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Limitations of tax avoidance narrative – Toronto and Calgary webinars

December 2021

Recent Supreme Court of Canada (SCC) decisions confirm that the Crown cannot rely exclusively on the tax avoidance narrative when bringing taxpayers to court. To provide taxpayers with certainty, predictability and fairness, serious allegations of tax avoidance abuse and assertions of policy must be grounded in the text of tax legislation. Key takeaways from these cases was a major focus of discussion during Osler’s “Supreme Court guidance on Canada’s international tax regime: Implications of Alta Energy and Loblaw” webinar. The Toronto webinar was hosted by Edward Rowe, partner and co-chair, Tax; and partners Pooja Mihailovich, Amanda Heale and Peter Macdonald, Tax.  In Calgary, Edward and Peter were joined by partners Joanne Vandale and Drew Morier.

In December, 2021, the SCC released its decision in Loblaw Financial regarding the interpretation and application of important elements of Canada’s system for taxing income earned by foreign subsidiaries of Canadian companies. The SCC rejected the government’s argument and concluded that a Canadian parent corporation does not  conduct business with its controlled foreign affiliate when it provides capital and exercises corporate oversight. Loblaw Financial was successful in this case by focusing on the facts and providing documentation and people who could speak to the facts.

In November, 2021, the SCC released its decision in Alta Energy regarding the application of Canada’s general anti-avoidance rule to tax treaties. The SCC rejected the government’s argument that the taxpayer, a Luxembourg resident, should be denied the benefit of the Canada-Luxembourg tax treaty because it engaged in treaty shopping and its economic ties to Luxembourg were insufficient. The message for the government here is, if it wants to challenge the statute, it needs to come up with a policy that is grounded in the way the statute reads, reflects the way Parliament has chosen to write it, and represents the way treaty parties have chosen to negotiate it.

With these cases, the SCC is emphasizing the importance of tax legislation being clear so taxpayers know how to comply with it.

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