Citation: 2004 FCA 259
CORAM: LINDEN J.A.
AAI.FOSTERGRANT OF CANADA CO.
THE COMMISSIONER OF THE CANADA CUSTOMS AND REVENUE AGENCY
Heard at Ottawa, Ontario on June 16, 2004.
Judgment delivered at Ottawa, Ontario on July 14, 2004.
REASONS FOR JUDGMENT BY: SHARLOW J.A.
CONCURRED IN BY: LINDEN J.A.
 This is an appeal by AAi.FosterGrant of Canada Co. (AAi Canada) under section 68 of the Customs Act, R.S.C 1985, c. 1 (2nd Supp.), from a decision of the Canadian International Trade Tribunal (CITT) rendered on June 13, 2003. That decision upheld a decision of the Commissioner dated December 10, 2001, that increased by approximately 200% the value for duty of certain merchandise imported by AAi Canada between September of 1998 and December of 1999. AAi Canada argues that the decision of the CITT is fatally flawed because it is based on an incorrect interpretation of the words "carries on business" in the Valuation for Duty Regulations, SOR/86-792.
Standard of review
 With respect to the standard of review, I see no relevant distinction between the issue in this case and the issue in Canada v. Mattel Canada Inc.,  2 S.C.R. 100. Both cases require the resolution of a debate as to the interpretation of language that is considered often by the Courts and does not engage the specialized knowledge of the CITT. In my view, the appropriate standard of review is correctness.
Statute and regulations
 The provisions of the Customs Act and the Valuation for Duty Regulations that are relevant to this appeal read as follows (emphasis added):
Loi sur les douanes
45. (1) In this section and sections 46 to 55, [...]
45. (1) Les définitions qui suivent s'appliquent au présent article et aux articles 46 à 55.
"purchaser in Canada" has the meaning assigned by the regulations ( « _acheteur au Canada_ » ) [...].
« _acheteur au Canada_ » S'entend au sens des règlements ("purchaser in Canada" ) [...].
47. (1) The value for duty of goods shall be appraised on the basis of the transaction value of the goods in accordance with the conditions set out in section 48. [...]
47. (1) La valeur en douane des marchandises est déterminée d'après leur valeur transactionnelle dans les conditions prévues à l'article 48. [...]
48. (1) Subject to subsections (6) and (7), the value for duty of goods is the transaction value of the goods if the goods are sold for export to Canada to a purchaser in Canada and the price paid or payable for the goods can be determined and if [...].
48. (1) Sous réserve des paragraphes (6) et (7), la valeur en douane des marchandises est leur valeur transactionnelle si elles sont vendues pour exportation au Canada à un acheteur au Canada, si le prix payé ou à payer est déterminable et si les conditions suivantes sont réunies [...].
Valuation for Duty
Règlement sur la détermination
de la valeur en douane
2. The definitions in this section apply in these Regulations. [...].
2. Les définitions qui suivent s'appliquent au présent règlement.
"permanent establishment", in respect of a person, means a fixed place of business of the person and includes a place of management, a branch, an office, a factory or a workshop through which the person carries on business. (établissement stable)
« établissement stable » Lieu d'affaires fixe d'une personne, y compris un siège de direction, une succursale, un bureau, une usine ou un atelier par l'intermédiaire duquel elle exerce son activité. (permanent establishment) [...]
"resident" means [...]
« résident » [...]
(b) a corporation that carries on business in Canada and of which the management and control is in Canada [...].
b) une personne morale qui exerce son activité au Canada et dont la gestion et le contrôle s'exercent au Canada [...].
2.1 For the purposes of subsection 45(1) of the Act, "purchaser in Canada" means
2.1 Pour l'application du paragraphe 45(1) de la Loi, « acheteur au Canada » s'entend :
(a) a resident;
a) d'un résident;
(b) a person who is not a resident but who has a permanent establishment in Canada [...].
b) d'une personne, autre qu'un résident, qui a un établissement stable au Canada [...].
 The issue before the CITT was whether, during the period from September of 1998 to December of 1999, AAi Canada met the definition of the term "purchaser in Canada". AAi Canada met that definition if, during the relevant period, it carried on business in Canada and had its management and control in Canada, or had a fixed place of business in Canada through which it carried on business. The issue in this appeal is the correct interpretation of the phrase "carries on business".
 AAi Canada is a wholly owned subsidiary of AAi.FosterGrant, Inc. (AAi U.S.), an American corporation based in Rhode Island. I summarize as follows the facts during the relevant period.
