Territorial Limits

Table of Contents


1068754 Alberta Ltd., trustee of DGGMC Bitton Trust v. ARQ, 2018 QCCA 8 (Quebec Court of Appeal)

communication to bank branch outside Quebec did not constitute a significant act outside Quebec

The ARQ, which was seeking to establish that the central management and control of an Alberta trust was in Quebec, issued a requirement to a Calgary branch of the Banque Nationale du Canada (“BNC”) for various bank records respecting the trust under the Quebec equivalent of ITA s. 231.2(1). The requirement was sent directly to the branch rather than to the BNC head office because this was required under s. 462(2) of the Bank Act. In finding that the ARQ had not exceeded its territorial competence in making this requirement, Hogue JCA stated:

Here we are not concerned with … a seizure outside of Quebec which, it is true, could require the seizing party to approach an authority of the foreign State with a view to obtaining its collaboration in order to proceed. …

The communication of the requirement to BNC through one of its branches situated outside Quebec is the sole external element that is present here. However, such communication is purely accessory and is insufficient to conclude that the ARQ exercised its powers of taxation or of audit outside of Quebec or exceeded its competence.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.2 - Subsection 231.2(1) the ARQ did not exceed its Quebec-based audit authority when it issued a s. 231.2 demand to a Calgary bank branch 450

Exida.Com Limited Liability Company v. Canada, 2010 DTC 5101, 2010 FCA 159

no filing requirement if no connection with Canada

Nöel, J.A. noted (at para. 23) that when s. 150(1) formerly simply provided that in the case of a corporation, a return shall be filed by a corporation for each taxation year, "with respect to non-resident corporations, the obligation to file could only extend to those that had some connection with Canada. To construe the provision as applying in the absence of any connection with Canada would give it a reach that could not have been intended."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 162 - Subsection 162(2.1) no substantive tax liability 64
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) "penalty" does not include nil penalty 90
Tax Topics - Statutory Interpretation - Ordinary Meaning purposive interpretation must be consistent with words 87

Society of Composers, Authors and Music Publishers of Canada v. Canadian Assn. of Internet Providers, [2004] 2 S.C.R. 427, 2004 SCC 45

presumption against extra-territorial effect

Binnie J. stated (at para. 54):

"While the Parliament of Canada, unlike the legislatures of the Provinces, has the legislative competence to enact laws having extraterritorial effect, it is presumed not to intend to do so, in the absence of clear words or necessary implication to the contrary ..."

Oceanspan Carriers Ltd. v. The Queen, 85 DTC 5621, [1986] 1 CTC 114 (FCTD), aff'd in part 87 DTC 5102, [1987] 1 CTC 210 (FCA)

non-application to previous non-resident existence

The following principle was applied by Rouleau, J.: "The mere fact of becoming a resident does not give the Minister - or Parliament - jurisdiction over the previous life or conduct of a corporate taxpayer." [CR.: 248(1) - "Income Bond"]

Clark v. Oceanic Contractors Inc., [1982] BTC 417, [1983] 1 All E.R. 133 (HL)

presumption against application to non-subjects

"[U]nless the contrary is expressly enacted or so plainly implied that the courts must give effect to it, United Kingdom legislation is applicable only to British subjects or to foreigners who by coming to the United Kingdom, whether for a short or a long time, have made themselves subject to British jurisdiction."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1) - Paragraph 153(1)(a) carrying on trade was sufficient connection to jurisdiction 113

United States of America v. Harden, 63 DTC 1276, [1963] CTC 450, [1963] S.C.R. 366

revenue rule

The Court found that the principle that foreign states cannot directly or indirectly enforce their tax claims in Canada applied to prevent a foreign state (here, the U.S.A.) from taking a judgment of its own courts and bringing suit in Canada on that judgment.

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Revenue Rule U.S. tax judgment not enforceable in Canada 120

See Also

Jimenez, R. (On the Application of) v The First Tier Tribunal (Tax Chamber), [2019] EWCA Civ 51

a demand for information issued to a former UK resident was valid

The UK tax legislation contained a blanket provision stating:

An officer of Revenue and Customs may by notice in writing require a person ("the taxpayer")—

(a) to provide information, or

(b) to produce a document,

if the information or document is reasonably required by the officer for the purpose of checking the taxpayer's tax position.

