PRÉVOST CAR INC.,
HER MAJESTY THE QUEEN,
AMENDED REASONS FOR JUDGMENT
 The issue in these
appeals by Prévost Car Inc. ("Prévost"), is to determine who was the
beneficial owner of dividends paid by Prévost in 1996, 1997, 1998, 1999 and
2001. The term "beneficial owner" is found in Article 10,
paragraph 2 of the Canada-Netherlands Tax Treaty ("Tax Treaty"). Prévost is a resident Canadian
corporation who declared and paid dividends to its shareholder Prévost Holding
B.V. ("PHB.V."), a corporation resident in the Netherlands. The Minister of
National Revenue ("Minister") issued assessments under Part XIII
of the Income Tax Act ("Act") against Prévost, notices
which are dated July 13, 2000, August 29, 2001 and April 15,
2004, in respect of the aforementioned dividends. The Minister assessed on the basis
that the beneficial owners of the dividends were the corporate shareholders of
PHB.V., a resident of the United Kingdom and a resident of Sweden, and not PHB.V. itself.
When Prévost paid the dividends it withheld tax by virtue of subsections 212(1)
and 215(1) of the Act. According to Article 10 of the Tax Treaty, the
rate of withholding tax was five percent.
 In her replies to
the notices of appeal the respondent stated that pursuant to subsection 215(1)
of the Act, the appellant was required to withhold and remit to the
Crown 25 percent of the dividends paid to PHB.V. but, she adds, facetiously, I
might add, "fortunately for the appellant, the Minister applied the
reduced rates of taxation of 15 and 10% from the Canada-Sweden Tax Treaty
and Canada‑U.K. Tax Treaty respectively to the dividends paid even
though the treaties had no application".
 The appellant was
incorporated under the laws of Quebec and is
resident of Canada. It manufactures buses and related
products in Quebec and has parts and services facilities throughout North America. On or about May 3, 1995 the
appellant's erstwhile shareholders agreed to sell their shares of the appellant
to Volvo Bus Corporation (also known as Volvo Bussar A.B. and referred to in
these reasons as "Volvo"), a resident of Sweden and Henlys Group PLC
("Henlys"), a resident of the United Kingdom. Volvo and Henlys were
parties to a Shareholders' and Subscription Agreement ("Shareholders'
Agreement") dated May 3, 1995, under which Volvo undertook to incorporate
a Netherlands resident company and subsequently transfer to the Dutch Company
all of the shares Volvo acquired in Prévost; the shares of the Netherlands
company would be owned as to 51 percent by Volvo and 49 percent by Henlys. The
transfer of Prévost shares to Henlys would take place after Henlys had secured
funding for its share of the purchase.
 On or about June 12, 1995, the agreements of May 3,
1995 were carried out: Volvo transferred all of the issued and outstanding
shares in Prévost to PHB.V. Shares of PHB.V. were transferred by Volvo to
Henlys so that the issued and outstanding shares of PHB.V. were owned by Volvo
as to 51 percent (51 Class "A" shares) and Henlys as to 49 percent (49
Class "B" shares).
 The relevant
corporate structure was:
 Volvo and Henlys were both engaged in the manufacture
of buses, Volvo manufacturing the chassis and Henlys, the bus body. Prévost was
in the same business, building coaches for different types of buses and bus
body shells. Mr. Tore Backstrom, Senior Vice-President for North and South
America for Volvo Bus Operations, described a body shell as a coach without any
seats but may have other facilities, such as expendable side walls and may be
convertible into a motor home or coach for entertainers on tour, for example.
 In the early 1990s Volvo learned that the erstwhile
shareholders of Prévost were prepared to sell their shares. At the time Volvo
and Henlys were seeking to expand their markets to North America and decided to acquire Prévost
through a holding company.
 Mr. Backstrom declared that the reason Volvo and
Henlys formed a holding company was that both Henlys and Volvo were involved in
two different aspects of bus construction, body and chassis, and "we saw
in front of us a clear avenue whereby the corporation should be enlarged
further to encompass other operations and to have a holding company . . . where
we share our knowledge". He added that where Volvo purchases all the
shares of a company, it "very often" does not use a holding company.
 The reason for choosing a Dutch holding company was
very simple, according to Mr. Backstrom. Tax was a consideration, but not an
overriding consideration. He explained that Henlys did not want a Swedish
company and Volvo did not want an English company. Both wanted a company
resident in Europe where they have "a set-up" for that type of
activity that is not too expensive and where business could be conducted in
English. The choices were Switzerland,
Luxembourg, Belgium and Holland, the latter being "very neutral".
 However, the office of Arthur Anderson & Co. in
Rotterdam had recommended that in order to avoid tax claims from the United Kingdom or Sweden, and other international tax issues, the effective
management and control of PHB.V. be located in the Netherlands.
 Mr. Backstrom also testified that PHB.V. was
established as a vehicle for Henlys and Volvo to pursue multiple North American
projects. The first of these projects was Prévost. The second was to be a
Mexican company, Masa. The original intention was for Henlys to participate in
the purchase and that PHB.V. would hold the Masa’s shares. However, by this
time, Henlys was in financial difficulty. Henlys had the option "for some
years" to join Volvo in the Mexican venture but, in the end, did not do
so. In fact, said Mr. Backstrom, Henlys is in "liquidation and . . . does
not exist anymore".
 The Shareholders' Agreement also provided, among other
things, that not less than 80 percent of the profits of the appellant and PHB.V.
and their subsidiaries, if any, (together called the "Corporate Group")
were to be distributed to the shareholders. The distribution of the profits was
subject to the Corporate Group having sufficient financial resources to meet
its normal and foreseeable working capital requirements at the time of payment
unless the shareholders otherwise agreed. Amounts were to be distributed by way
of dividend, return of capital or loan. The distribution for a fiscal year was
to be declared and paid to shareholders "as soon as practicable"
after the end of the fiscal year. The Board of Directors of PHB.V. was to take
reasonable steps to "procure" that dividends or other payments are
declared by the appellant or other steps are taken to enable PHB.V. to make
payments of dividends or return of capital or that any monies loaned by
shareholders are repaid.
 The directors of Prévost were directors of PHB.V.
Directors of Prévost frequently discussed PHB.V.'s affairs as well, including future
declarations and payments of dividends.
 The amounts of dividends in question were paid by the
appellant to PHB.V. and then distributed by PHB.V. to Volvo and Henlys in accordance
with the Shareholders' Agreement.
 At a meeting on November 27, 1995, the directors of Prévost
confirmed that the dividend for 1996 would be at least 80 percent of after tax
profit and agreed that a "procedure will be written to determine how this
will work". At a meeting on March 23, 1996, the purported shareholders of Prévost
agreed to a dividend policy "that following the completion of accounts for
each quarter, and subject to adequate working and investment capital being
available to the company, a dividend of 80 percent of the net retained
profit after tax should be paid by the end of the following quarter". At a
meeting following the end of each financial year the directors of Prévost also were
to consider whether more than 80 percent of the retained profit for the
period be paid out as a dividend. On March 23, 1996 the shareholders met and agreed
that a dividend representing 80 percent of the retained earnings for the
period June 7, 1995 to December 31, 1995 be paid by April 30, 1996.
 There is a reason that I referred to Prévost's
"purported shareholders" in the immediately preceding paragraph. The
minutes of the meeting of shareholders of Prévost held on March 23, 1996 record
that the shareholders attending the meeting are proxies for Volvo and Henlys.
At the time, however, Prévost had only one shareholder, PHB.V. An identical
error appears in a resolution of shareholders of Prévost dated August 15, 1996,
signed by Volvo and Henlys. This is at least sloppy maintenance of corporate
records but also could be an indication of something more significant. Minutes
of a meeting of shareholders of Prévost held on May 9, 2002 however do state
that the shareholder of Prévost is PHB.V.
 The English translation of the Deed of Incorporation of
PHB.V. is headed "Incorporation of the Private Closed Company with Limited
Liability Prévost Holding B.V." and is dated June 12, 1995. Article 24 of
the Deed describes how profits are to be allocated and refers to the
1. The management board shall
be authorized to, with due observance of what has been agreed in the
shareholders' agreement, reserve part of the accrued profits.
