McKesson - Boyle J referred to the taxpayer’s “pig in a poke” approach to justifying a high discount rate on intercompany receivables sales in the previous Tax Court of Canada hearing

In McKesson, Boyle J found that the taxpayer had been selling its trade receivable to its immediate Luxembourg parent (MIH) at discounts which were excessive from a transfer pricing perspective. In a subsequent decision, he has now recused himself from dealing with residual issues on the basis that taxpayer’s counsel had lied about his trial conduct and reasons for judgment in their Federal Court of Appeal factum - which would reasonably be expected to vex him sufficiently to affect his impartiality.

While accepting Boyle J’s statement that such reasons "are very clear" on important points, his explanations of the "untruths," including quotes from the extensive exchanges from the bench at trial, are illuminating:

• He had expressed concern about the taxpayer, which began with a cost of funds of nearing 5%, quadrupling this cost on the basis of laying off risk to MIH.
• The taxpayer’s approach, that (ignoring MIH’s knowledge and control as parent) MIH was "buying a pig in a poke," so that it was taking on a lot of risk, would mean that "virtually every Canadian subsidiary…[could] be re-pricing to 5 year junk rates."
• However, in his trial reasons, it had not been necessary to rely on the likely law that this parent-sub relationship could be taken into account, as on the face of the receivables purchase agreement, MIH had an out once the collection performance began to deteriorate (i.e, low risk).

Neal Armstrong. Summary of McKesson Canada Corp. v. The Queen, 2014 TCC 266 under s. 247(2).