CGI Holding LLC – Federal Court finds that a dividend to an LLC that was not “fully and comprehensively taxed” in the U.S. could be denied Treaty benefits by CRA

TD Securities found that an LLC was eligible for Treaty benefits. This case was released beyond the expiry of the two-year limitation period in s. 227(6) for another LLC (CGI) to apply for a refund of Part XIII tax on a substantial dividend previously received by it. (It wanted to reduce the effective rate from 25% to 5%.) CGI instead requested the IRS to engage CRA in competent authority proceedings so as to obtain the refund. In 2014, CRA sent a letter advising the IRS that it had concluded that Treaty relief was not available.

In finding that this decision of CRA was not unreasonable, McDonald J stated:

[T]he CRA…concluded that tax avoidance may have been a factor in the corporate reorganization. Further, the CRA was not satisfied that the dividend was fully and comprehensively taxed in the United States. These factors are addressed in the TD Securities decision. … These conclusions are within the range of possible outcomes of the MAP process.

An alternative CGI ground was that CRA should exercise its discretion under s. 227(10.1) to assess Part XIII tax at the reduced rate beyond the two-year period. McDonald J found that CGI'S s. 227(10.1) application was invalid as it had rushed CRA too much by immediatelely applying for judicial relief:

Here … CGI has not demonstrated a refusal on the part of the Minister to exercise her discretion. ... CGI … filed its Notice of Application for Judicial Review… only a few days after the request for an assessment. In the circumstances, CGI did not provide the Minister with a reasonable period of time to consider the assessment request.

Neal Armstrong. Summaries of CGI Holding LLC v MNR, 2016 FC 1086 under Treaties – Art. 4 and s. 227(10.1).