The Effect of Treaties on Taxpayer Liability for Canadian Inbound Taxation
Abstract
Certain income earning activities conducted in Canada, by non-residents of Canada, will attract what are known as the inbound taxation rules.?However, not all non-residents of Canada will be subject to the same rate of tax as each other, depending on their country of residency, or as a Canadian taxpayer.
While this discrepancy may seem like a failing in system design which permits creative tax avoidance
This paper provides a brief overview on what types of activities will attract inbound taxation liability, and how tax is collected for the same, which is necessary to understand the subsequent discussion on why and how taxpayers non-resident to Canada will not always be liable for the same amount of tax, either as each other, or as resident Canadians.
The focus of this paper is directed, as an explanatory discussion, towards inbound taxation; however, many of the principles applicable in inbound taxation are found throughout international taxation generally.?As such, even though a number of the cases referenced may not be specifically germane to inbound taxation, they are included nonetheless for their judicial discussion, examination, or comment on international principles that are relevant or applicable.
????I.?????????Introduction
The use of conduit corporations, or legal taxpaying entities in other countries to facilitate the obtaining of treaty benefits that would not be available directly,[1] is neither a new nor unforeseen practice in international tax strategy
When asked, the Supreme Court of Canada confirms that the Duke of Westminster principle continues to apply, and further that it applies to tax minimization arrangements
???? II.?????????Activities attracting Inbound Taxation Liability
Income earning activities conducted in a country by a non-resident trigger what are referred to as the inbound taxation rules of the country in which the income earning activities are conducted.?As such, where a non-resident of Canada earns certain types of income from a Canadian source, the non-resident may still be liable to pay tax, although different sections of the Act are likely to apply.?
The Act treats residents and non-residents differently; further, Canada’s inbound taxation system distinguishes between activities that are carried on directly versus indirectly by the non-resident taxpayer, and is made up of the provisions outlined in Part XIII and XIV, as well as those rules contained in subsection 2(3), and section 115 of Part I.[3]
Examples of activities that will attract Canadian inbound taxation liability include: the receipt of certain payments such as dividends, interest, rent, or royalties under Part XIII; certain business income activities conducted by a non-resident corporation through a branch under Part XIV; and, being “employed in Canada”, “carrying on business in Canada”, or the “disposition of taxable Canadian property”, under Part I.[4]
Through its language, Part XIII seeks to attach tax remittance obligations to income earned from Canadian sources, by those taxpayers situated outside Canada, which would be akin to the tax remittance obligations “that a person resident in Canada pays or credits, or is deemed by Part I to pay or credit”,[5] in addition to those obligations imposed throughout the balance of the Act.[6]
??? III.?????????How Tax is Collected from Non-Residents of Canada
Part XIII of the Act, which is titled, “Tax on Income from Canada of Non-Resident Persons”,[7] includes sections 212 – 218.1.?Part XIII is, relatively speaking, not one of the larger sections of the Act, but one which importantly provides the baseline framework for the amounts of taxation applicable to income earned from a Canadian source, by taxpayers who are non-residents of Canada.?
Worth noting as a technical point is that the Act does not define what constitutes ‘Canadian sourced income’ as a category unto itself, but rather, as noted above, provides for which particular income earning activities or circumstances will attract Canadian taxation liability.[8]
To expand on the foregoing, as a starting point, section 212(1) states:
Every non-resident person shall pay an income tax of 25% on every amount that a person resident in Canada pays or credits, or is deemed by Part I to pay or credit, to the non-resident person …[9]
Remembering that pursuant to the Act, the definition of a ‘person’ includes corporations,[10] Part XIII necessarily also captures non-resident corporations engaged in the same particular income earning activities from sources within Canada.