The taxpayer was a Dubai resident who also was a UK national and former UK resident. HMRC was investigating his past and present tax positions including as to when he ceased to be a UK resident, and issued a notice to him at his Dubai address asking him to produce banking information and a schedule of his visits to the UK over a nine-year period.

The Court found the notice to be valid for U.K purposes. Leggatt LJ stated (at paras. 52-54):

Counsel for Mr Jimenez … relied on a distinction … adopted … [by Rossiter CJ] in Oroville Reman & Reloadbetween documents of notice that merely involve the supply of information with no threat of penalties in the event of non-compliance and documents involving a compulsory process or containing a command. They submitted that a document of the latter kind, such as the notice issued in this case which explicitly threatened penalties if Mr Jimenez did not comply with it, must be regarded as an unlawful exercise of enforcement jurisdiction.

… I do not accept that sending a notice by post to a person in a foreign state requiring him to produce information that is reasonably required for the purpose of checking his tax position in the UK violates the principle of state sovereignty. Such a measure does not involve the performance of any official act within the territory of another state – as would, for example, sending an officer of Revenue and Customs to enter the person's business premises in a foreign state and inspect business documents that are on the premises … .

[T]he imposition of a civil penalty … for failure to comply with such a taxpayer notice would [not] involve an exercise of enforcement jurisdiction … provided that no steps are taken to seek to enforce the penalty in a foreign state.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.1 - Subsection 231.1(1) - Paragraph 231.1(1)(d) sending a demand for information to a former UK resident did not entail an exercise of extraterritorial enforcement jurisdiction but merely entailed the potential imposition of UK penalties against any UK assets 622

Oroville Reman & Reload Inc. v. Canada, 2016 TCC 75

an assessment of a U.S. softwood importer who did not carry on business in Canada was an unauthorized extraterritorial exercise of enforcement jurisdiction

The taxpayer was a U.S. subsidiary of a Canadian lumber producer. The taxpayer did not carry on business in Canada and was engaged exclusively in the U.S. in reloading, repackaging and remanufacturing servicers for softwood lumber products. From 2002 to 2006, the U.S. s collected approximately US $5.4 billion in duties in relation to imports of Canadian softwood lumber products into the United States. Although a few – including Oroville – were U.S. companies, the vast majority of the importers of record who paid the duties were Canadian lumber producers.

On September 12, 2006, Canada and the U.S. settled the softwood lumber dispute respecting such duties under which it was agreed that the U.S. would refund all duty deposits to the importers of record, with interest, and Canada would pay to certain specified parties in the U.S. a total of US$1B. However, Canada then passed legislation (the “SLPECA”) to impose a tax of on the refunds received from the U.S. (including those received by the small minority, including the taxpayer, who were not Canadian lumber producers.)

In allowing the taxpayer’s appeal against an assessment of such tax, Rossiter CJ stated (at paras. 17, 27-28).

Canada can exercise its prescriptive jurisdiction extraterritorially where it does so in accordance with binding customary principles, or even in contravention of these principles where Parliament shows an an unequivocal intention to do so. However, Canada can exercise enforcement jurisdiction in a foreign state only with the foreign state’s consent.

As mentioned, enforcement jurisdiction can be exercised in a foreign state only with that state’s consent. Here, there is no indication, direct or indirect, of any consent by the USA to Canada giving them the right to collect monies that Canada asserts must be paid under the legislation in question against the Appellant in the USA.

In response to the first issue raised by the parties, I find that Canada, contrary to international law, tried to enforce the SLPECA against the Appellant.

He then stated (at paras. 36, 38, 42):

To recapitulate, the presumption of conformity in this case presumes that the SLPECA will conform to the principles of sovereign equality, non-intervention, and comity. This can only be so if the application of the SLPECA to the Appellant is justified on the ground of territoriality. …

Translated to the case at bar, the question is whether there is a "real and substantial link" between Canada and the activities giving rise Canada's claim for tax.

I conclude there is no "real and substantial link".


Baker, "The Trans-National Enforcement of Tax Liabilities", 1993 British Tax Review, No. 5, p. 313.