2. The profits remaining
after the reservation referred to in paragraph 1 of this article shall be at
the disposal of the general meeting.
3. Dividends may be paid only
up to an amount which does not exceed the amount of the distributable part of
the net assets.
4. Dividends shall be paid
after adoption of the annual accounts from which it appears that payment of
dividends is permissible.
5. The management board, may
subject to due observance of paragraph 3, resolve to pay an interim dividend.
6. The general meeting may,
subject to due observance of paragraph 3, and after approval of the management
board resolve to make payments to the charge of any reserve which need not be
maintained by virtue of the law.
7. A claim of a shareholder
for payment of dividend shall be barred after five years have elapsed.
 The Joint Book of Documents contains copies of
resolutions of the Board of Managing Directors of PHB.V. declaring dividends to
its shareholders, Volvo and Henlys. However, there is only one resolution of
the Board of Directors of Prévost in the Joint Book that records the
declaration of a dividend; that resolution, dated December 30, 1996, records a
dividend of $9,000,000 payable during the first quarter of 1997. There is also
evidence that some monies were paid to PHB.V. before dividends were declared by
Prévost's directors. However, on examination for discovery Cindy Kalb, an
official of the Canada Revenue Agency, acknowledged that the respondent does
not dispute that the dividends in question were properly declared by the
appellant and paid to PHB.V.
 On February 27, 1996 Mr. Brian Chivers, Finance
Director of Henlys, wrote to Volvo stressing the importance that Volvo and
Henlys agree to a regular dividend stream before the next directors meeting of Prévost.
Henlys was always pressing for quick payment of dividends since it required
money to service the loan it undertook to finance its purchase of Prévost or,
more accurately, its purchase of PHB.V. In one instance $5,684,523 was
transferred to Henlys on fax instructions by Mr. Chivers without a resolution
of the managing directors of PHB.V. having been signed.
 Ms. Lyne Bissonnette, Chief of Treasury at Prévost was
(and is) responsible for accounting and financial matters at Prévost. She
described how money was usually paid by Prévost to PHB.V. She recalled that Prévost's
Chief Financial Officer or its Vice‑President, Finance, would inform her
of any dividend declared by Prévost's directors. Usually Mr. Chivers would have
been pressing for payment. Ms. Bissonnette would receive a fax instructing her
to whom she should make payment. She would verify the amounts and then inform
Volvo and Henlys of the amount of money being transferred.
 On April 2, 1996, a week after Prévost's purported
shareholders adopted its dividend policy at its March 23, 1996 meeting, Mr.
Chivers wrote to Prévost setting out the dividend policy and asking for the
payment of a dividend for the period June 7 to December 31, 1995. Mr. Chivers advised
Prévost of the amount of the dividend, being 80 percent of profit and
instructed Prévost to pay the dividend to PHB.V. once he advises Prévost of PHB.V.'s
bank account. On April 15th he set out the details of PHB.V.'s Canada dollar bank account. Two days
later Ms. Bissonnette sent a memo to Mr. Chivers and a Mr. Hiller at Volvo
detailing the amount of the dividend, the amount of the withholding tax at
six percent, and that the net dividend "was wired" to the Banque
Nationale du Canada.
 The Banque Nationale du Canada then transferred the
amount of net dividend to Citco Bank Netherlands PHB.V., PHB.V.'s banker in Amsterdam. The actual dividend was declared
after Prévost had advanced the amount equal to the proposed dividend, less
withholding tax, to PHB.V. It was expected that the recipient would get payment
within 24 hours.
 There were 11 dividends paid by Prévost that are
subject to the assessments under appeal. The payment of the dividends would be processed
in a manner similar to that described in the immediately preceding paragraphs,
although there were also payments made after an interim dividend was declared.
 At all relevant times PHB.V.'s registered office was in
the offices of Trent International Management PHB.V. ("TIM"), originally
in Rotterdam and later in Amsterdam. TIM
was affiliated with PHB.V.'s banker, Citco Bank. In March 1996 the directors of
PHB.V. executed a Power of Attorney in favour of TIM to allow it to transact
business on a limited scale on behalf of PHB.V. There is no evidence what this
"limited" business included. Later, on December 1996, PHB.V. executed
another Power of Attorney in favour of TIM to allow it to arrange for the
execution of payment orders in respect of interim dividend payments to be made
to PHB.V.'s shareholders.
 During the years in appeal, PHB.V. had no employees in
the Netherlands nor does it appear it had any
investments other than the shares in Prévost.
 From time to time PHB.V. had to provide "Know Your
Client" documentation to its banker. According to this documentation PHB.V.
represented that the beneficial owners of the shares of Prévost were by Volvo
and Henlys, not PHB.V. itself. The appellant states that the "Know Your
Client" policies concerned anti-money laundering and bank regulatory
issues and were intended to determine who was ultimately "behind the
funds" in an account.
Treaty & OECD
 The appellant withheld tax of (six and) five percent on
the payment of the dividends to PHB.V., relying on paragraphs 1 and 2 of
Article 10 of the Tax Treaty. From July 30, 1994 to January 14, 1999, the
relevant portions of Articles 10(1) and (2) of the Tax Treaty read as
1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may
be taxed in that other State.
1. Les dividendes payés par une société qui est un résident d'un État
contractant à un résident de l'autre État contractant sont imposables dans
cet autre État.
2. However, such dividends may also be taxed in the State of which the
company paying the dividends is a resident, and according to the laws of that
State, but if the recipient is the beneficial owner of the dividends the tax
so charged shall not exceed:
a) 5 per cent of the gross amount of the
dividends if the beneficial owner is a company (other than a partnership),
that holds directly or indirectly at least 25 per cent of the
capital or at least 10 per cent of the voting power of the company paying the
. . .
c) 15 per cent of the gross amount of
the dividends in all other cases.
2. Toutefois, ces dividendes sont aussi imposables dans l'État dont la
société qui paie les dividendes est un résident et selon la législation de
cet État, mais si la personne qui reçoit les dividendes en est le bénéficiaire
effectif, l'impôt ainsi établi ne peut excéder :
a) 5 pour cent du montant brut des
dividendes si le bénéficiaire effectif est une société (autre qu'une société
de personnes) qui détient directement ou indirectement au moins 25 pour cent
du capital ou au moins 10 pour cent des droits de vote de la société qui paie
c) 15 pour cent du montant brut des
dividendes, dans tous les autres cas.
 Subparagraph (a) of paragraph 2 of Article 10 of
the Tax Treaty was replaced effective January 15, 1999 as follows:
a) 5 per cent of the gross amount of the dividends
if the beneficial owner is a company (other than a partnership) that owns at
least 25 per cent of the capital of, or that controls directly or indirectly
at least 10 per cent of the voting power in, the company paying the
. . .
a) 5 pour cent du montant brut des
dividendes si le bénéficiaire effectif est une société (autre qu'une société
de personnes) qui détient au moins 25 pour cent du capital de la société qui
paie les dividendes, ou qui contrôle directement ou indirectement au moins 10
pour cent des droits de vote dans cette société;
 The Tax Treaty is based on the Organization for
Economic Cooperation and Development ("OECD") Model Tax Convention on
Income and on Capital 1977 ("Model Convention"). Paragraph 1 and the
opening words of paragraph 2 of Articles 10 of the Model Convention and the Tax
Treaty are identical except for the word "Contracting" describing the
word "State" in Article 10(2) of the 1977 Model Convention.
The subparagraphs of paragraph 2 differ. However, the subparagraphs have no
bearing on these reasons.
 Paragraphs 2 of Article 10 of the Model Convention
and the Tax Treaty require that the recipient of dividends be the
"beneficial owner" or, in French, "le bénéficiaire
effectif" of the dividends. The words used for "beneficial
owner" and "le bénéficiaire effectif" in the Dutch version of
the Treaty is uiteindelijk gerechtigde. These words are defined neither
in the Model Convention nor in the Tax Treaty. The French version of the Act
generally uses the words "propriétaire effectif" or "personne
ayant la propriété effective" for "beneficial owner".