In the absence of Part XIII, many income earning activities conducted by taxpayers non-resident to Canada would likely escape Canadian tax liability all together, as the Act on the whole provides that “tax shall be paid, … on the taxable income … of every person resident in Canada”.[11] ?Notably, those income earning activities captured by section 2(3) would still cause tax liability to attach to the non-resident in accordance with Division D.[12]
Understandably, exerting legal jurisdiction over a taxpayer who is a non-resident of Canada can have its challenges; as such, Part XIII of the Act imposes upon the person who “pays, credits or provides, or is deemed to have” done the same, the obligation to “deduct or withhold from it the amount of the tax and remit [the same] … on behalf of the non-resident person”.[13]?To ensure the person on whom the aforementioned obligation is conferred, the Act goes on to stipulate that:
Where a person has failed to deduct or withhold any amount as required … from an amount paid or credited or deemed to have been [the same] to a non-resident person, that person is liable to pay tax under this Part on behalf of the non-resident person the whole of the amount that should have been deducted or withheld, …[14]
Further, the Tax Court of Canada has confirmed that:
… any income tax payable is required to be remitted forthwith at the time a person pays an amount that is subject to Part XIII.?A person liable for Part XIII tax does not have to wait until the end of the year to see what other income might be subject to Part XIII tax.?In addition, there are no deductions that are relevant in computing the Part XIII tax given that it is computed on the gross amount paid to the non-resident.
[emphasis original] [15]*
Further still, and pursuant to section 227(10)(d), “the Minister “may at any time” assess the resident of Canada for those amounts.”[16]
However, even with the language contained in Part XIII, not all non-resident taxpayers’ income earning activities in Canada will be subject to full Canadian taxation as a result of the various conventions or agreements regarding taxation Canada has entered into with other nations.?
?? IV.?????????Not all Treaty Language is the Same
When a taxpayer non-resident to Canada earns Canadian sourced income, if that taxpayer is considered to be resident of a country, by that country, with which Canada has entered into a convention or agreement regarding taxation,[17] then different or additional rules to those outlined in Part XIII may apply.?The reason for this is that pursuant to the Vienna Convention,[18] to which Canada subscribes, and the principle of pacta sunt servanda contained within, parties to a treaty must keep their side of the bargain and perform their obligation(s) in good faith.[19]?This means that where countries have agreed to a bargained for exchange, it is incumbent upon those countries to uphold that to which they have agreed, which may result in a prima facie displacement of a country’s domestic laws.?In Canada, the language contained in section 115.1 of the Act serves to incorporate Canada’s conventions or agreements regarding taxation into domestic law without limitation.[20]
While it was not always Canada’s standard practice,[21] the majority of Canada’s modern day internationally negotiated conventions or agreements regarding taxation, commonly, and hereinafter, referred to simply as tax treaties, are largely based on the OECD[22] Model Treaty,[23] and sometimes include provisions from the UN Model,[24]** with further deviations from the models being negotiated by contracting nations on a treaty by treaty basis.
As a result of Canada’s economic interdependency
Courts consider that contracting sovereign nations do so freely, and have the option to remediate certain situations in the course of negotiations, and future renegotiations.[28]?To put it another way, a treaty is not a statute, but rather a freely negotiated bargain, reflective of the intentions of the parties that drafted it.[29]
Through a negotiated agreement, it can be seen what interests each party to a negotiation places value on, or at least valued at the time the agreement was entered into, and in many instances, how much a party is or was willing to give up in order to obtain or protect a particular interest or benefit.?
As such, when the courts are asked to consider treaty provisions, a notable amount of deference will be given to the language of the particular treaty itself. ?Correspondingly, and as in other areas of law, weight may be given to the absence of language as well;[30] where language is included in the Model Treaty and other treaties, the absence of similar language in a particular treaty cannot be presumed to be as a result of neglect by Parliament to include something it otherwise intended to.[31]
Therefore, when looking at a tax treaty, different carve-outs can be understood as either encouraging or discouraging a particular activity in each of the countries party to the treaty. ?For example, in the Canada-Luxembourg Treaty,[32] “Canada effectively agreed to give up its right to tax certain entities incorporated in Luxembourg in exchange for the jobs and economic opportunities that the business property exemption would promote.”[33] ?
