Citation: 2008 FC 871
Vancouver, British Columbia, July
PRESENT: The Honourable Madam Justice Mactavish
MINISTER OF NATIONAL REVENUE
FOR HER MAJESTY THE QUEEN
REASONS FOR JUDGMENT AND JUDGMENT
FMC Technologies Company seeks judicial review of a decision of the
Minister of National Revenue refusing the company’s request for the refund of
an overpayment of $2,821,050.33 for taxes allegedly paid on the company’s
account for the 1999-2002 taxation years.
For the reasons that follow, I am of the view that this matter is beyond
the jurisdiction of this Court. Moreover, in the event that this Court does in
fact have jurisdiction to deal with this application, the applicant has not
persuaded me that the Minister has committed a reviewable error in rejecting
the company’s request for a refund. As a consequence, the application for
judicial review will be dismissed.
The Applicant and its Related Companies
FMC Technologies Company is a Nova Scotia company, which was previously
known as FMC Offshore Canada Company. On January 1, 2007, FMC Technologies
Company was amalgamated with FMC Technologies Company Canada, and continued
under the name FMC Technologies Company. For ease of reference, the applicant,
in its various incarnations, will be referred to throughout these reasons as
Throughout the 1999-2002 tax years, FOCC was a wholly-owned subsidiary
of a non-resident Swiss company by the name of FMC International, A.G.
(“FMCI”). A second wholly-owned subsidiary of FMCI is also involved in the
events giving rise to this proceeding, namely FMC Offshore Canada Inc.
In 1996, a consortium of companies (collectively referred to as the “owners”),
sought proposals for the development of the petroleum resources in the Terra
Nova oil field, located on the Grand Banks of Newfoundland. One of the owners
Together with a number of other joint venturers, FOCC and FOCI submitted
a proposal to the owners for the performance of certain work with respect
to the Terra Nova project, which proposal was accepted.
As of January 6, 1997, FOCC and FOCI, along with the other members of
the joint venture, entered into the Terra Nova Development Project Alliance
Agreement with the owners (the “Terra Nova Agreement”), which established the
rights and obligations of the parties to the agreement. Petro-Canada was
designated as the operator of the project, and was to act as agent for the
other owners in relation to the project.
Effective February 6, 1997, FOCI assigned all of its rights and
obligations under the Terra Nova Agreement to FOCC. Such an assignment was
provided for under the terms of the Agreement.
Pursuant to the terms of the Terra Nova Agreement, FOCC was obliged to
provide project management with respect to certain aspects of the Terra Nova
Section 14.2 of the Terra Nova Agreement permitted FOCC to assign all,
but not less than all, of its interests, rights and obligations under the
Terra Nova Agreement to a third party. In accordance with this provision,
effective January 6, 1997, FOCC assigned all of its obligations under the Terra
Nova Agreement to FMCI. The assignment documentation included notice of the
assignment, together with Petro-Canada’s consent to the assignment.
Article 4 of the Assignment document provides that “FMCI cedes to FOCC
Canadian in-country responsibility for services, installations and materials
procurement as more full defined in the Management Services Agreement”.
Contract deliverables to be supplied by FMCI under the Terra Nova
Agreement included a service component, part of which was to be performed in Canada,
and the balance of which was to be performed off-shore.
Because FOCC had the capacity to perform the in-Canada services, whereas
FMCI only had the capacity to perform the off-shore services, effective
February 6, 1997, FMCI and FOCC entered into a subcontract arrangement, whereby
FOCC agreed to provide the contract deliverables with respect to the in-Canada
Under the terms of the subcontract, FOCC was to invoice Petro-Canada
directly for the in-Canada services provided with respect to the Terra Nova
project. The subcontract further provided that the amount of these invoices was
to be calculated in accordance with a fixed formula, which included the
pro-rata share of the total fixed profit allocated to FMCI in relation to the
in-Canada services under the provisions of the Terra Nova Agreement.
As had been the case with FOCC, FMCI was not entitled to assign part of
its interests, rights or obligations under the Terra Nova Agreement to a third
party. It was, however, entitled to assign monies due to it under the Terra
Nova Agreement, subject to receiving the consent of Petro-Canada.
Effective January 1, 1999, and with the consent of Petro-Canada, FMCI
assigned a portion of the contractual payments due to FMCI under the Terra Nova
Agreement to FOCC. These payments related to the actual in-Canada portion of
the work performed by FOCC pursuant to the subcontract between FMCI and FOCC.
At the same time, FMCI relinquished any claim that it might have against
Petro-Canada for the payment of these separately invoiced amounts, subject only
to the provision that the payments were actually made to FOCC.
