Marzen Artistic Aluminum Ltd. v. Canada Appeal Dismissed

Par Robert Robillard - 12 février 2016

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This is an appeal from Marzen Artistic Aluminum Ltd. v. The Queen, 2014 TCC 194.

In Marzen Artistic Aluminum Ltd. v. Canada 2016 FCA 34, the FCA wrote:

« [31] This appeal raises the following issues:

i.Whether the Judge erred in determining that terms and conditions imposed in respect of the MSSA between the appellant and SII differed from what would have been agreed to by parties dealing at arm’s length?

ii. Whether the Judge erred in finding that an arm’s length party would not have paid SII any fees in excess of the amounts allowed by the Minister plus US$32,500 had they been dealing at arm’s length?

iii. Whether the Judge erred in declining to award costs to the appellant? »

With respect to the main transfer pricing issue, the FCA indicated:

« [40] At the onset of the hearing before this Court, counsel for the respondent remarked that the appellant is now bringing forward a different theory of the case than it did before the Judge. In counsel’s view, having failed to adduce convincing evidence that Mr. Csumrik was instrumental in implementing and actually overseeing the marketing strategy, the appellant is now arguing its case on the basis that the Judge erred in under-valuing the amounts paid by SII to SWI. The respondent points out, that at trial, the appellant never disputed the Minister’s assumption that SWI provided sales and marketing staff and services to SII at an arm’s length price nor did the appellant adduce any evidence with a view of establishing a different value for these services.

[41] According to the respondent, the Judge properly applied the teachings in Glaxo. She adhered to the principle outlined in that decision that applying the arm’s length principle is a comparative exercise. The Judge was correct therefore to consider the independent interests of each party to each of the transactions and their respective roles and functions.

[…] [50] The Guidelines assist the Court in its task of ascertaining the price that would have been paid by parties dealing at arm’s length in the same circumstances. They identify and describe a number of pricing methods that can be applied to identify the arm’s length price for a given transaction.

[51] In the present appeal, the issue is fundamentally whether the Judge erred in her application of the principle outlined in paragraphs 247(2)(a) and (c) of the Act and more precisely, whether the Judge identified the proper transaction and took into account the appropriate related party contract prices.

[52] I find that it was open to the Judge, based on the evidence before her, to identify the transaction under review as the MSSA between SII and the appellant. As any transfer pricing analysis is fact driven, the appellant needed to point to an error the Judge made in the assessment of the facts leading to that determination. The appellant argued that its expert report did not dispute that the transaction under review was the MSSA but indicated that the value of the services provided to SII by SWI through the seconded US employees should also have been taken into consideration.

[53] The Judge’s finding was based on the Guidelines (see OECD Guidelines 1995 chapter 1 paragraph 1.6). I find no error on her part in that regard. More so, as I review the evidence that was before her, it is undeniable that the appellant never challenged the Minister’s assumption that the quantum of fees paid by SII to SWI were not in issue in the appeal before her. Having reviewed the record and the Notice of Appeal filed before the Tax Court, I cannot find any evidence that was adduced by the appellant in the Tax Court to challenge the Minister’s assumption that the price for the seconded US employees, set on a cost plus 10% basis, was not an arm’s length price.

The complete decision is available here.

Marzen Artistic Aluminum Ltd. v. Canada 2016 FCA 34

The library on Transfer Pricing in Canada is available here.

Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Econ., M.A.P.
Senior Partner, RBRT Inc.
514-742-8086; robertrobillard « at »

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