By way of further example, and still in reference to the Canada-Luxembourg Treaty, the Supreme Court of Canada went on to say that if “the [contracting states] truly intend to prevent such corporations from taking advantage of the business and property exemption, they could have done so.”[34]
As noted recently by the Supreme Court of Canada, in 1992, the Department of Finance stated:
… Canada has to struggle with two conflicting goals.?The goal of economic efficiency [that] argues for a system which preserves capital export neutrality … [and] the goal of competitiveness [that] argues for capital import neutrality. …
In a world where countries maintain different tax systems, it is impossible to achieve both capital import and capital export neutrality.?Accordingly, Canada has opted for a system that ensures capital export neutrality with respect to certain types of income and capital import neutrality with respect to other types of income. …
(Office of the Auditor General, at pp. 51-52) [35]
Capital import/export neutrality can be said to have been achieved when taxpayers are indifferent, from a tax perspective, as to whether their investments and revenue streams are generated or held inside or outside of Canada.[36]
As a result of some of these bargained for carve-outs Canada has agreed to, possibilities have been created for a taxpayer, usually a company,[37] situated in one country party to a tax treaty involving Canada, to act as a conduit for the economic benefit accruing to a taxpayer in another country.[38]?
The further result of such constructed situations being that the arrangement may not give rise to substantial taxation for the taxpayers’ party to the arrangement in any country, and possibly resulting in what is referred to as “double non-taxation”.[39]
???? V.?????????On Conduit Configurations
The basic set up eluded to above is effectively as follows: a company is constituted in a country which has entered into at least one tax treaty, where the treaty contains favourable clauses relating to certain characterizations of funds that may flow from its taxpayers to taxpayers of its treaty partner.?The company derives revenue, usually passively through its holdings which may or not be in the same country as the company itself. ?Located in the treaty-partner country is another taxpayer who receives the funds from the company in the original source country, where the funds are characterized according to the tax favourable treaty clauses.[40]?
If the countries followed the Model Treaty, the clauses which typically facilitate conduit taxpayer arrangements are Articles X – XIII: Dividends, Interest, Royalties, Gains.[41]?Depending on the treaty provisions between countries, any number of layers of taxpayers in any number of countries may be interpositioned to achieve the desired or intended result.
While concerns have been raised that the taxpayer who ultimately benefits from such arrangements is not entitled to it, not all such arrangements are created for nefarious tax avoidance purposes;[42] similar types of configurations appear in many bona fide structures of multinational enterprises, and transactions between related entities of them.[43]
Remembering that treaty contracting countries are each their own sovereign nation, to the extent that taxation issues may be created domestically in the other contracting country for its taxation authorities by tax treaty provisions agreed to, it is for the law-makers of that country to address those issues according to that country’s domestic laws.[44]
In Canada, the Supreme Court of Canada has continued to affirm the principle that “taxpayers are entitled to arrange their affairs to minimize the amount of tax payable”[45] remains true for all taxpayers.
In doing so, the Supreme Court of Canada has effectively provided the Canadian taxpayer with affirmation that it may continue to act with a reasonable degree of certainty on the wording provided by Parliament in the Act, and in the various treaties, as the taxpayer’s actions relate to its taxation obligations.
Ultimately, which other countries a Canadian taxpayer may find most beneficial to utilize for arranging its affairs
?? VI.?????????Interaction with the General Anti-Avoidance Rule
Pursuant to the Act:
An avoidance transaction means any transaction
(a)???that, but for this section, would result, directly or indirectly, in a tax benefit, unless the transaction may reasonably be considered to have been undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit; or
(b)???that is part of a series of transaction, which series, but for this section, would result, directly or indirectly, in a tax benefit, unless the transaction may reasonable be considered to have been undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit.[46]
and:
Where a transaction is an avoidance transaction, the tax consequences to a person shall be determined as is reasonable in the circumstance in order to deny a tax benefit that, but for this section, would result, directly or indirectly, from that transaction or from a series of transactions that includes that transaction.[47]
Colloquially referred to as the “GAAR”, the Crown may seek to rely upon section 245, including the above noted subsections, when a transaction, or series of transactions, may reasonably be considered as having been conducted for the purpose of abusive tax avoidance; notwithstanding the application of other provisions within the Act, the GAAR may be applicable to any transaction,[48] and is in no way reserved for transactions that bring international entities into play.
