Cameco vs. CRA tax court case: with CRA’s appeal, uncertainty remains for MNEs
As anticipated, Canada Revenue Agency (“CRA”) appealed the September 26th decision by the Tax Court of Canada (“TCC”) wherein Justice John R. Owen rejected all of the Minister’s positions and ruled in favour of Cameco Corporation (“Cameco”).
Notably, the Notice of Appeal limited the scope of the case to transfer pricing, and did not appeal the sham argument which was rejected by the TCC. With respect to transfer pricing, the Notice of Appeal stated very broad grounds of appeal with no specifics provided; it also stated that Justice Owen erred both in fact and in law on all matters pertaining to transfer pricing.
Now that the scope is limited to transfer pricing, it is unclear which direction the Minister will take at the Federal Court of Appeal, specifically with the issue of Cameco providing financing to the Swiss subsidiary (“CESA/CEL”) and guaranteeing its performance under the contracts with its customers being argued. This issue was openly stated in Justice Owen’s decision. However since the Minister did not attribute a specific value to these particular services, the Judge said “there is no evidence on which to base an adjustment for these services even if one were warranted.”
Interestingly, this is the first case that has dealt with Paragraphs 247(2)(b) and (d) – recharacterization rules – of the Income Tax Act (the “Act”) and the scope and interpretation of these provisions. The decision by Justice Owen provided clarification that “the focus of the test is the commercial rationality (or irrationality) of the transaction or series, taking into consideration all relevant circumstances.” The Judge further elaborated on the series and transactions of Cameco in relation to said test.
Thus, given the appeal, and although the TCC’s analysis of the case is insightful in its own right, Canadian taxpayers need to proceed with caution.