 AAi Canada purchased from AAi U.S. certain goods (sunglasses, non-prescription reading glasses, costume jewellery and small synthetic leather goods), and imported those goods into Canada for sale to retailers such as Zeller's, Wal-Mart Canada and Sears Canada. AAi U.S. established pricing guidelines for the resale price of its goods, and required AAi Canada to obtain its approval for new or renegotiated contracts.
 AAi Canada took title to the goods upon their delivery in a warehouse facility in Rhode Island owned by AAi U.S., and bore the risk of loss from damaged goods, discounts on slow-moving goods or end-of-season price reductions. The goods were packaged at that warehouse for delivery directly to AAi Canada's Canadian customers. AAi Canada did not maintain an inventory of goods in Canada.
 AAi Canada leased office premises and a showroom in Toronto, Ontario. AAi Canada employed approximately 100 full-time and part-time employees across Canada. Seven full-time employees, including the president and vice-president, worked at the Toronto location. AAi Canada retained a professional payroll service to manage its payroll.
 AAi Canada's full-time employees negotiated the selling terms of the goods to the Canadian purchasers, accepted and approved purchase orders and developed Canadian marketing programs and strategies for those goods, within the guidelines set by AAi U.S. They also managed the activities of AAi Canada, including the supervision of part-time employees, whose responsibility was to regularly visit the stores of the customers of AAi Canada to ensure that the products were replenished as required.
 The management of AAi Canada had the authority to enter into the lease for its Toronto premises, to enter into binding agreements of purchase and sale with its Canadian suppliers and customers, to approve invoices for the payment of its expenses, and to hire and fire employees.
 There was a service agreement between AAi Canada and AAi U.S. pursuant to which AAi U.S. provided AAi Canada with financial and banking services, financial support and invoicing services. Most of AAi Canada's administrative and accounting functions, including the invoicing of customers and the taking of action to collect unpaid accounts, were done by AAi U.S. The written form of the service agreement was entered into late in 1999. However, the uncontradicted evidence of AAi Canada's president, which was not doubted by the CITT, was that the document set out terms of an agreement that was in force throughout the period in issue.
 The banking arrangements for AAi Canada were such that, for much of the relevant period, AAi Canada's money was held in bank accounts located in the United States, for which no employees of AAi Canada had signing authority.
 AAi Canada earned profits from the sale of the goods it purchased from AAi U.S. Those profits were reported on the Canadian income tax returns of AAi Canada, which paid the resulting income tax liability.
 It was not alleged by the Commissioner, or found by the CITT, that the documents comprising evidence of the transactions to which AAi Canada was a party did not correctly state the legal rights and obligations of the various parties. There is no allegation or finding of sham.
 There is no finding that anything done by AAi Canada or AAi U.S. was inconsistent with the documentary evidence that it was AAi Canada alone that bought and sold the goods. There is no finding that AAi Canada was acting as the agent of AAi U.S. in selling goods to the Canadian retailers. There is no finding that AAi Canada did not have the legal right to be paid the purchase price of the goods sold to the Canadian retailers, or that AAi Canada did not earn and own the profits from those sales.
Decision of theCITT
 The CITT concluded that AAi Canada was not carrying on business because AAi U.S. was so significantly involved in the affairs of AAi Canada that the business was really being conducted by AAi U.S. The conclusion is explained in the following excerpt from page 8 of the reasons for decision (Appeal Book, page 15):
The service agreement entered into between AAi Canada and AAi U.S. documented the fact that, for a fee, AAi U.S. would perform certain services for AAi Canada, including accounting services. In the Tribunal's opinion, while this arrangement might be both efficient and financially prudent for the parties, the fact that these core business functions were performed outside Canada by a separate, though related company, detracts, in these circumstances, from AAi Canada's argument that it "carried on business" in Canada.
The Tribunal is also of the view that the evidence indicates that AAi U.S. maintained control over the negotiation of supply arrangements with Canadian retailers. AAi Canada did not have the authority to negotiate with new clients or to negotiate the resale terms of the goods sold in the Canadian market without seeking the confirmation from AAi U.S. Although AAi Canada's employees maintained some leeway in deciding how individual "programs" for clients were structured, they worked within specific price and margin "target ranges" that were provided by AAi U.S.
In concluding that AAi Canada did not carry on business in Canada during the period at issue, the Tribunal also notes that AAi Canada's sales representatives placed orders directly with AAi U.S. and that no inventory was maintained in Canada. AAi U.S. arranged for shipment of the goods to individual customers in Canada, and AAi Canada typically did not take delivery of the imported goods. Invoices documenting sales were generated in the United States, and AAi U.S., not AAi Canada, pursued unpaid accounts of Canadian retailers. Further, Ms. Pooles did not become a member of AAi Canada's Board of Directors until later in the period at issue, and no meeting of the Board of Directors ever occurred in Canada.