Further to this, and according to the Supreme Court of Canada:
Abusive tax avoidance occurs “when a taxpayer relies on specific provisions of the [Act] in order to achieve an outcome that those provisions seek to prevent” or when a transaction “defeats the underlying rationale of the provisions that are relied upon”.?Abusive tax avoidance can also occur when an arrangement “circumvents the application of certain provisions, such as specific anti-avoidance rules, in a manner that frustrates or defeats the object, spirit of purpose of those provisions”.[49]
The Court has also “recognized that the line between legitimate tax minimization and abusive tax avoidance is “far from bright” … [and where] the existence of abusive tax avoidance is unclear, the benefit of the doubt goes to the taxpayer”.[50]
When asked to apply, or uphold the application of the GAAR, the Supreme Court of Canada has laid out that the conduct of a GAAR analysis is to be:
?… textual, contextual and purposive analysis to determine the object, sprit or purpose of the provision. … The search is for the rationale that underlies the words that may not be captured by the bare meaning of the words themselves.?However, determining the rationale of the relevant provisions of the Act should not be conflated with a value judgment of what is right or wrong nor with theories about what tax law ought or ought not to do.[51]
[Next], a court must consider whether the transaction falls within or frustrates the identified purpose.[52]
The Court has gone on to say that the analysis will then lead to a finding of abusive tax avoidance where:
(1)???the transaction achieves an outcome the statutory provision was intended to prevent;
(2)???the transaction defeats the underlying rationale of the provision; or
(3)???the transaction circumvents the provision in a manner that frustrates or defeats its object, spirit or purpose.[53]
Nonetheless, the courts have been reluctant to uphold the application of the GAAR when asked to do so by the Crown/Minister; under 700 reported decisions even include discussion on section 245 at all, and of those decisions, under 300 relate to a tax treaty,[54]?with not even five unique matters having come before the Supreme Court of Canada.[55]****
With the foregoing in mind, when considering arrangements involving foreign taxpayers, and what may appear to be conduit taxpayers, where a tax treaty between Canada and the other country provides for the possibility of a transaction that may resemble an avoidance transaction between the Canadian taxpayer and a foreign taxpayer, the transaction seems unlikely to properly attract the GAAR, even if the result of the transaction was an unanticipated tax holiday for the taxpayers.?“[T]he issue raised by the GAAR is the incidence of Canadian taxation, not the foregoing of revenues” by other countries’ fiscal authorities.[56]
According to the Supreme Court of Canada, the reasoning behind why such transactions do not properly trigger the application of the GAAR is due to the very nature of what a treaty is, in and of itself.?As discussed above, treaties are fundamentally agreements of a contractual nature between two freely contracting parties.?The Supreme Court of Canada recently confirmed the same when it specifically noted that “[i]n agreeing to include a specific exemption … in the Treaty, Canada sought to encourage investments by Luxembourg residents in business assets … located in Canada and to reap the ensuing benefits.”[57]
To this end, the reasoning behind which bargains and agreements between sovereign nations come to be, are well outside the influence of the taxpayer, and where sovereign nations have agreed between themselves that certain types of characterizations of funds or particular transactions do not trigger a tax event, it is not then viewed as appropriate for the tax authority to attempt to rewrite the treaty (by invocation of the GAAR or otherwise), to suit its own purposes.[58]?
