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From treaty shopping to FAPI and transfer pricing: Notable international tax cases

Author(s): Monica Biringer, Pooja Mihailovich

Dec 8, 2020

Three decisions of the Federal Court of Appeal (FCA) released during the COVID-19 pandemic have caused renewed interest in certain fundamental aspects of Canada’s international tax system. Two of these decisions will be before the Supreme Court of Canada (SCC) in 2021. As a result, these aspects of the tax system will be the subject of review and guidance from Canada’s highest court next year. 

In Canada v. Alta Energy Luxembourg S.A.R.L. (2020 FCA 43), the FCA concluded that the general anti-avoidance rule (GAAR) in the Income Tax Act (Tax Act) did not apply where the taxpayer, a Luxembourg-resident company, relied on the tax convention between Canada and Luxembourg to exempt a capital gain from Canadian income tax. In Canada v. Loblaw Financial Holdings Inc. (2020 FCA 79), the FCA concluded that the income earned by a Barbados subsidiary of the Canadian taxpayer was not foreign accrual property income (FAPI) and therefore was not taxable in Canada. Finally, in Canada v. Cameco Corporation (2020 FCA 112), the FCA determined that the taxpayer’s transactions with its Swiss subsidiary were on arm’s length terms and, therefore, compliant with Canada’s transfer pricing rules and their underlying policy...