FOCC then provided in-Canada services in relation to the Terra Nova
project in accordance with the terms of its subcontract with FMCI, invoicing
Petro-Canada the sum of $886,341.84 in 1999, $3,790,752.60 for 2000,
$8,795,023.10 for 2001 and $5,334,879.61 for 2002. The total amount invoiced by
FOCC over the years in issue thus came to $18,806,997.15.
On February 12, 2004, the Canada Revenue Agency issued assessments to
Petro-Canada in its capacity as operator of the Terra Nova project for the
1999-2002 taxation years. Included in these assessments was an amount payable
totaling $2,821,050.33, or 15% of $18,806,997.15.
According to the Minister, these amounts had, in law, been paid to FMCI
rather than FOCC for the in-Canada services provided under the Terra Nova
Agreement. Given that FMCI was not resident in Canada, the Minister was of the
view that Petro-Canada should have withheld 15% of the payments made with
respect to this work, in accordance with Regulation 105 of the Income Tax
The relevant portion of Regulation 105 is subsection 105(1), which
105. (1) Every person paying to a non-resident person a fee,
commission or other amount in respect of services rendered in Canada, of any
nature whatever, shall deduct or withhold 15 per cent of such payment.
105. (1) Quiconque
verse à une personne non-résidente un honoraire, commission ou autre montant
à l’égard de services rendus au Canada, de quelque nature que ce soit, doit
déduire ou retrancher 15 pour cent de ce versement.
Petro-Canada filed a Notice of Objection with respect to these
assessments. By Notice of Confirmation dated July 10, 2006, the Minister
confirmed the Regulation 105 assessments. Petro-Canada did not appeal this
decision to the Tax Court, and in February of 2004, Petro-Canada paid the
Receiver General the assessed amount of $2,821,050.33, together with interest
and penalties, bringing the entire payment to $3,728,153.
It is admitted by the CRA that the amounts paid by Petro-Canada related
to work performed by FOCC in Canada.
FOCC subsequently indemnified Petro-Canada for the $3,728,153 that
Petro-Canada had paid to the Receiver General in accordance with the
February 12, 2004 assessments.
In the meantime, the monies paid by Petro-Canada to FOCC had been
included in FOCC’s income for the 1999-2002 taxation years, and Part I tax had
been paid by FOCC on these amounts.
It is FOCC’s position on this application that the $2,821,050.33 in
withholding tax paid by Petro-Canada should have been paid to the credit of
FOCC’s tax account, as opposed to that of FMCI. Because this was not done, FOCC
has effectively paid $2,821,050.33 in taxes twice on the same earned income.
In an effort to recoup the monies that it believes that it is owed, FOCC
filed a Notice of Appeal with the Tax Court with respect to Petro-Canada’s
Regulation 105 assessments. By Order dated February 1, 2007, the Tax Court
quashed FOCC’s appeal on the basis that FOCC was not the taxpayer who had been
subject to the assessments in issue, and thus had no standing to challenge these
On November 23, 2006, FOCC applied to the Minister under the provisions of
section 164(1) and 164(1.1) of the Income Tax Act for a refund of its
alleged overpayment of tax for the 1999-2002 taxation years in the amount
of $3,728,153, namely the principal amount of withholding tax paid, plus the
interest and penalties that had also been paid by Petro-Canada. These
provisions are lengthy, but have been attached as an appendix to this decision
for ease of reference.
FOCC argued that by virtue of section 153(1)(g) of the Act, the monies
paid in relation to withholding taxes were paid “on account of the payee’s tax
for that year”. Section 153(1)(g) provides that:
Every person paying at any time in a taxation year …
(g) fees, commissions or other
amounts for services, other than amounts described in subsection 115(2.3) or
shall deduct or withhold from the payment the amount
determined in accordance with prescribed rules and shall, at the prescribed
time, remit that amount to the Receiver General on account of the payee’s tax
for the year under this Part or Part XI.3, as the case may be, and, where at
that prescribed time the person is a prescribed person, the remittance shall
be made to the account of the Receiver General at a designated financial
(1) Toute personne qui verse au cours d’une année d’imposition
l’un des montants suivants …
g) des honoraires, commissions ou autres sommes pour services, à
l’exception des sommes visées aux paragraphes 115(2.3) ou 212(5.1) …
doit en déduire ou en retenir la somme
fixée selon les modalités réglementaires et doit, au moment fixé par
règlement, remettre cette somme au receveur général au titre de l’impôt du
bénéficiaire ou du dépositaire pour l’année en vertu de la présente partie ou
de la partie XI.3. Toutefois, lorsque la personne est visée par règlement à
ce moment, la somme est versée au compte du receveur général dans une
institution financière désignée.