 The Commentary on Article 10 of the 1977 OECD
Model Convention states that:
12. Under paragraph 2, the limitation of
tax in the State of source is not available when an intermediary, such as an
agent or nominee, is interposed between the beneficiary and the payer, unless
the beneficial owner is a resident of the other Contracting State. States which
wish to make this more explicit are free to do so during bilateral
Canada has not undertaken any negotiations with the Netherlands to make paragraph 2 of Article 10
of the Tax Treaty any more explicit.
 In 2003 the OECD Commentaries to Article 10 of the OECD
Model Convention were modified. Paragraphs 12, 12.1 and 12.2 of the
Commentaries explain that the term "beneficial owner in Article 10(2) of
the Model Convention" is not used in a narrow technical sense, rather, it
would be understood in its context and in light of the object and purposes of
the Convention, including avoiding double taxation and the prevention of fiscal
evasion and avoidance. With respect to conduit companies, a report from the
Committee on Fiscal Affairs concluded "that a conduit company cannot
normally be regarded as the beneficial owner if, though the formal owner, it
has, as a practical matter, very narrow powers which render it, in relation to
the income concerned, a mere fiduciary or administrator acting on account of
the interested parties".
 In 1995, Article 10, paragraph 2 of the Model Convention,
1977 was amended by replacing the words "if the recipient is the
beneficial owner of the dividends" with "if the beneficial owner of
the dividends is a resident of the other Contracting State". (There was no change to this wording in the
Tax Treaty.) The Commentary was also amended to explain that the Model Convention
was amended to clarify the first sentence of the original commentary, above, "which
has been the consistent position of all Member countries". The second
sentence of the Commentary was not altered. The key words, as far as these appeals
are concerned, in both the 1977 and 1995 versions of the OECD Model Convention
and the Tax Treaty are "beneficial owner" and the equivalent words in
the French and Dutch languages.
 Article 3(2) of the Tax Treaty provides an approach to
understanding undefined terms:
2. As regards the application of the Convention
by a State any term not defined therein shall, unless the context otherwise requires,
have the meaning which it has under the law of that State concerning the
taxes to which the Convention applies.
2. Pour l'application
de la Convention par un État, toute expression qui n'y est pas définie a le
sens que lui attribue le droit de cet État concernant les impôts auxquels
s'applique la Convention, à moins que le contexte n'exige une interprétation
In other words, when Canada wishes to impose our income tax, a term not defined in the Tax Treaty
will have the meaning it has under the Act, assuming it has a meaning
under the Act.
 The Income Tax Conventions Interpretation Act,
at section 3, directs how the meaning of undefined terms in a tax treaty are to
3. Notwithstanding the provisions of a
convention or the Act giving the convention the force of law in Canada,
it is hereby declared that the law of Canada is that, to the extent
that a term in the convention is
(a) not defined in the
(b) not fully defined in the convention, or
(c) to be defined by reference to the laws
that term has, except to the extent that the
context otherwise requires, the meaning it has for the purposes of the Income
Tax Act, as amended from time to time, and not the meaning it had for the
purposes of the Income Tax Act on the date the convention was entered
into or given the force of law in Canada if, after that date, its meaning for
the purposes of the Income Tax Act has changed.
1984, c. 48 s. 3.
3. Par dérogation à
toute convention ou à la loi lui donnant effet au Canada, le droit au Canada
est tel que les expressions appartenant aux catégories ci-dessous
s'entendent, sauf indication contraire du contexte, au sens qu'elles ont pour
l'application de la Loi de l'impôt sur le revenu compte tenu de ses
modifications, et non au sens qu'elles avaient pour cette application à la
date de la conclusion de la convention ou de sa prise d'effet au Canada si,
depuis lors, leur sens pour la même application a changé. Les catégories en
a) les expressions non définies dans la convention;
b) les expressions non définies exhaustivement dans
c) les expressions à définir d'après les lois
1984, ch. 48, art. 3.
 The Vienna Convention on The Law of Treaties
("VCLT"), at Article 31(1), states that:
A treaty shall be interpreted in good faith in
accordance with the ordinary meaning to be given to the terms of the treaty in
their context and are the light of its object and purpose.
 Tax treaties are to be given a liberal interpretation
with a view of complementing the true intentions of the contracting states.
The paramount goal is to find the meaning of the words in question.
 Article 3(2) of the OECD Model Convention 1977 is
similar to Article 3(2) of the Tax Treaty:
... [A]s regards the application of the Convention by a Contracting State any term not defined therein shall, unless the context otherwise
requires, have the meaning which it has under the law of that State
concerning the taxes to which the Convention applies.
l'application du présent Accord à un moment donné par un État contractant,
tout terme ou expression qui n'y est pas défini a, saut si le contexte exige
une interprétation différente, le sens que lui attribue à ce moment le droit
de cet État concernant les impôts auxquels s'applique le présent Accord.
 In 1999
Article 3(2) of the Model Convention, was amended as follows:
2. As regards the application of the Convention at any time by a
Contracting State, any term not defined therein shall, unless the context
otherwise requires, have the meaning that it has at that time under the law
of that State for the purposes of the taxes to which the Convention applies,
any meaning under the applicable tax laws of that State prevailing over a
meaning given to the term under other laws of that State.
2. Pour l'application
de la Convention à un moment donné par un État contractant, tout terme ou
expression qui n'y est pas défini a, sauf si le contexte exige une
interprétation différente, le sens que lui attribue, à ce moment, le droit de
cet État concernant les impôts auxquels s'applique la Convention, le sens
attribué à ce terme ou expression par le droit fiscal de cet État prévalant
sur le sens que lui attribuent les autres branches du droit de cet État.
 The concept of "beneficial ownership" or
"beneficial owner" is not recognized in the civil law of Quebec or other civil law countries who
are members of OECD. Paragraph 248(3)(f) of the Act attempts
to harmonize civil law and common law for purposes of the Act. Subsection
248(3) states that in applying the Act in Quebec usufruct, right of use in habitation and substitution, are
deemed in certain circumstances to be a trust. Paragraph (f) concludes
(f) property in relation to which any person has, at any time,
(i) the right of ownership,
(ii) a right as a lessee in an emphyteutic lease,
(iii) a right as a beneficiary in a trust
shall, notwithstanding that such property is subject to a servitude, be
deemed to be beneficially owned by the person at that time.
f) les biens sur lesquels une personne a, à un moment donné, un droit de
propriété, un droit de preneur dans un bail emphytéotique ou un droit de bénéficiaire
dans une fiducie sont réputés, même s'ils sont grevés d'une servitude, être
la propriété effective de la personne à ce moment.
 The appellant produced several expert witnesses to
explain Dutch law and the development of the OECD Model Conventions and the
Commentaries on the Model Conventions.
 Professor Dr. S. van Weeghel was an expert witness for
the appellant. He is a Professor of Law and practices taxation law in the Netherlands. At time of trial Professor van
Weeghel was a partner in the Amsterdam office
of the law firm, Linklaters. He had earlier worked at another law firm, Stibbe,
in Amsterdam and New York as Head of Tax, among other positions. He was called to
the Amsterdam Bar in 1987. He obtained a LL.M. degree in taxation from New York
University in 1990 and a doctorate from the University of Amsterdam in 2000. He is a tenured professor
of tax law at the University
of Amsterdam. Professor van Weeghel has
lectured at several universities in Europe. He has published numerous articles
on European tax matters and tax treaties. He is an expert in Dutch tax
treaties, Dutch tax law and abuse of tax treaties.
 Professor van Weeghel concluded that under Dutch law PHB.V.
is the beneficial owner of Prévost's shares. He relied, in particular, on an
interpretation by the Hoge Raad (Dutch
Supreme Court). In his report Professor van Weeghel described the facts and ratio
of that case as follows:
. . . The taxpayer, a stockbroker resident in the United Kingdom, had acquired a number of dividend coupons detached from Royal Dutch
shares. At the time of the purchase, the dividends had been declared but not
yet paid. The stockbroker had paid approximately 80 per cent of the face value
of the coupons. The dividend was paid to the stockbroker, subject to 25 per
cent dividend withholding tax – the full statutory rate – which was withheld by
the paying agent. Subsequently, the stockbroker filed for a refund of 10 per
cent of the gross dividend, based upon Article 10, paragraph 2 of the 1980 Netherlands-United Kingdom tax treaty, which – in relevant part – is
substantially similar to Article 10, paragraph 2 of the Convention.