This is not to say that all transactions which seem to fall under treaty provisions are therefore not avoidance transactions.?The Court continues to confirm that it is still the factual analysis that determines whether a transaction is an avoidance transaction.[59]
For the taxpayer however, the provisions of a treaty are the framework within which to arrange their affairs.?The fact that a taxpayer may pay less tax in the other country than it would have paid if it were a Canadian resident paying tax in Canada changes nothing in the determination of whether the transaction was bona fide.[60]?
? VII.?????????Judicial Consideration and Alta Energy
Due to the relative complexity of creating the foregoing forms of corporate structures,[61] only certain types of taxpayers are likely to engage in their use.?As such, it is understandable how it is a rare occurrence for matters to come before the Tax Court, Federal Court of Appeal, or the Supreme Court of Canada, where the opportunity exists for the Courts to engage in treaty interpretation, and to consider the domestic implications of Canada’s tax treaties and the associated global network.
Recently however, the Supreme Court of Canada was presented with the opportunity to fulsomely weigh in by way of Canada v. Alta Energy Luxembourg S.A.R.L.[62] (“Alta Energy”).?Likely, at least in part due to the rarity of the opportunity, the decisions regarding Alta Energy were fulsome at each level of court.[63]?When the matter ultimately came before the Supreme Court of Canada, the Court provided a comprehensive analysis on the issues of whether a taxpayer’s arrangement of its affairs involving treaties, which resulted in the taxpayer paying less tax than it otherwise would, are considered offensive or avoidance transactions, and whether the application of the GAAR would be appropriate.
More specifically in relation to the matter before it, the Court was asked to determine whether Alta Energy Luxembourg S.A.R.L. (“Alta Luxembourg”) could properly claim that the gain from the sale of its shares in Alta Energy Partners Canada Ltd. (“Alta Canada”) were exempt from Canadian taxation pursuant to Article 13(4) of the Canada-Luxembourg Treaty, which reads:
Capital Gains
…
4. Gains derived by a resident of a Contracting State from the alienation of:
(a) shares (other than shares listed on an approved stock exchange in the other Contracting State) forming part of a substantial interest in the capital stock of a company the value of which shares is derived principally from immovable property situated in that other State; or
(b) an interest in a partnership, trust or estate, the value of which is derived principally from immovable property situated in that other State,
may be taxed in that other State.?For the purposes of this paragraph, the term “immovable property” does not include property (other than rental property) in which the business of the company, partnership, trust or estate was carried on; and a substantial interest exists when the resident and persons related thereto own 10 per cent or more of the shares of any class or the capital stock of a company.[64]
The Minister maintained a position that the source state, Canada, had the greater claim relating to taxation of the capital gains at issue because the taxpayer, Alta Luxembourg, did not have “sufficient substantive economic connections” to its state of residence, Luxembourg,[65] merely a formalistic or legal attachment.[66]
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The Minister also advanced the position that due to the corporate arrangement, and the transaction such an arrangement permitted, the application of the GAAR was appropriate.[67]
Ultimately, and as can be understood following the discussion laid out above, the Court held that the transaction was not abusive, the Canada-Luxembourg Treaty did permit the transaction to occur as the taxpayer had arranged it, and that the transaction did not attract an application of the GAAR.
Prior to Alta Energy, the Courts have been presented with only a handful of cases in which to examine tax arrangements structured in such a way so as to take advantage of treaty benefits.[68] ?The factual matrix has differed on a case-by-case basis, and so too did the Courts’ analysis.[69]?Notably, and notwithstanding the even smaller number of matters that had made their way to the Supreme Court of Canada,[70] until Alta Energy,[71] the Court had yet to have such an opportunity to fully weigh in as it did.
Also worth noting is that unlike many of the matters that came before it, the taxpayer in Alta Energy had arranged its affairs in such a way so as to properly come within the provisions of the Act and treaty the way the taxpayer said it did; as a result, the Supreme Court of Canada could not find in any way but for the taxpayer.
VIII.?????????Conclusion
Alta Energy was heard on March 19, 2021; the Court emphatically considered and addressed the compendium of relevant law in a fashion such that taxpayers may reasonably expect this decision to stand as a reference point for tax arrangements involving treaties for a number of years to come.
