Classic Transfer Pricing Case: General Electric Capital Canada Inc. v. The Queen 2008

Par Robert Robillard - 28 mai 2014

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In General Electric Capital Canada Inc. v. The Queen, 2008 TCC 256 (CanLII), the transfer pricing case relates to the deduction of guarantee fees by CANCO as paid to USCO. CRA disallowed the fees deducted by CANCO in computing its income for Canadian tax purpose. The Crown wishes to compel the appellant CANCO to answer some questions to which the answers are alleged to be privileged by the taxpayer (in general, see solicitor-client privilege, section 232 of the Income Tax Act).

Facts:

« [1] Her Majesty the Queen, the respondent, has made a motion compelling the appellant General Electric Capital Canada Inc. (« GECC ») to answer questions put to it at the examination for discovery of the appellant’s nominee, David Daubaras, which Mr. Daubaras refused to answer on the basis the answers were privileged. The respondent submits that the questions that were posed to Mr. Daubaras were relevant to the material issues in these appeals and that the appellant has not provided sufficient particulars to enable respondent to determine whether the privilege claim is proper.

[2] The motion is with respect to appeals filed by GECC. The issue in the appeals is whether for the taxation years 1996 and 1997, subsection 69(2) of the Income Tax Act (« Act« ) applies, and for taxation years 1998, 1999 and 2000, whether subsection 247(2) of the Act applies, to disallow the deduction of guarantee fees paid by GECC to GE Capital, a non-arm’s length United States corporation, in computing its income for its respective taxation years. Appeals similar to these appeals are sometimes referred to as transfer pricing cases. (I refer to the aforementioned appeals as « Part I » appeals.) A second issue is whether the Minister of National Revenue (« Minister ») correctly determined that Part XIII withholding tax was required to be remitted by GECC in respect of the guarantee fees in issue, or any portion thereof, paid in the taxation years in issue. (I refer to the latter appeals as « Part XIII » appeals.)

[3] At the outset of the hearing of the motion counsel advised me that the respondent had prepared and served on the appellant amended replies to notices of appeal. The amended replies had not yet been filed with the Registry of the Court but the parties agreed that the hearing of the motion should proceed on the basis that the amended replies were part of the Court record.

[4] There are seven questions objected to by the appellant. They are questions 28, 38, 39, 136, 137, 598 and 599 (Mr. Noble is counsel for the respondent, asking the questions […]. »

Decision:

« Upon motion made by counsel for the respondent for an order compelling the appellant to answer questions put to it at the examination for discovery of the appellant’s nominee, David Daubaras, which the nominee refused to answer on the basis the information was privileged;

And upon reading the affidavits of Karen Hodges, Richard D’Avino and Francesca Del Rizzo, filed;

And upon hearing what was alleged by the parties;

The motion is dismissed. Costs will be in the cause. »

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

General Electric Capital Canada Inc. v. The Queen, 2008 TCC 256 (CanLII)

Capital générale électrique du Canada Inc. c. La Reine, 2008 CCI 256 (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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