circumstances. He therefore vacated the assessments.  The Crown contends that in so holding the Tax Court Judge committed a number of legal and factual errors. It asks this Court to allow the appeal on the basis that an arm’s length party would not have paid the guarantee fee since it provided no value. Alternatively, it contends that the behaviour of the Tax Court Judge at trial was such as to give rise to a reasonable apprehension of bias against it. It asks that the matter be remitted for a new trial before a different judge.  For the reasons which follow, I am of the view that the appeal should be dismissed.”
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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