As it stands, the Supreme Court of Canada continues to preserve that for questions relating to taxation arrangements involving Canada’s tax treaties and/or tax treaty network, taxpayers are “entitled to select courses of action or enter into transactions that will minimize their tax liability.”[72]
To this end, a taxpayer’s approach to arranging it affairs involving treaties need not be any different to the approach in arrangements that do not:
Unless the Act provides otherwise, a taxpayer is entitled to be taxed based on what it actually did, not based on what it could have done, and certainly not on what a less sophisticated taxpayer might have done.[73]
[1] Canada v. Alta Energy Luxembourg S.A.R.L., 2021 SCC 49 (hereinafter referenced for citation purposes as “Alta Energy, SCC”), at para 80.
[2] Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended (hereinafter referenced for citation purposes as “ITA”).
[3] J. Li, A. Cockfield, and S. Wilkie, International Taxation in Canada: Principles and Practices, Fourth Edition (Toronto: LexisNexis Canada), at p. 146.
[4] J. Li, A. Cockfield, and S. Wilkie, ibid, at p. 146.
[5] ITA, s. 212(1).
[6] J. Li, A. Cockfield, and S. Wilkie, supra, at ch. 5.B., generally.
[7] ITA, Part XIII.
[8] J. Li, A. Cockfield, and S. Wilkie, supra, at p. 147; supra, note 4.
[9] ITA, s. 212(1).
[10] ITA, s. 248(1).
[11] ITA, s. 2.
[12] ITA, s. 115-116; see also, supra, note 4.
[13] ITA, s. 215(1).
[14] ITA, s. 215(6).
[15] Lord Rothermere Donation v. R., 2009 TCC 70, at para. 7; also citing ITA, s. 212(1) and 215(1) within.
* see also, S. Wilkie, “The Taxpayer is Successful Today at the Supreme Court in the Important Alta Energy “Treaty Shopping” Case – Update” (26 November 2021) Osgoode Hall Law School, at p. 3-4 for comment on the concept of liable versus subject to tax; and Canada v. Alta Energy Luxembourg S.A.R.L., 2021 SCC 49, at para 54.
[16] JP Morgan Asset Management (Canada) Inc. v. Minister of National Revenue, 2013 FCA 250, at para 9; ITA, s. 227(10)(d).
[17] The concept of ‘residency’ and ‘permanent establishment’ are not fulsomely addressed in this paper, but see J. Li, A. Cockfield, and S. Wilkie, supra, at p. 63-4, and p. 178-9; see also Article IV & V of the Model Treaty, infra.
[18] Vienna Convention on the Law of Treaties, 1969, C.T.S. 1980/37 (the “Vienna Convention”).
[19] Alta Energy, SCC, at para 59, citing the Vienna Convention, art. 26.
[20] ITA, s. 115.1(1)&(2).
[21] Certain Articles of the Canada-Ireland Tax Agreement Act, 1955, SC 1955, c. 10, were considered in Minister of National Revenue v. Tara Explorations & Development Co. [1974] S.C.R. 1057, in the course of the Court concluding that the taxpayer was entitled to an exemption is sought.
[22] Organization for Economic Co-operation and Development.
[23] Model Convention on Income and Capital 2017 (the “Model Treaty”), https://read.oecd-ilibrary.org/taxation/model-tax-convention-on-income-and-on-capital-2017-full-version_g2g972ee-en.
[24] United Nations Model Double Taxation Convention between Developed and Developing Countries 2017 Update, New York, United Nations 2017.
** J. Li, A. Cockfield, and S. Wilkie, supra, at p. 41, 45 and 58.
[25] Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital, 1997, T.W.C. 1997/29 (the “Canada-US Tax Treaty”).?Previously, the Canada-United States Tax Convention Act, 1984.