The tax inspector denied the refund and asserted
that ownership of the shares was a prerequisite for refund of withholding tax.
The Gerechtshof – on appeal of the stockbroker – established as a fact
that the stockbroker had acquired a number of dividend claims of which the
amounts were entirely certain and which would be payable within days from the acquisition.
Under those circumstances, the court ruled, the taxpayer did not qualify as the
beneficial owner of the dividends.13
The Hoge Raad reversed the decision of the Gerechtshof,
deciding as follows . . . [translation by Professor Weeghel]:
The taxpayer became owner of the dividend coupons as
a result of purchase thereof. It can further be assumed that subsequent to the
purchase the taxpayer could freely avail of those coupons and, subsequent to
the cashing thereof, could freely avail of the distribution, and in cashing the
coupons the taxpayer did not act as voluntary agent (zaakwaarnemer, SvW)
or for the account of the principal (lasthebber, SvW). Under those
circumstances the taxpayer is the beneficial owner of the dividend. The treaty
does not contain the condition that the beneficial owner of the dividend must
also be the owner of the shares and further it is irrelevant that the taxpayer
purchased the coupons at the time the dividend had already been announced,
because the question who is the beneficial owner must not be answered at the
time the dividend is announced, but at the time the dividend is made payable.
Based on the Hoge Raad's interpretation, Professor
van Weeghel concluded that:
. . . a clear and simple rule emerges. A person is
the beneficial owner of a dividend if i) he is the owner of the dividend
coupon, ii) he can freely avail of the coupon, and iii) he can freely avail of
the monies distributed. One could read the formulation of this rule by the
Court so as to leave open the question whether the freedom to avail of the
coupon or of the distribution must exist in law or in fact, or both. The
reference to the wording pertaining to the "zaakwaarnemer" and
the "lasthebber", however, seems to require a narrow reading
of the ruling, i.e., one in which the freedom must exist in law. The addition
of these terms cannot be read as a further condition, because a zaarkwaarnemer
and a lasthebber by definition cannot freely avail of the dividend.
Thus the addition must be seen as a clarification of the conditions of free
avail and the zaakwaarnemer and the lasthebber both lack that
freedom in law.
13 The taxpayer had argued that the
language of Article 10 is clear and that neither the text nor the rationale of
this provision justify the condition that the recipient of the dividend must
also be the owner of the shares.
 Appellant's counsel led evidence that the Canada
Revenue Agency, or its predecessor, and the Dutch tax authorities disagreed who
was the "beneficial owner" of the dividends received from Prévost.
The Dutch are of the view PHB.V. was the "beneficial owner". The
appellant requested competent authority assistance relating to the term
"beneficial owner" in Article 10(2) of the Tax Treaty. There was some
communication between the tax authorities of Canada and the Netherlands, but
when the Dutch and Canadian views differed as to whether the beneficial
ownership requirement in Article 2 of the 1986 Convention affected situations
similar to those in the appeals at bar, the Canadian authorities terminated the
competent authority review.
 Professor van Weeghel stated that under Dutch law, PHB.V.
would be regarded as the beneficial owner of the dividends. However, if PHB.V.
were legally obligated to pass on the dividends to its shareholders, Dutch law
would consider PHB.V. not to be the beneficial owner of the dividends.
 Professor Rogier Raas is a professor in European banking
and securities law at the University of Luden in the Netherlands. Since 2000 he has practiced law
with the law firm of Stibbe; he also acts as counsel to corporations and
financial institutions on finance related and regulating matters. Professor
Raas did not testify. The appellant produced his redacted report and the respondent
did not object.
 Professor Raas opined that the dividends received by PHB.V.
were within the taxing authority of the Dutch government and that, but for the
participation exemption granted by the Dutch government to PHB.V., PHB.V. would
have been subject to Dutch tax in respect of the dividends.
Despite the existence of a Shareholders' Agreement between Volvo and Henlys and
the Powers of Attorney granted to TIM, PHB.V. itself was not contractually or
otherwise required to pass on the dividends it received from the appellant. In
all cases, dividend payments had to be authorized by PHB.V.'s directors in
accordance with Dutch law and practice. The Shareholders' Agreement and Powers
of Attorney did not have any effect on the ownership of the dividends by PHB.V.,
Professor Raas stated.
 Professor Raas summarizes Dutch corporate law as it
relates to the distribution of profits as follows:
(a) The default
scenario under the Netherlands Civil Code is that profits are to be distributed
up to the shareholders in full with the only proviso being that the equity of
the company remains greater than the sum of its paid up capital, called share
capital and statutory reserves;
mandatory distribution of profits can be deviated from in the Articles of
Association of a Dutch B.V., with the majority of Dutch B.V.'s opting to have
annual profits at the disposal of the general meeting of shareholders. The
shareholders then decide the allocation of the profits between annual reserves
and the dividends to be distributed to the shareholders; and
(c) The Board of
Directors of a Dutch B.V. can pay interim dividends as opposed to year-end
dividends if so authorized by the Articles of Association. Interim dividends
are of a provisional nature. They only become final when shareholders pass a
year-end resolution to declare an annual dividend equal to the sum of the
interim dividends or adopt the annual accounts for the relevant financial year
confirming the sufficiency of the reserves.
 In respect of the impact of the dividend policy in the Shareholders'
Agreement on the powers of PHB.V. Professor Raas concluded that:
dividend policy in the Shareholders' Agreement does not provide for a
limitation of the powers of the Board of Directors of PHB.V. that is uncommon
in a Netherlands law context. A considerable
influence of shareholders on the dividend policy of a Dutch B.V. is very
(b) unlike the
default scenario or where annual profits are at the disposal of the general
meeting of PHB.V.'s shareholders, the Board of Directors had the discretion
under PHB.V.'s Articles of Association and the dividend policy to decide the
adequacy of the working capital requirements, before dividends were paid.
 The respondent argues that Professor Raas assumed
incorrectly that PHB.V. had a dividend policy independent of that of the Corporate
Group set out in the Shareholders' Agreement and referred to in PHB.V.'s
Articles of Association. Instead, respondent's counsel argued, the discretion
of the directors of PHB.V. to determine the adequacy of working capital of PHB.V.
was inextricably tied to the same determination being made by the directors of Prévost.
The proviso in the Shareholders' Agreement on the payment of not less than 80 percent
of the after tax profits of the Corporate Group was limited only by a
determination of the Board of Directors of both PHB.V. and Prévost as to the
adequacy of normal and foreseeable working capital requirement of the Corporate
Group at the time of each dividend payment. The dividend policy of PHB.V., as
described in the Raas report, was in fact a resolution of purported shareholders
of Prévost, represented as Volvo and Henlys, and adopted by the Board of
Directors of Prévost, both occurring on March 23, 1996.
 Taken together, the respondent says, the dividend
policy in the Shareholders' Agreement, the shareholder and director resolutions
of March 23, 1996, coupled with the authorization in PHB.V.'s Articles of
Association to pay interim dividends defined the scope of the discretion of the
directors of the PHB.V. to determine its working capital requirement. This
discretion was purely academic.
 Daniel Lüthi, a graduate in law, worked in the Swiss
Ministry of Finance and negotiated about 30 tax treaties on behalf of Switzerland. He was also a member of the Swiss
delegation to the OECD Fiscal Committee, member of OECD Committee on Fiscal
Affairs ("CFA") a member and chairman of the Swiss delegation to the
OECD Working Party 1 on Double Taxation as well as a member of the OECD
Informal Advisory Group in international tax matters.
