Recent Transfer Pricing Case: Soft-Moc Inc. v. Canada

Par Robert Robillard - 8 septembre 2014

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In Soft-Moc Inc. v. Canada (National Revenue), 2013 FC 291 (CanLII), the taxpayer asks for judicial review of a requirement issued pursuant to section 231.6 of the Income Tax Act.

Judicial review is denied.


« [1] This is an application for judicial review pursuant to subsection 18.1 of the Federal Courts Act, RSC, 1985, F-7, and subsections 231.6(4) and 231.6(5) of the Income Tax Act, RSC, 1985, c 1 (5th Supp) (ITA). The Applicant seeks review in respect of a decision (Decision) of the Assistant Director, Toronto East Tax Services Office, Canada Revenue Agency (Director), dated 21 December 2011, to issue a Foreign-Based Information Requirement (Requirement) requiring the Applicant to obtain and provide to the Canada Revenue Agency (CRA) certain foreign-based information and documents.

[2] The Applicant is a Canadian resident corporation that sells footwear. Mr. Bryan Bardocz is the President of the Applicant and owns 10% of the Applicant’s common shares. Mr. Bert Krista owns, directly or indirectly, 90% of the Applicant’s common shares. In 2004, Mr. Krista took up residence in the Bahamas and incorporated the other four corporations involved in this application: ITPC Inc. (ITPC), Manser Inc. (Manser), MWF Inc. (MWF) and SoftPOS Inc. (SoftPOS). Mr. Krista wholly owns these four corporations.

[3] During the course of its operations, the Applicant received services from ITPC, Manser, MWF and SoftPOS, all of whom have their centers of operation in Nassau, Bahamas. During 2005 and 2006, the Applicant paid substantial amounts to these four corporations for a variety of services, such as merchandising services, information technology consulting services, business development services and software licensing fees.

[…] [6] On 6 October 2009, the Applicant received an audit query from the Minister. The Applicant provided a binder of material in response. The Applicant received a second audit query on 28 January 2010, to which it responded on 26 March 2010. On 21 December 2011, the Minister issued the Requirement to the Applicant for foreign-based information pursuant to subsection 231.6(2) of the ITA.

[7] In addition to the Requirement, the Applicant was served with a request to provide certain domestic information dated 16 January 2012. On 20 March 2012, the Applicant provided the Minister with a binder of material in response to this request.

[8] On 24 January 2012, Mr. Bardocz wrote to Terry North, counsel for Mr. Krista, Manser, ITPC, MWF and SoftPOS in the Bahamas, informing him of the Requirement. On 5 March 2012, Mr. North responded to a portion of the 74 questions issued in the Requirement. MWF, ITPC, SoftPOS and Manser declined to provide some of the requested information on the basis that such information did not exist or was confidential and proprietary, or that the release of such information would detrimentally affect the competitive advantage of each corporation. »


« [78] In my view, the Applicant has not convincingly challenged Mr. Yiu’s evidence that this was the best evidence for CRA to seek for the purposes of the TPA.

[79] In this case, CRA is conducting a TPA of the Applicant. In connection with that TPA, the Minister is reviewing the payments made by the Applicant to the four Bahamian companies for the services. The Minister seeks specific information related to those payments to determine whether the services were performed in the Bahamas or Canada and, if in the Bahamas, how the services were provided, and to determine the appropriate transfer pricing methodology to be applied so that the Minister can ascertain whether the transfer price paid was an arms-length transfer. In my view, the information sought from the Applicant is necessary to make these determinations and to verify information that has already been provided.



1. The application is dismissed with costs to the Respondent. »

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

Soft-Moc Inc. v. Canada (National Revenue), 2013 FC 291 (CanLII)

Soft-Moc Inc. c. Canada (Revenu national), 2013 CF 291 (CanLII)

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

RBRT Inc. is all about transfer pricing. We specialize in transfer pricing. Our services include transfer pricing documentation, transfer pricing dispute resolution, advanced pricing agreement (APA), value chain management and TP planning, transfer pricing training. The information in this blog post is general information only. Data and information come from sources believed to be reliable but complete accuracy cannot be guaranteed. RBRT Inc. and the author are not responsible or liable for any error, omission or inaccuracy in such information. Readers should seek independent tax advice and tax counsel from RBRT Inc. as required.