[26] “Tax treaties”, (29 August 2019), Government of Canada, https://www.canada.ca/en/department-finance/programs/tax-policy/tax-treaties.html;
“Where to find Canada’s tax treaties”, (1 December 2016),?Government of Canada, https://www.canada.ca/en/department-finance/programs/tax-policy/tax-treaties/official.html.
*** In R. v. Melford Developments Inc. [1982] 2 S.C.R. 504, at para 12, the Court noted that “[t]here [were] 26 concluded and 10 proposed tax conventions, treaties or agreements between Canada and other nations of the world.”
[27] PwC, “Canada, Corporate – Withholding taxes” (1 December 2021), https://taxsummaries.pwc.com/canada/corporate/withholding-taxes.
[28] Alta Energy, SCC, para 82.
[29] Alta Energy, SCC, para 8; J. Li, A. Cockfield, and S. Wilkie, supra, at p. 398.
[30] Canada v. Loblaw Financial Holdings Inc., 2021 SCC 51, at para 58, but referring to FAPI; J. Li, A. Cockfield, and S. Wilkie, supra, at p. 387, quoting Placer Dome Canada Ltd. v. Ontario (Minister of Finance), [2006] S.C.J. No. 20.
[31] Canada v. Alta Energy Luxembourg S.A.R.L., 2020 FCA 43, at para 30.
[32] Convention between the Government of Canada and the Government of the Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital, C.T.S. 2000/22, T.W.C. 1999/10 (the “Canada-Luxembourg Treaty”).
[33] Alta Energy, SCC, at para 8.
[34] Alta Energy, SCC, para 82.
[35] Canada v. Loblaw Financial Holdings Inc., 2021 SCC 51, at para 55.
[36] Canada v. Loblaw Financial Holdings Inc., 2021 SCC 51, at para 55.
[37] Taxpayers may also make use of trusts and partnership arrangements to facilitate these situations.
[38] OECD (2015), “R(6). Double taxation conventions and the use of conduit companies”, in Model Tax Convention on Income and on Capital 2014 (Full Version), OECD Publishing, Paris, https://read.oecd-ilibrary.org/taxation/model-tax-convention-on-income-and-on-capital-2014-full-version/r-6-double-taxation-conventions-and-the-use-of-conduit-companies_9789264239081-99-en#page2.
[39] J. Li, A. Cockfield, and S. Wilkie, supra, at p. 397.
[40] OECD (2015), “R(6). Double taxation conventions and the use of conduit companies”, in Model Tax Convention on Income and on Capital 2014 (Full Version), OECD Publishing, Paris, at B & C; see also, J. Li, A. Cockfield, and S. Wilkie, supra, at p. 394-7, E.2..
[41] Which clauses may best facilitate any given arrangement will depend on the particular treaty under consideration. ?This list does not intentionally exclude other articles such as Articles VI – VIII: Income from Real Property, Business Profits, Transportation.
[42] OECD (2015), “R(6). Double taxation conventions and the use of conduit companies”, in Model Tax Convention on Income and on Capital 2014 (Full Version), OECD Publishing, Paris, at F; J. Li, A. Cockfield, and S. Wilkie, supra, at p. 376.
[43] ex: Canada v. Alta Energy Luxembourg S.A.R.L., 2021 SCC 49; Canada v. Loblaw Financial Holdings Inc., 2021 SCC 51; The Coca-Cola Company & Subsidiaries v. Commissioner of National Revenue, 155 T.C. No. 10; Velcro Canada Inc. v. R., 2012 TCC 273; Copthorne Holdings Ltd. v. R., 2011 SCC 63; Prevost Car Inc. v. R., 2009 FCA 57; Knights of Columbus v. R., 2008 TCC 307; MIL (Investments) S.A. v. R., 2006 TCC 460.
[44] J. Li, A. Cockfield, and S. Wilkie, supra, generally.
[45] Canada Trustco Mortgage Co. v. R., 2005 SCC 54, citing Commissioner of Inland Revenue v. Duke of Westminster, [1936] A.C. 1 (H.L.), aff’d in Canada v. Loblaw Financial Holdings Inc., 2021 SCC 51, and Canada v. Alta Energy Luxembourg S.A.R.L., 2021 SCC 49.