 Counsel for the Crown objected to the qualification of
Mr. Lüthi as an expert and to his potential evidence that is neither relevant nor
necessary. I agree with respondent's counsel that several of the questions that
were posed to Mr. Lüthi were questions of law, for example, "What is
the meaning of the term 'beneficial owner' found in paragraph 2 of Article 10,
dividends, in the Model Convention?" I advised the parties that I would
hear Mr. Lüthi's evidence and reserve my decision as to admissibility until
after the trial. But, at the same time, I informed appellant's counsel that I
did not want any questions of law put to Mr. Lüthi and suggested that his
report be amended and that all questions of law and his opinion on such
questions be redacted from his report. This was done.
 I find that the rest of Mr. Lüthi's report is
acceptable; it was essentially a fact driven recollection of events that
transpired during OECD Model Convention discussions and negotiations. His
summary of OECD statements and reports that were in evidence are not legal
opinions. I permitted Mr. Lüthi to testify on matters relating to the term
"beneficial owner" and to the issues facing draftsmen of the OECD
Convention more for background than for anything else.
 The term "beneficial owner" was introduced
into Article 10(1) of the 1977 OECD Convention, Mr. Lüthi stated, so as to
explicitly exclude intermediaries in third States, such as agents and nominees,
from treaty benefits. Article 10(1) still caused concern as to whether the
shareholder was entitled to treaty benefits in a case where the dividend was
received by an agent or nominee but not the shareholder directly. Hence Article
10(1) was further amended in 1995.
 Mr. Lüthi could find "no traces" why the term
"beneficial owner" had been chosen in the 1977 OECD Convention. Other
terms were considered, for example, "final recipient". The intention
was that the "beneficial owner" of the income being a resident of the
other Contracting State was to benefit from a treaty,
not an agent or nominee who is not considered to be the beneficial owner of the
 There was no expectation that a holding company was a
mere agent or nominee for its shareholders, that is, that its shareholders were
the beneficial owners of the holding company's income. Indeed, a holding
company is the beneficial owner of dividend paid to it unless there is strong
evidence of tax avoidance or treaty abuse.
 With respect to conduit companies, that is, companies
acting as a mere conduit, Mr. Lüthi referred to the CFA Report of 1987, Double
Taxation Conventions and the Use of Conduit Companies.
He summarized the CFA's report as follows:
. . . According to this Report, OECD does not deny
every conduit company the ability to be the beneficial owner by stating
"…The fact that the conduit company's main function is to hold assets or
rights is not itself sufficient to categorise it as a mere agent or nominee,
although this may indicate that further examination is necessary …". On
the other hand, a conduit company cannot normally be considered to be the
beneficial owner of the income received if it has very narrow powers, performs
mere fiduciary or administrative functions and acts on account of the
beneficiary (most likely the shareholder). In the view of OECD, such a company
has only title to property, but no other economic, legal or practical
attributes of ownership. In such a case, the company, based on a contract or by
way of obligations taken over, will have similar functions to those of an agent
or a nominee.
According to Article 4 of the OECD Model Convention
a conduit company, in order to be entitled to claim treaty benefits, must be
liable to tax in its residence country on the basis of its domicile, place of
management etc. In addition, the assets and rights giving rise to the income
must have effectively been transferred to the conduit company. If this is the
case, the conduit company cannot be considered to act as a mere agent or
nominee with respect to the income received.
 The respondent referred to Mr. Lüthi's observation that
when, in 1977, the OECD members, 18 of the 24 of which were civil law
countries, adopted the term "beneficial owner", the civil law
countries did not intend the term to have the meaning under the law of equity
in common law countries.
 The term "beneficial owner" is not unique to
the Tax Treaty; appellant's counsel informs me that it is found in 85 of Canada's 86 tax treaties. Only Canada's treaty with Australia uses the term "beneficially
 The evidence of Professor van Weeghel is that the Netherlands recognizes PHB.V. as beneficial
owner of Prévost's dividends. Professor Raas suggests the same. The respondent says
Volvo and Henlys are the beneficial owners of the dividends.
 The terms "beneficial owner",
"beneficially owned" and "beneficial ownership" are found
in the English version of the Act.
The French version of the Act uses the words "propriété
effective", (as opposed to "bénéficiaire effectif" in the Tax
Treaty) sometimes preceded by the word "avoir" where the context of
the paragraph requires a verb. However, in the French language version of subsection
227(4.1) of the Act, where there is reference to amounts held in trust
("fiducie"), the words used are "droit de bénéficiaire",
altogether different from "bénéficiaire effectif". As I mentioned
earlier, these terms are not defined in the Act.
 The term "beneficial owner" is not new to the
Act. The words were found, for example, before 1971 in section 12A of
the Act a
section limiting advertising expenses. Clause 12A(5)(a)(v)(c) of the
English text refers to "3/4 of the paid up capital [of a corporation], are
beneficially owned by Canadian citizens . . .". The French version of the Act referred
to "les trois quarts du capital versé, appartiennent à titre de beneficial
interests à des citoyens canadiens . . .".
 When the Act was amended effective in 1972
the English version of section 19 (previously section 12A) continued to use the
term beneficially owned but the French version changed "beneficial
interests" to beneficial ownership. That common law terminology was
used in the French version of the Act more than suggests the term
"beneficial owner" is a common law term. It was only in 1992 that the
English words were struck from the French version of the Act and were
replaced by the words "propriété effective".
 The respondent maintains that there is no meaning of
the terms "beneficial ownership" and "bénéficiaire effectif"
for the purposes of the Act which can be invoked for the purpose of
Article 3(2) of the Tax Treaty. First of all, according to the respondent, the
words used in the Act have multiple and often irreconcilable meanings. Counsel
referred to a study by Professor Catherine Brown who concluded that
the term "beneficial owner" has different meanings under the Act depending
on the provision. For
example, she identified at least four categories of meaning for the expression
"beneficial ownership", "beneficial owner" and
"beneficially owned" when used in a trust context: (a) the owner is
the beneficial owner; (b) the beneficiary is considered to be the beneficial
owner as a result of tax decisions and the operation of the Act, for
example subsection 104(1); (c) the beneficiary is the beneficial owner of trust
property on the basis of private law principles; and (d) the trust is the owner
of trust property, for example, the Act deems the trust to be the owner
of the trust property. Also, the term "beneficial owner" is not used
in any provision of the Act concerned with withholding tax on Canadian
source dividends, interest or royalties.
 Respondent's counsel, citing an article by Mr. Mark D. Brender,
submits that there is no settled definition of "beneficial ownership"
even under common law, let alone for the purposes of the Act.
Indeed, Mr. Brender suggests that words or concepts neutral as between the
civil and common laws be used in place of "beneficial owner" or
 Counsel for the respondent referred to the VCLT, the
Tax Treaty, Model Conventions as well as the Act to suggest how the
terms "beneficial owner" and "bénéficiaire effectif" should
be interpreted, bearing in mind that these terms are not defined in the Tax
Treaty, Model Conventions and the Act and have no legal meaning in
Quebec, a civil law jurisdiction. The respondent's submission was that these
words should not have a technical or legal meaning but an interpretation
 The terms "beneficial owner" and
"bénéficiaire effectif", together with the Dutch term uiteindelijk
gerechtigde, appear in the Tax Treaty and must be given meaning. The
words "bénéficiaire effectif" appear nowhere in the French version of
the Act. This may, it is suggested, limit the scope of Article 3(2) of
the Tax Treaty. The term "bénéficiaire effectif" also does not appear
in the Quebec Civil Code. Respondent's counsel submits that the use of the
words "bénéficiaire effectif" in the Tax Treaty rather than
"propriétaire effectif", which are used in the Act, suggests
that Parliament intended to use the private law of the provinces to compliment
the Act and the words are not be determined by reference to the common
 The respondent also states that while the Tax Treaty
refers to the "beneficial owner of the dividends", the Act never
uses such a phrase. The Act refers to a taxpayer who has income from
property, for example, a dividend received by a taxpayer, and this income is included
in the taxpayer's income for the year. The phrase is never used in conjunction
with the income which is derived from the property. Respondent's counsel
submits the term "beneficial owner" or a similar expression is never
used in the Act in the same context as it is used in the Tax Treaty and
 Respondent's counsel declared that when determining the
meaning of an undefined treaty term, Canadian courts have relied on the meaning
relevant to the specific tax provision in respect of which the treaty applies.
