Classic Transfer Pricing Case: European Marine Contractors Ltd. v. Canada 2004

Par Robert Robillard - 4 août 2014

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In European Marine Contractors Ltd. v. Canada (Customs and Revenue Agency), 2004 FC 114 (CanLII), « the applicant alleges that the Requirement [pursuant to section 231.6(4)] is far-reaching and includes information and documents which may have no link to the determination of the applicant’s liability for Canadian taxation and that in the circumstances it could be said that the Requirement, at the very least, is far too wide and unreasonable. »

The application is dismissed.

Highlights:

« [1] This is an application for review of a Requirement by the Canada Customs and Revenue Agency (the « CCRA ») that European Marine Contractors Limited provide foreign based information and documents. The Notice dated December 6, 2001 required the applicant to produce, pursuant to section 231.6(4) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) as amended (the « Act »), the following:

« …information, and production of all invoices, correspondence, agreements, contracts with amendments, financial statements, books and records of account, reports, memoranda, schedules, working papers, minutes of meetings, telexes, faxes or other documents regarding Europena Marine Contractors Limited for the December 31, 1999 fiscal year. »

[2] The applicant alleges that the Requirement is far-reaching and includes information and documents which may have no link to the determination of the applicant’s liability for Canadian taxation and that in the circumstances it could be said that the Requirement, at the very least, is far too wide and unreasonable.

[3] The applicant was incorporated in the United Kingdom in 1988. Its activities consist in acting as a sub-sea pipeline construction company. For tax purposes, the applicant is a resident of the United Kingdom and its head office is located in South London.

[4] In late 1998, the applicant was approached by Sable offshore Energy Inc. (« SOEI »), and informed that a key component of the undersea pipeline installation was in jeopardy due to the inability of an unrelated contractor to guarantee the provision of a highly specialized vessel necessary to perform the contracted work; would it be prepared to perform the work in the event the originally elected contractor failed to deliver its vessel on time?

[5] The Sable Offshore Energy Project is located within Nova Scotia, Canada and the Nova Scotia Offshore region and includes the offshore and onshore facilities.

[6] As a result, the applicant carried out, at its head office in London, a review of the work requirements; it identified a project team and vessel that could be mobilized to perform the work.

[7] During the period January – April 1999, preliminary contract work was performed by the applicant’s project team, most of which was based in the United Kingdom. Also it performed certain preliminary contract work in Canada. Such activities were always pre-agreed with SOEI and consisted mainly in arranging for accommodation, reviewing documentation, arranging for necessary permits as well as some work related to engineering, procuring and logistic aspects of the contract.

[8] The applicant did not rent office space in Canada but had entered into temporary living arrangements for the employees involved in the project; this consisted primarily of six month leases on apartments.

[9] The applicant entered into a contract with SOEI on April 15, 1999 retroactively to December 15, 1998.

[10] In September 2000, the applicant was informed that the CCRA wished to conduct an audit in relation to the applicant’s taxation year ending December 31, 1999.

[…]

[12] By letter dated October 16, 2001 the applicant refused to allow permission for the respondent to carry on the audit.

[13] On December 6, 2001, a Notice of Requirement to provide foreign-based information or documents (the « Requirement ») was issued by the respondent.

[14] The applicant submits that the Requirement is far reaching and argues that the Requirement includes information and documentation which has no link to the determination of the applicant’s liability to Canadian taxation, if any. »

Decision:

« [28] The application is hereby dismissed. »

To see the full transfer pricing case click here. Aussi disponible en français sur ce lien.

European Marine Contractors Ltd. v. Canada (Customs and Revenue Agency), 2004 FC 114 (CanLII)

European Marine Contractors Ltd. c. Canada (L’Agence des douanes et du revenu), 2004 CF 114 (CanLII)

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