[46] ITA, s. 245(3).
[47] ITA, s. 245(2).
[48] ITA, s. 245(4).
[49] Alta Energy, SCC, at para 32, citing Canada Trustco Mortgage Co. v. R., 2005 SCC 54, and Lipson v. Canada, 2009 SCC 1.
[50] Canada Trustco Mortgage Co. v. R., 2005 SCC 54, as aff’d in Copthorne Holdings Ltd. v. R., 2011 SCC 63, and Alta Energy, SCC; see also, J. Li, A. Cockfield, and S. Wilkie, supra, at p. 386.
[51] Copthorne Holdings Ltd. v. R., 2011 SCC 63, at para 70; aff’d in Alta Energy, SCC, at para 96.
[52] Copthorne Holdings Ltd. v. R., 2011 SCC 63, at paras 70-71.
[53] Copthorne Holdings Ltd. v. R., 2011 SCC 63, citing Canada Trustco Mortgage Co. v. R., 2005 SCC 54.
[54] The quoted number of decisions includes decisions from all levels of court, and are therefore not numbers of unique matters.
[55] Alta Energy, SCC; Garron Family Trust (Trustee of) v. R., 2012 SCC 14; Copthorne Holdings Ltd. v. R., 2011 SCC 63.
**** This is not to say that all instances where a conduit taxpayer is involved will necessarily cause the Crown/Minister to advance a position including an application of the GAAR.
[56] Alta Energy, SCC, at para 96, referring also to MIL (Investments) S.A. v. R., 2006 TCC 460.
[57] Alta Energy, SCC, at para 6.
[58] S. Wilkie, “The Taxpayer is Successful Today at the Supreme Court in the Important Alta Energy “Treaty Shopping” Case – Update” (26 November 2021) Osgoode Hall Law School.
[59] Alta Energy, SCC, at para 47.
[60] Alta Energy, SCC, at para 92.
[61] Supra, note 37.
[62] 2001 SCC 49.
[63] Alta Energy Luxembourg S.A.R.L. v. The Queen, 2018 TCC 152; Canada v. Alta Energy Luxembourg S.A.R.L., 2020 FCA 43; 2021 SCC 49.
[64] Alta Energy, SCC, at para 68, citing the Canada-Luxembourg Treaty, Article 13(4), emphasis original.
[65] Alta Energy, SCC, at paras 69-71.
[66] Alta Energy, SCC, at para 57.
[67] see J. Hanna and G. Rafter – Borden Ladner Gervais LLP, “Supreme Court of Canada dismisses General Anti-Avoidance Rules in Tax Treaty Decision” (15 December 2021), via CanLII, https://canliiconnects.org/en/commentaries/86296.
[68] ex: RMM Canadian Enterprises Inc. v. R. [1997] T.C.J. No. 302; MIL (Investments) S.A. v. R., 2006 TCC 460; Prevost Car Inc. v. R., 2009 FCA 57; Velcro Canada Inc. v. R., 2012 TCC 273; Black v. R., 2014 FCA 275, aff’ing 2014 TCC 12; Sifto Canada Corp. v. R., 2017 TCC 37; Univar Holdco Canada ULC v. The Queen, 2017 FCA 207.
[69] J. Li, A. Cockfield, and S. Wilkie, supra, at ch. 15, generally.
[70] ex: Crown Forest Industries Ltd. v. Canada [1995] 2 S.C.R. 802; Copthorne Holdings Ltd. v. R., 2011 SCC 63; Garron Family Trust (Trustee of) v. R., 2012 SCC 14.
[71] Alta Energy, SCC.
[72] Alta Energy, SCC, at para 96, affirming Copthorne Holdings Ltd. v. R., 2011 SCC 63, at para 65.
[73] Shell Canada Ltd. v. Canada [1999] 3 S.C.R. 622, at para 45.