Thus, in A.G. of Canada v.
the word "gain", which was not defined in the Canada U.S. Tax Treaty,
was given the meaning found in subsection 40(1) of the Act. The Hoge
could not find the meaning of the word "present" in the domestic
laws of the Netherlands and therefore held that the word appearing in tax treaties
between the Netherlands and Brazil and the Netherlands and Nigeria be
interpreted in accordance with Articles 31 and 32 of the VCLT and not the equivalent
provisions of Article 3(2) of the Model Convention.
 Respondent's counsel therefore concluded that the terms
"beneficial owner" and similar terms in the Act are based on
legalistic trust meanings originating under the laws of equity and ought not to
apply to the Tax Treaty. The words "beneficial owner" and
"bénéficiaire effectif" have no meaning in the Act.
 Respondent's counsel informs me that the phrase
"beneficial owner" does not appear in English dictionaries. The words
do appear separately, of course. The word "beneficial" in the Canadian
Dictionary of the English Language is defined primarily as "producing
or promoting a favourable result" or "receiving or having the right
to receive proceeds or other advantages". The word "beneficial",
counsel states, connotes both a factual ("receiving") and legal
("right to") meaning. The
Shorter Oxford Dictionary (1973) defines "beneficial" as "of
or pertaining to the usufruct of property; enjoying the usufruct", usufruct
being a civil law concept. In The New Shorter Oxford Dictionary "beneficial"
is defined as "Of, pertaining to, or having the use of benefit of property
 The Canadian Dictionary defines
"owner" as "of or belonging to oneself", "to have or
possess as property", and "to have control over". The word
"owner" he states also connotes both a factual (possess, control) and
legal ("belonging") meaning. The Shorter Oxford defines
"own" as "one's own . . . to have or hold as own's own".
The word "owner" is "one who owns or holds something; one who
has a rightful claim or title to a thing".
 In the Jodrey Estate the Supreme Court approved
of the meaning given by Hart J., in MacKeen v. Nova Scotia, who wrote:
It seems to me that the plain ordinary meaning of
the expression "beneficial owner" is the real or true owner of the
property. The property may be registered in another name or held in trust for
the real owner, but the "beneficial owner" is the one who can
ultimately exercise the rights of ownership in the property.
 Respondent's counsel submits that from a textual
reading of the term "beneficial owner", its meaning can be distilled
as applying to the person who can exercise the normal incidents of ownership
(possession, use, risk, control) and as such ultimately benefits from the
income. The ordinary meaning of "bénéficiaire effectif" in the French
text and uiteindelijk gerechtigde in the Dutch share
common features with the ordinary meaning of "beneficial owner", but
have a significant difference.
 The word "bénéficiaire", used as a noun in
the French version, is defined as follows in the modern French dictionaries:
Se dit de qqn, d'un groupe qui profite
d'un benefice, d'un avantage (…)
Personne qui bénéficie (d'un avantage, d'un droit, d'un privilège).
 "Bénéficiaire" is defined, counsel submits,
consistently, as the person who enjoys or takes advantage of a benefit of any
kind, including a right or a privilege. Therefore, he submits that
"bénéficiaire" is clearly not a technical term and does not per se
connote a legal right, such as that of ownership.
 The word "effectif", on the other hand,
counsel for the respondent argues, is used as an adjective in the French
version. The word "effectif" he adds, is the clearest expression of a
factual determination that the drafters could have used. It is defined as
1. Se dit de qqch dont la
réalité est incontestable, qui produit un effet reel, tangible (…) 2. Se dit de ce qui est une réalité.
1. Qui se traduit par un
effet, par des actes reels. Concret, efficace, réel, tangible, vrai (…)
Avantage effectif : Certain, concret, positif.
 "Effectif" is defined as "real" or
"producing actual effects" or "resulting in real action". The
synonyms that are offered can be translated to "concrete, meaningful,
real, tangible and true". Accordingly, respondent's counsel states, the
word "effectif" is inconsistent with a search for legal rights or
entitlement because it is concerned with reality and the actual results.
 Therefore, respondent's counsel concludes, the term
"bénéficiaire effectif" means the person or group that actually and
truly enjoys or benefits from an advantage of any kind. Authors have translated
the words "bénéficiaire effectif" to "real beneficiary",
which is a fairly accurate translation as long as the word beneficiary is not
understood in a legal sense.
 The Dutch version of the Convention uses the term uiteindelijk
gerechtigde for "beneficial owner". This term,
translated back to English, means "he who is ultimately entitled". Professor
van Weeghel, notes in his text The Improper Use of Tax Treaties that:
It is unclear why this translation [uiteindelijk
gerechtigde] was chosen. The term 'beneficial owner' (One who does not
have title to property but has rights in the property which are the normal
incidents of owning the property', Black's Law Dictionary, Fifth Edition) has a
closer equivalent in Dutch language and this would be 'economisch eigenaar'
a term which has a well understood meaning also in Dutch law.
 However, as respondent's counsel declares, the
government of the Kingdom of the Netherlands opted in the Tax Treaty to use a term for "beneficial
owner" whose English translation of "ultimately entitled"
connotes a factual inquiry, meaning "final" or "in the
end". Just as in the French text, there is no reference to ownership in
the Dutch text. Uiteindelijk gerechtigde is also
consistent with the ordinary meaning given to the term by the Royal Dutch case,
supra, in which the uiteindelijk gerechtigde of a
dividend is one who can "freely avail of the distribution"; being the
person ultimately entitled to the benefit of the income.
 Respondent's counsel submits that the plain and
ordinary meaning of the terms "beneficial owner", "bénéficiaire
effectif" and uiteindelijk gerechtigde in the three
languages of the text of the Tax Treaty does not suggest that an exclusively
legal meaning should be given to the terms. Counsel is of the view that the
term "bénéficiaire effectif" points strongly to a determination of
the true relationship and is inconsistent with a narrow legalistic meaning. Respondent
insists that the meaning of each term used in all three versions accommodates
only a non-legal meaning. It is this commonality between the three versions
which must form the basis for defining the term, he suggests.
 The respondent's view is that a reconciliation of the
three language versions of the Tax Treaty results in a meaning that requires a
search behind the legal relationships in order to identify the person who, as a
matter of fact, can ultimately benefit from the dividends. The respondent seeks
support from a non tax case before the England and Wales Court of Appeal that
was called upon to interpret the term "beneficial ownership" within
the context of the civil law of Indonesia: Indofood International Ltd. v. JP Morgan Chase Bank N.A. London
 The facts of Indofood are as follows: An Indonesian
company, Indofood ("Parent"), set up a Mauritian special purpose
vehicle ("Issuer") to issue loan notes. Back to back loans were put
in place. The loan notes contained a gross‑up clause and provided for
early redemption in case that, due to tax or treaty changes, the Issuer had to
pay additional tax. The notes also contained a clause requiring the Issuer to
try to mitigate any additional tax liability by "taking reasonable
measures available to it" before seeking to redeem the notes. The
financing was structured via Mauritius to
avail of the beneficial withholding tax rates under the Indonesia-Mauritius
Double Tax Treaty. Mauritius has no outbound withholding taxes.
 As a result of abuse of the treaty by conduit
companies, Indonesia terminated its tax treaty with Mauritius effective January 1, 2005, thus
increasing to 20 percent the withholding on the interest payments between the
Parent and the Issuer. In other words, the gross-up, instead of being 10
percent became 20 percent under domestic Indonesian law. Since the issue
of the notes in 2002, both interest and exchange rates had moved against the
Parent and in favour of the noteholders. The Parent, therefore, sought to
redeem the notes and refinance more cheaply. However, JP Morgan Chase (the
"Defendant") acting as trustee for the bondholders was not satisfied
that the best endeavours clause had been complied with, alleged that Indofood
could have interposed a Dutch entity ("Newco") into their
structure and availed of the preferable rates under the Netherlands-Indonesia
Double Taxation Convention. Therefore, the Defendant refused to approve the
 The main substantive issue at trial was whether Newco would
be the beneficial owner of the interest payable to it by the Parent for the
purposes of the reduced withholding tax rate in Article 11 of the
Indonesia-Netherlands Tax Convention.
