Cameco wins first decision in $2.2 billion dollar tax dispute

By David Hogan and Andre Oliveira

The Tax Court of Canada (the Court) has just released its decision on the precedent-setting Cameco Corporation v Her Majesty the Queen tax case. The ruling by the Court is seen as great news for Canadian businesses with international activities because it confirms and clarifies permissible tax transfer pricing arrangements. The ruling provides greater certainty to Canadian taxpayers that if the international structuring of transactions in foreign jurisdictions is designed, implemented and documented appropriately, then the tax results will be respected by the Canadian courts.

At question was whether Cameco used a Swiss affiliate to avoid tax by shifting profits from Canada to Switzerland, a low-tax jurisdiction. The three arguments used by the CRA were all rejected: the Court found that there was no sham and Cameco did not intend to deceive the CRA; there were no grounds to conclude that the transactions as structured by Cameco were commercially irrational and should be re-characterized; and Cameco had sufficient transfer pricing analyses to support that its intercompany prices were at arms’ length.

From a tax and transfer pricing perspective, the decision articulates the Court’s analysis and observations on key issues, such as on the ever-recurring debate about ‘form’ versus ‘substance’. Moreover, this is the first relevant decision on the application of the transfer pricing re-characterization provisions, and includes additional clarification on the application of transfer pricing methodologies.

At Richter, we assist Canadian businesses to ensure their international transactions are conducted properly and can be supported with the proper evidentiary documentation.

We will provide further commentary on the specific tax and transfer pricing technical elements of this decision in the upcoming weeks.


* Richter has no specific involvement with this case. Our comments above are for information purposes only, and should not be construed as legal advice.