FOCC submitted that it was the payee in law of the Petro-Canada
payments, and not FMCI. As a result, FOCC argued that the assessed amounts paid
by Petro-Canada as withholding tax, interest and penalties were in fact paid on
account of FOCC’s Part I tax for the tax years in question, and should,
therefore, have been credited to FOCC in the calculation of FOCC’s outstanding
FOCC further submitted that as it had already paid all of its taxes
payable under Part I of the Income Tax Act in full for the 1999-2002
taxation years, there had been a double payment of tax on the same earned
income. As a consequence, FOCC contended that it was entitled to a refund in
the amount of $3,728,153.
The Minister’s Decision
By letter dated January 8, 2007, the Minister refused FOCC’s request for
a refund. In the Minister’s view, FOCC was not the payee of the Petro-Canada
payments in law. According to the Minister, FMCI was indeed the payee, with the
result that the withholding amounts had properly been assessed on account of
The Minister also noted that FMCI had itself sought a refund of the
$2,821,050.33 in withholding tax paid by Petro-Canada on the basis that it did
not have a permanent establishment in Canada, but that this request had been
refused, as it had been filed beyond the three years time period allowed for
requests to be made for the refund of overpayments as provided for in section
164(1) of the Income Tax Act.
Finally, the Minister observed that FMCI was considering applying for a
remission order in order to recover the overpayment made with respect to its
1999-2002 taxation years.
It is the Minister’s decision refusing FOCC’s request for a refund that
underlies this application for judicial review.
There are three issues on this application for judicial review. The
first is whether this Court has jurisdiction to entertain FOCC’s application,
or whether the matter is one that is within the exclusive purview of the Tax
Assuming that this Court does have jurisdiction to deal with this
matter, the second issue that then arises is the appropriate standard of review
to be applied with respect to the Minister’s decision.
The final issue for determination is whether the Minister erred in
concluding that FOCC was not entitled to a refund in the amount of $2,821,050.33
as an overpayment of tax for FOCC’s 1999-2002 taxation years.
The Minister submits that this Court does not have the jurisdiction to
grant FOCC the relief that it is seeking in this case. FOCC has not challenged
its own tax assessments for the 1999-2002 taxation years, and thus it cannot be
said that FOCC has overpaid its taxes for these years.
Moreover, the respondent points out that one taxpayer cannot challenge
another taxpayer’s assessment. To allow FOCC to claim that an overpayment was
made by Petro-Canada would effectively require that this Court vacate
Petro-Canada’s income tax assessments. Only the Tax Court has the jurisdiction
to hear and determine appeals from tax assessments pursuant to the Income
FOCC argues that it is not seeking to challenge its own tax assessments,
as there is no dispute about the amount of tax that was payable by FOCC for the
1999-2002 taxation years. This is because FOCC acknowledges having
received the $18,806,997.15 paid to it by Petro-Canada for the work that FOCC
did in connection with the Terra Nova project. According to FOCC, the only
matter that is in dispute is how much money had been paid on account of FOCC’s
tax payable for these years.
That is, FOCC says that the question for determination on this
application is whether the Minister erred in failing to recognize that the
$2,821,050.33 in withholding tax paid by Petro-Canada should have been credited
to FOCC’s tax account rather than that of FMCI. Even though the assessments
made against Petro-Canada were based upon the Minister’s finding that the monies
paid by Petro-Canada were paid in law to FMCI, FOCC submits that it cannot be
bound by the reasoning underlying the assessment of another taxpayer.
Moreover, FOCC contends that it cannot obtain the relief that it is
seeking from the Tax Court, as it is not seeking to challenge the amount of tax
that has been assessed as payable by the company. According to FOCC, only the
Federal Court can review the refusal of the Minister to issue a refund to a
taxpayer in circumstances such as this.
In assessing whether this Court has jurisdiction to entertain FOCC’s
application for judicial review, the starting point for the Court’s analysis
must be section 18.5 of the Federal Courts Act, which provides that:
18.5 Despite sections 18 and 18.1, if an Act of Parliament
expressly provides for an appeal to [...] the Tax Court of Canada [...] from
a decision or an order of a federal board, commission or other tribunal made
by or in the course of proceedings before that board, commission or tribunal,
that decision or order is not, to the extent that it may be so appealed,
subject to review or to be restrained, prohibited, removed, set aside or
otherwise dealt with, except in accordance with that Act.