 In the High Court,
Justice Evans-Lombe found largely in favour of the Defendant and found that
Newco would be the beneficial owner of the interest from the Parent. In
particular, he noted:
It is clear that Newco, just as the Issuer, will not
be a nominee or agent for any other party and, not being any sort of trustee or
fiduciary, will have power to dispose of the interest when received as it
wishes, although it will be constrained by its contractual obligation to the
Issuer to apply the proceeds of the interest payments in performance of those
 Justice Evans-Lombe determined beneficial ownership by
referring to the rights of creditors in the event of Newco's insolvency:
It is clear to me that in the absence of any trust
or fiduciary relationship between Newco and the Issuer, in an insolvency of
Newco undistributed interest received from the Parent Guarantor would be an
asset of Newco for distribution amongst its creditors generally, including the
Issuer, pari passu.
 Indofood appealed to the Court of Appeal, while
the Defendant, JPMorgan, cross-appealed on the point that had gone against
them. The Court of Appeal found unanimously for Indofood, that the
Issuer was not the beneficial owner and, if interposed, Newco could not be the
beneficial owner of the interest received from the Parent for purposes of
Article 11(2) of the Indonesia–Mauritius Tax Convention or the
Indonesia–Netherlands Tax Convention.
 On the question of whether Newco would be the
beneficial owner of the interest, Sir Andrew Morritt said as follows:
The fact that neither the Issuer nor Newco was or
would be a trustee, agent or nominee for the noteholders or anyone else in
relation to the interest receivable from the Parent Guarantor is by no means
conclusive. Nor is the absence of any entitlement of a noteholder to security
over or right to call for the interest receivable from the Parent Guarantor.
The passages from the OECD commentary and Professor Baker's observations
thereon show that the term "beneficial owner" is to be given an
international fiscal meaning not derived from the domestic laws of contracting
states. As shown by those commentaries and observations, the concept of
beneficial ownership is incompatible with that of the formal owner who does not
have "the full privilege to directly benefit from the income".
 He continued:
The legal, commercial and practical structure behind
the loan notes is inconsistent with the concept that the Issuer or, if
interposed, Newco could enjoy any such privilege. In accordance with the legal
structure the Parent Guarantor is obliged to pay the interest two business days
before the due date to the credit of an account nominated for the purpose by
the Issuer. The Issuer is obliged to pay the interest due to the noteholders
one business day before the due date to the account specified by the Principal
Paying Agent. The Principal Paying Agent is bound to pay the noteholders on the
. . .
But the meaning to be given to the phrase
"beneficial owner" is plainly not to be limited by so technical and
legal an approach. Regard is to be had to the substance of the matter. In both
commercial and practical terms the Issuer is, and Newco would be, bound to pay
on to the Principal Paying Agent that which it receives from the Parent
Guarantor. This is recognised by what we were told actually happens now as
recorded in paragraph 13 above. The Parent Guarantor is bound to ensure that
such an arrangement continues lest it is required to pay again under its
guarantee to the noteholders contained in the Trust Deed. In practical terms it
is impossible to conceive of any circumstances in which either the Issuer or
Newco could derive any 'direct benefit' from the interest payable by the Parent
Guarantor except by funding its liability to the Principal Paying Agent or
Issuer respectively. Such an exception can hardly be described as the 'full
privilege' needed to qualify as the beneficial owner, rather the position of
the Issuer and Newco equates to that of an "administrator of the income".
 The decision in Indofood conflicts somewhat with
the opinion the Dutch government and the Hoge Raad in the Royal Dutch
case, supra, that a recipient is not the beneficial owner of income
only if it is contractually obligated to pay the largest part of the income to
a third party.
In Indofood, the Court of Appeal did not base its reasoning on
contractual obligation to forward the interest, but rather whether the
recipient enjoyed the "full privilege" of the interest or if it was
simply an "administrator of income".
 The parties agree that PHB.V. was not an agent, trustee
or nominee for Volvo and Henlys. Rather, it is the respondent's view that
PHB.V. was acting as a mere conduit or funnel in favour of Volvo and Henlys
upon receiving dividends from Prévost.
 I am being asked to determine what the words
"beneficial owner" and "bénéficiare effectif" (and the
Dutch equivalent) mean in Article 10(2) of the Tax Treaty. Article 3(2) of the
Tax Treaty requires me to look to a domestic solution in interpreting
"beneficial owner". The OECD Commentaries on the 1977 Model
Convention with respect to Article 10(2) are also relevant.
 The Commentary for Article 10(2) of the Model
Convention explains that one should look behind "agents and nominees"
to determine who is the beneficial owner. Also, a "conduit" company
is not a beneficial owner. In these three examples, the person − the
agent, nominee and conduit company − never has any attribute of ownership
of the dividend. The "beneficial owner" is another person.
 I want to give a very short example of a civil law
concept affecting ownership of property. Article 908 of the Civil Code of
Quebec states that property, according to its relation to other property,
is divided into capital, and fruits and revenue. Article 947 of the Civil
Code grants the owner of property the right to use, enjoy and dispose of
the property fully and freely. These are rights that in common law belong to
the beneficial owner of property. In civil law, one person may be the bare
owner ("nu-propriétaire") of the property but another person, called
the usufructary, may use and enjoy the property and the usufructary is the
owner of the usufruct in his or her own right, subject to the obligation of
preserving the substance of the property: Civil Code, article
1120. The usufructary receives the income from the property as owner of the
income. He or she is not accountable to the bare owner for any income. That
person is similar to the "beneficial owner" in common law of the income.
When a property is held by a nominee, agent or trustee in a civil law
jurisdiction and a common law jurisdiction, that person acknowledges the
relationship that he or she is not actually the owner of the property.
 In common law, a trustee, for example, holds property
for the benefit of someone else.
The trustee is the legal owner but does not personally enjoy the attributes of
ownership, possession, use, risk and control. The trustee is holding the
property for someone else and that, ultimately, it is that someone else who has
the use, risk and control of the property. Also, in common law, one person may
have a life interest in property and another may have a remainder interest in
the same property. The owner of the life interest receives income from the
property and owns the income; the owner of the remainder interest owns the
capital of the property. There is no division of property in common law as
there is in civil law. The word "beneficial" distinguishes the real
or economic owner of the property from the owner who is merely a legal owner,
owning the property for someone else's benefit, i.e., the beneficial owner.
 In both the common law and the civil law, the persons
who ultimately receive the income are the owners of the income property. It may
well be, as respondent's counsel argues, that when the terms "beneficial
owner", "beneficially owned" or "beneficial ownership"
are used in the Act, it is either used in conjunction with property,
such as shares or some other property but is never used in conjunction with the
income which is derived from the property. i.e., dividends from shares.
However, dividends, whether coin or something else, are in and by themselves also
property and are owned by someone. Section 12 of the Act includes in computing
income of a taxpayer for a taxation year income from property, including
amounts of dividends received in the year. The taxpayer required to include the
amount of dividends in income is usually the person who is the owner −
the beneficial owner − of the dividends, except, for example, when the Act
deems another person to have received the dividend or requires a trust to
include the dividend in its income. The
words "beneficial owner" in plain ordinary language used in conjunction
with dividends is not something alien.
 In my view the "beneficial owner" of dividends
is the person who receives the dividends for his or her own use and enjoyment and
assumes the risk and control of the dividend he or she received. The person who
is beneficial owner of the dividend is the person who enjoys and assumes all
the attributes of ownership. In short the dividend is for the owner's own
benefit and this person is not accountable to anyone for how he or she deals
with the dividend income. When the Supreme Court in Jodrey
stated that the "beneficial owner" is one who can "ultimately"
exercise the rights of ownership in the property, I am confident that the Court
did not mean, in using the word "ultimately", to strip away the
corporate veil so that the shareholders of a corporation are the beneficial
owners of its assets, including income earned by the corporation.