... [It] would appear that, during the period at issue, the Canadian business was conducted by AAi U.S. from its Rhode Island location. Other than the circumscribed role played by AAi Canada's employees in negotiating contracts, as discussed above, the evidence indicates that it [AAi Canada] performed primarily administrative functions in Canada from that location, such as ordering merchandise, creating and purchasing store displays and showing merchandise to customers. In the Tribunal's opinion, these limited functions do not amount to "carrying on business" for purposes of the Regulations.
 There is a significant body of jurisprudence on the meaning of the phrase "carrying on business". I do not propose to attempt a summary. It is sufficient to refer to the helpful comments of Justice Iacobucci and Justice Bastarache, writing for the Supreme Court of Canada in Backman v. Canada,  1 S.C.R. 367 at paragraph 19:
 In law, the meaning of "carrying on a business" may differ depending on the context in which it is used. Provincial partnership acts typically define "business" as including "every trade, occupation and profession". The kinds of factors that may be relevant to determining whether there is a business are contained in the existing legal definitions. One simple definition of "carrying on trade or business" is given in Black's Law Dictionary (6th ed. 1990), at p. 214: "To hold one's self out to others as engaged in the selling of goods or services." Another definition requires at least three elements to be present: (1) the occupation of time, attention and labour; (2) the incurring of liabilities to other persons; and (3) the purpose of a livelihood or profit: see  S.C.R. 592">Gordon v. The Queen,  S.C.R. 592, per Cartwright J., dissenting but not on this point, at p. 603.
 There is nothing in the Customs Act or the Valuation for Duty Regulations that would suggest that the meaning of the phrase "carries on business" should be interpreted in a manner that is not consistent with these established legal definitions. From those definitions, it would seem to be axiomatic that a corporation that buys and sells goods on its own account for a profit is carrying on business.
 The uncontradicted evidence in this case is that AAi Canada was buying and selling goods on its own account for profit. And yet, the CITT concluded that it was not carrying on business. As I understand the reasons for the CITT's decision, the conclusion that AAi Canada was not carrying on business was based solely on the significant degree of de facto control exercised by AAi U.S. over the affairs of AAi Canada. In essence, the CITT adopted the principle that a corporation is not carrying on business if its affairs are subject to significant de facto control by the parent corporation. There is no authority for that proposition, and in my view it is wrong in law. There is nothing in the Customs Act that requires or permits that approach.
 Counsel for the Commissioner argued that the approach taken by the CITT is justified because, given the general policy of the Customs Act, it is not right that a corporation should be treated as the "real purchaser" of goods if it cannot sell those goods without the approval of its foreign parent and does not "show some control" over its profits. I see no merit in that submission. To accept it would invite an error analogous to the error described in the following terms by Justice McLachlin, as she then was, writing for the Supreme Court of Canada in Shell Canada Ltd. v. Canada,  3 S.C.R. 622, at paragraphs 40 and 43:
 [...] it is well established in this Court's tax jurisprudence that a searching inquiry for either the "economic realities" of a particular transaction or the general object and spirit of the provision at issue can never supplant a court's duty to apply an unambiguous provision of the Act to a taxpayer's transaction. Where the provision at issue is clear and unambiguous, its terms must simply be applied [case references omitted].
 [...] This Court has consistently held that courts must therefore be cautious before finding within the clear provisions of the Act an unexpressed legislative intention [case references omitted]. Finding unexpressed legislative intentions under the guise of purposive interpretation runs the risk of upsetting the balance Parliament has attempted to strike in the Act.
 These comments were made about the interpretation of the Income Tax Act, R.S.C. 1985, c. 1 (5th supp.), but in my view they are appropriate for the Customs Act as well, which is equally complex.
 I would allow this appeal with costs throughout.
(s) "K. Sharlow"
J. Edgar Sexton"
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
STYLE OF CAUSE: AAi. FOSTERGRANT OF CANADA CO. v. THE COMMISSIONER OF THE CANADA CUSTOMS AND REVENUE AGENCY
PLACE OF HEARING: OTTAWA, ONTARIO
DATE OF HEARING: JUNE 16, 2004
REASONS FOR JUDGMENT OF THE COURT: SHARLOW J.A.
CONCURRED IN BY: LINDEN J.A.
Mr. Richard W. Pound, Q.C. FOR THE APPELLANT
Mr. Glenn A. Cranker
Ms. Lynn Marchildon FOR THE RESPONDENT
Mr. Alexander Gay
SOLICITORS OF RECORD:
Stikeman Elliott FOR THE APPELLANT
Mr. Morris Rosenberg FOR THE RESPONDENT
Deputy Attorney General of Canada