18.5 Par dérogation aux articles
18 et 18.1, lorsqu’une loi fédérale prévoit expressément qu’il peut être
interjeté appel, devant la Cour fédérale, la Cour d’appel fédérale, la Cour
suprême du Canada, la Cour d’appel de la cour martiale, la Cour canadienne de
l’impôt, le gouverneur en conseil ou le Conseil du Trésor, d’une décision ou
d’une ordonnance d’un office fédéral, rendue B tout stade des
procédures, cette décision ou cette ordonnance ne peut, dans la mesure où elle est
susceptible d’un tel appel, faire l’objet de contrôle, de restriction, de
prohibition, d’évocation, d’annulation ni d’aucune autre intervention, sauf
en conformité avec cette loi.
As the Supreme Court of Canada has recently made it clear, this Court
must be cautious in assuming jurisdiction in tax matters, so as not to encroach
on the jurisdiction of the Tax Court.
That is, in Canada
v. Addison & Leyen Ltd. et al.,  S.C.J. No. 33, 2007 SCC 33, the
Supreme Court stated at paragraph 11 that:
Reviewing courts should be very cautious in authorizing
judicial review in such circumstances. The integrity and efficacy of the system
of tax assessments and appeals should be preserved. Parliament has set up a
complex structure to deal with a multitude of tax-related claims and this
structure relies on an independent and specialized court, the Tax Court of
Canada. Judicial review should not be used to develop a new form of incidental
litigation designed to circumvent the system of tax appeals established by
Parliament and the jurisdiction of the Tax Court. Judicial review should remain
a remedy of last resort in this context.
In determining whether this application for judicial review is properly
before this Court, or whether it represents an attempt to encroach on or
circumvent the jurisdiction of the Tax Court, it is necessary to identify the
fundamental basis for the application.
This application for judicial review is styled as a review of the
Minister’s refusal to refund an overpayment of tax allegedly owing to FOCC.
As was noted above, it is FOCC’s position it has overpaid its taxes as
the $2,821,050.33 in withholding tax paid by Petro-Canada should have been
credited to FOCC’s tax account rather than that of FMCI.
The payment of the $2,821,050.33 in withholding tax, together with
interest and penalties, was paid by Petro-Canada as a result of the assessments
of Petro-Canada which held that 15% of the monies paid to FMCI under the
provisions of the Terra Nova Agreement should have been withheld and remitted
by Petro-Canada in accordance with Regulation 105, because FMCI was a
I agree with the respondent that when all is said and done, what FOCC is
essentially trying to do indirectly through this application for judicial
review is to challenge the withholding tax assessment levied against
Petro-Canada. Indeed, FOCC appears to have understood that this is the case, as
is evidenced by the company’s abortive attempt to appeal Petro-Canada’s tax
assessments to the Tax Court.
Leaving aside the question of whether one taxpayer may challenge the
assessment of another taxpayer, what is clear is that this Court does not have
the jurisdiction to review tax assessments. Such reviews are within the exclusive
purview of the Tax Court.
This finding is sufficient to dispose of this application. Nevertheless,
I will deal briefly with the other issues raised by FOCC, in the event that a
reviewing Court may disagree with my jurisdictional finding.
Standard of Review
If this Court were found to have jurisdiction to entertain this
application for judicial review, then the issue to be determined is whether the
Minister erred in finding that FOCC had not made an overpayment of tax that
would necessitate the payment of a refund. This is a question of mixed fact and
law, requiring as it does an assessment of the factual circumstances giving
rise to the request for a refund, as well as the legal effects of the various
contractual arrangements between the parties.
Taking the various factors relevant to the standard of review analysis,
and, in particular, the nature of the question and the Minister’s expertise in
matters relating to taxation, I am of the view that the Minister’s decision
should be reviewed against the standard of reasonableness.
In reviewing a decision against the reasonableness standard,
a reviewing court must consider the justification, transparency and
intelligibility of the decision-making process. The court must also
consider whether the decision falls within a range of possible, acceptable
outcomes which are defensible in respect of the facts and law: Dunsmuir v. New Brunswick, 2008 SCC 9, at paragraph 47.
That said, the choice of the standard of review in this case is not
determinative of the outcome of the case, as I am satisfied that the Minister’s
decision was the correct one.
Did FOCC Overpay its Taxes for the 1999-2002 Taxation
As a preliminary matter, it should be observed that although FOCC
contended in its submissions to the Minister that it was entitled to a refund
in the amount of $3,728,153, in its submissions to this Court, FOCC asks that
the matter be referred back for a new decision on the basis that it is entitled
to a refund of Part I taxes in the amount of $2,821,050.33.
That is, it does not appear that at this stage, FOCC is seeking credit
for the penalties and interest paid by Petro-Canada.
