Tax Treaty Case: Prevost Car Inc. v. Canada, 2009 FCA 57

By Robert Robillard - 22 December 2014


In Prévost Car Inc. v. Canada, [2010] 2 FCR 65, 2009 FCA 57 (CanLII): 

“[1] Décary J.A.: At issue in this appeal is the interpretation of the terms “beneficial owner”, “bénéficiaire effectif”, in Article 10, paragraph 2 of the Convention between Canada and the Kingdom of the Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, S.C. 1986, c. 48, Schedule I [see also [1987] Can. T.S. No. 23], as amended [by S.C. 1994, c. 17, Sch. VII, Art. II; 1997, c. 38, Sch. 6, Art. I (see also [1994] Can. T.S. No. 32 and [1999] Can. T.S. No. 3)] (the Tax Treaty). The Tax Treaty came into force on November 27, 1986 and was based on the Organization for Economic Co-operation and Development (OECD) Model Double Taxation Convention on Income and on Capital (1977) (Model Convention).

[2] The context in which the issue is raised is that of a payment of dividends by a resident Canadian corporation, Prévost Car Inc. (Prévost or the respondent) to its shareholder Prévost Holding B.V. (Prévost Holding), a corporation resident in the Netherlands, which in turn paid dividends in substantially the same amount to its corporate shareholders, Volvo Bussar Corporation (Volvo), a resident of Sweden and Henlys Group plc (Henlys), a resident of the United Kingdom.

[3] Should Prévost Holding be found to be the beneficial owner, the rate of withholding tax by virtue of subsections 212(1) and 215(1) [as am. by S.C. 2001, c. 17, s. 174] of the Income Tax Act [R.S.C., 1985 (5th Supp.), c. 1] and in accordance with Article 10 of the Tax Treaty would be 5%. Should Volvo and Henlys be found to be the beneficial owners, subsection 215(1) of the Act would have required Prévost to withhold 25% (reduced to 15% in the case of the dividend paid to Volvo because of the Canada-Sweden Tax Treaty [Convention between Canada and Sweden for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, S.C. 1997, c. 38, Sch. I (see also [1997] Can. T.S. No. 32)] and 10% in the case of the dividend paid to Henlys because of the Canada-U.K. Tax Treaty [Convention between the Government of Canada and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains, S.C. 1980-81-82-83, c. 44, Sch. X (see also [1980] Can. T.S. No. 25)]).

[4] In a judgment cited as 2008 TCC 231 (CanLII), [2008] 5 C.T.C. 2306, the Associate Chief Justice Rip (as he then was) found that the beneficial owner was Prévost Holding.

[5] The relevant facts have been canvassed at length in the reasons for judgment of the Tax Court of Canada. They need not be repeated here.

[6] Counsel for the Crown argues that the Judge has used an incorrect approach in his interpretation of the term “beneficial owner” and in the end committed a palpable and overriding error in finding that Prévost Holding was, in the circumstances of this case, the beneficial owner.

[..] [12] I therefore reach the conclusion, that for the purposes of interpreting the Tax Treaty, the OECD Conduit Companies Report (in 1986) as well as the OECD 2003 amendments to the 1977 Commentary are a helpful complement to the earlier Commentaries, insofar as they are eliciting, rather than contradicting, views previously expressed. Needless to say, the Commentaries apply to both the English text of the Model Convention (beneficial owner) and to the French text (bénéficiaire effectif).”

No error in fact or in law were demonstrated. The appeal was dismissed.

To see the full tax treaty case click here. Aussi disponible en français sur ce lien.

Prévost Car Inc. v. Canada, [2010] 2 FCR 65, 2009 FCA 57 (CanLII)

Prévost Car Inc. c. Canada, [2010] 2 RCF 65, 2009 CAF 57 (CanLII)

Robert Robillard, CPA, CGA, MBA, M.Sc. Econ.
Transfer Pricing Chief Economist, RBRT Inc.
514-742-8086; robert.robillard “at”

RBRT Inc. is all about transfer pricing. We specialize in transfer pricing, tax treaties and other international tax matters. Our services include transfer pricing documentation (transfer pricing policies and procedures, BEPS and C-doc), transfer pricing dispute resolution, tax treaty matters including double tax relief, tax treaty-based returns and waivers, advanced pricing agreement (APA), value chain management and TP planning, transfer pricing training. The information in this blog post is general information only. Data and information come from sources believed to be reliable but complete accuracy cannot be guaranteed. RBRT Inc. and the author are not responsible or liable for any error, omission or inaccuracy in such information. Readers should seek tax advice and tax counsel from RBRT Inc. as required.