The word "ultimately" refers to the recipient of the dividend who is
the true owner of the dividend, a person who could do with the dividend what he
or she desires. It is the true owner of property who is the beneficial owner of
the property. Where an agency or mandate exists or the property is in the name
of a nominee, one looks to find on whose behalf the agent or mandatary is
acting or for whom the nominee has lent his or her name. When corporate
entities are concerned, one does not pierce the corporate veil unless the
corporation is a conduit for another person and has absolutely no discretion as
to the use or application of funds put through it as conduit, or has agreed to
act on someone else's behalf pursuant to that person's instructions without any
right to do other than what that person instructs it, for example, a
stockbroker who is the registered owner of the shares it holds for clients.
This is not the relationship between PHB.V. and its shareholders.
 What we have at bar is a Canadian corporation, Prévost,
paying dividends to its sole shareholder, PHB.V., a Dutch corporation. There is
evidence that Prévost's minute book contains reference to Henlys and Volvo
being its shareholders and there are reported references by Ms. Bissonnette that
Henlys wanted its dividends. These errors are not fatal to the appellant's
case. Minute books do contain errors. And it is not uncommon that the
principals of corporations, rather than the shareholders, are erroneously referred
to as the owners of the corporation.
 There is no evidence that PHB.V. was a conduit for Volvo
and Henlys. It is true that PHB.V. had no physical office or employees in the Netherlands or elsewhere. It also mandated to
TIM the transaction of its business as well for TIM to pay interim dividends on
its behalf to Volvo and Henlys. However, there is no evidence that the
dividends from Prévost were ab initio destined for Volvo and Henlys with
PHB.V. as a funnel of flowing dividends from Prévost. The financial statements
of PHB.V. for fiscal periods ending on December 31st in each of 1995, 1996 and
1997 and copies of PHB.V.'s corporate income tax returns for 1996, 1997, 1998,
1999 and 2000 reflect that PHB.V. owned assets and had liabilities. For Volvo
and Henlys to obtain dividends, the directors of PHB.V. had to declare interim
dividends and subsequently shareholders had to approve the dividend. There was
no predetermined or automatic flow of funds to Volvo and Henlys even though
Henlys' representatives were trying to expedite the process.
 PHB.V. was a statutory entity carrying on business operations
and corporate activity in accordance with the Dutch law under which it was
constituted. PHB.V. was not party to the Shareholders' Agreement; neither
Henlys nor Volvo could take action against PHB.V. for failure to follow the
dividend policy described in the Shareholders' Agreement. Henlys may have a cause
of action against Volvo and Volvo a cause of action against Henlys under the
Shareholders' Agreement if the dividend policy was not carried out. But neither
would have a bona fide action in law under the Shareholders' Agreement
against a person not a party to that agreement, that is, PHB.V. Volvo and
Henlys, of course, may have action against PHB.V. if PHB.V. did not repay
monies advanced as loans by them, but such action would be taken as creditors
of PHB.V., not shareholders.
 Article 24 of PHB.V.'s Deed of Incorporation does not obligate
it to pay any dividend to its shareholders. The directors of PHB.V. are to duly
observe what has been agreed to in the Shareholders' Agreement concerning
reserving part of its accrued profits. Article 24, paragraph 2 of the Deed
provides that any profits remaining after the reservation of part of the
accrued profits shall be at the disposal of the general meeting.
I cannot find any obligation in law requiring PHB.V. to pay dividends to its
shareholders on a basis determined by the Shareholders' Agreement. When PHB.V.
decides to pay dividends it must pay the dividends in accordance with Dutch
 PHB.V. was the registered owner of Prévost shares. It
paid for the shares. It owned the shares for itself. When dividends are
received by PHB.V. in respect of shares it owns, the dividends are the property
of PHB.V. Until such time as the management board declares an interim dividend and
the dividend is approved by the shareholders, the monies represented by the dividend
continue to be property of, and is owned solely by, PHB.V. The dividends are an
asset of PHB.V. and are available to its creditors, if any. No other person other
than PHB.V. has an interest in the dividends received from Prévost. PHB.V. can
use the dividends as it wishes and is not accountable to its shareholders
except by virtue of the laws of the Netherlands. Volvo and Henlys only obtain a right to dividends that
are properly declared and paid by PHB.V. itself, notwithstanding that the
payment of the dividend has been mandated to TIM. Any amount paid by PHB.V. to
Henlys and Volvo before a dividend was properly declared and paid, as I see it,
was a loan from PHB.V. to its shareholders. This, too, is not uncommon. There
is a practice in Canada of corporations advancing funds to
its shareholders without a declaration of dividend. At the end of the fiscal
year, the corporation's directors determine whether the funds are to remain a
loan or be "adjusted" to a dividend, with the proper directors'
resolutions. This practice, I understand, is accepted by the fisc.
 In its amended notice of appeal from the assessments
issued in 2000 and 2001, the appellant alleges that throughout the assessment process
the Minister's actions improperly deprived PHB.V. of substantive rights
afforded it under Article 25 of the Canada/Netherlands Convention. The
appellant complains that the Minister confirmed the assessments in issue
notwithstanding that the Dutch government had, at the request of PHB.V., commenced
Competent Authority Proceedings under the Treaty and only relented in such
course of conduct after the appellant and PHB.V. commenced proceedings in the
Federal Court, Trial Division. The appellant claims that such action was
contrary to Canada's obligations under the Treaty and
to the Minister's published position in this regard.
The appellant also takes umbrage that the Minister terminated the Competent
Authority Proceedings unilaterally and did not act in good faith to attempt to
arrive at a satisfactory position in accordance with the Treaty. Apparently,
according to the appellant, the Minister and the Dutch tax authority did not
agree on the interpretation of the relevant provisions of the Treaty and the
Minister did not take into account the position of the Dutch government.
 Accordingly, the appellant argues that the Minister's
actions improperly deprived PHB.V. of substantive rights afforded it under
Article 25 of the Treaty and therefore this Court has jurisdiction to strike
out the Minister's reply. Appellant's counsel produced documentation filed by
the appellant and PHB.V. in the Federal Court through Mr. Backstrom. The
documents include an application for an order of Mandamus requiring: (a) the tax
authority to endeavor to resolve by mutual agreements any difficulties or
doubts arising between the competent authorities of Canada and the Netherlands
as to the interpretation or application of the Treaty to the subject matter
raised in the assessments in good faith: and (b) an application for an
interlocutory order prohibiting the Canadian tax authorities from proceeding
with any determination or confirmation of the assessments pending the hearing
of the application. The appellant, PHB.V. and the Crown eventually settled
their dispute and the application to the Federal Court was withdrawn.
 The Minister's reply will not be struck. PHB.V., the
party purportedly aggrieved, is not a party to the matter before me. Section 12
of the Tax Court of Canada Act provides that the Court has ". . .
exclusive original jurisdiction to hear and determine references and appeals .
. . on matters arising under . . . the Income Tax Act . . .".
In accordance with subsection 169(1) of the Act, only those persons who
have been notified of an assessment of tax or have filed a notice of objection
under section 165 of the Act may appeal to the Tax Court of Canada. A
person who is not an appellant has no standing in this Court except in
exceptional circumstances and then, only with leave.
 The Tax Court's interest is in whether an assessment is
correct or not correct. If a person believes that he or she has suffered
prejudice during the course of the Minister's actions in administering the Act,
that person may take action in the Federal Court. Rule 53 of the Tax Court
of Canada Rules (General Procedure) provides that the Court may strike out
or expunge all or part of a pleading or other document, which may prejudice or
delay the fair hearing of the action, scandalous, frivolous or vexatious or an
abuse of the process of this Court. There is no evidence before me of any such
ground to strike out all or any portion of the Minister's reply.
 The assessments will be vacated. Volvo and Henlys were
not the beneficial owners of the dividends paid by Prévost. I have not heard
any evidence satisfying me that PHB.V. was a conduit for Volvo and Henlys. The
appeals are allowed, with costs. At the conclusion of the trial appellant's
counsel requested submissions be made with respect to costs following the issue
of these reasons. If either counsel still wishes to make submissions he should
get in touch with the Registrar of the Court to advise whether he and opposing
counsel wish to make oral or written submissions and suggest deadlines for the
Signed at Ottawa, Canada, this 30th
day of April 2008.
"Gerald J. Rip"