In a nutshell, FOCC says that as a result of the assignment of revenues
entered into by FMCI and FOCC with respect to the revenues associated with the
in-Canada portion of the work performed in relation to the Terra Nova
Agreement, FOCC became the legal payee of the monies paid by Petro-Canada in
this regard. As a consequence, the monies remitted by Petro-Canada as a result
of the Regulation 105 assessments for the 1999-2002 taxation years should have
been credited to FOCC’s tax account, and not that of FMCI.
I do not agree.
First of all, FOCC has not challenged the tax assessments levied against
it for the 1999-2002 taxation years. These assessments are thus final and
conclusive as to the amount of tax that was payable by FOCC, as well as the
computation of the refund owing as a nil amount: see subsection 152(8) of the Income
I accept that the fact that the Notices of Confirmation issued by the
Minister with respect to Petro-Canada held that FMCI was the payee of the
payments made by Petro-Canada for the in-Canada work is not determinative of
the issue as it relates to FOCC. This is because FOCC cannot be bound by the
Minister’s reasoning as it relates to a different taxpayer: see, for example, Gaucher
v. The Queen,  F.C.J. No. 1869, at paragraphs 6 to 9.
That said, having examined the issue for myself, I am not persuaded that
FOCC was the legal payee of the payments made by Petro-Canada, such that
it should receive credit for the monies withheld by Petro-Canada. Indeed, I am
of the view that the Minister was correct in finding that FMCI was the payee of
the monies in issue.
The owners’ contractual obligations with respect to the work to be done
in relation to the Terra Nova project – both in Canada and outside of Canada –
were with FMCI, and not FOCC.
The fact that FMCI may have entered into a subcontract with FOCC, and
may also have assigned a portion of the contractual payments due to FMCI to
FOCC (representing the value of the in-Canada portion of the work provided by
FOCC), does not change the fact that it was FMCI that was the payee under the
Terra Nova Agreement, and not FOCC.
Indeed, the Terra Nova Agreement specifically prohibited FMCI from
assigning any of its rights, interests or obligations to a third party such as
FOCC. While the Terra Nova Agreement did authorize FMCI to assign monies due to
it under the Agreement, the assignment of revenues to FOCC by FMCI did not
create any contractual rights or obligations as between FOCC and Petro-Canada.
It is noteworthy that under the provisions of the assignment of
revenues, FMCI specifically reserved its right to sue Petro-Canada in the event
that Petro-Canada did not pay FOCC. This was necessary, as FOCC would not have
had any contractual remedies against Petro-Canada, in the event that its
invoices were not paid. Indeed, in the absence of any contractual relationship
between FOCC and Petro-Canada, FOCC’s remedies for non-payment would have been
against FMCI under the terms of the subcontract between FMCI and FOCC, and not
As a consequence, it is clear that the legal payee of the monies disbursed
by Petro-Canada with respect to the in-Canada portion of the work performed on
the Terra Nova project in the course of the 1999-2002 taxation years was FMCI.
Given that FMCI was admittedly a non-resident company, Regulation 105 obligated
Petro-Canada to withhold 15% of the monies paid to FMCI, and to remit them to
the taxation authorities, to the credit of FMCI’s account.
As a result, there has been no overpayment of tax by FOCC.
It may be that FMCI has overpaid its Canadian taxes, given that it appears
that all of the monies received by FMCI in relation to the Terra Nova project may
have been expensed out to FOCC. However, it is only the non-resident company
that can seek a refund of the withholding tax paid by Petro-Canada: see Sentinel
Hill No. 29 v. Canada (Attorney General), 89 O.R. (3d) 30,
(Ont. C.A.), at paragraph 10.
That is, it would have been open to FMCI to seek a return of the amounts
withheld by Petro-Canada by filing Canadian income tax returns reflecting the
monies received from Petro-Canada and deducting the amounts paid to FOCC.
FMCI’s failure to do so in a timely manner does not create a right on the part
of FOCC to recoup the monies that may be owing to FMCI through the refund
At the end of the day, it appears that the source of FOCC’s difficulties
is not the Canada Revenue Agency or the Minister of National Revenue. The fact
that FOCC may have paid out the sum of $2,821,050.33 twice in relation to
the same earned income does not result from an overpayment of taxes made by
FOCC. Rather it results from FOCC’s decision to indemnify Petro-Canada for the
$3,728,153 in taxes, penalties and interest that it paid in relation to the
withholding tax that the Minister claimed was owing in relation to the payments
made by Petro-Canada for the work done in accordance with the Terra Nova
For these reasons, FOCC has not persuaded me that the Minister erred in
rejecting its request for a refund, and the application for judicial review
will be dismissed, with costs.