Canadian Forest Navigation – Federal Court of Appeal finds that the Tax Court is entitled to give weight to foreign rectification orders

After receiving dividends from Barbados and Cyprus subsidiaries, a Quebec company obtained rectification orders from the applicable Barbados and Cyprus courts declaring that the amounts instead were loans to it. In answer to a Rule 58 question as to whether the Minister was now bound to treat these transfers as loans, Lamarre ACJ had found that the orders did not bind the Minister because they had not been homologated by a Quebec court.

In the Court of Appeal, Boivin JA indicated that the lack of homologation was irrelevant, and then stated:

…[B]oth orders from Barbados and Cyprus are proof that the corporate resolutions have been rectified to authorize the dividend payments and to transform them into indebtedness, no more, no less. …

I cannot agree … that…these foreign orders are dispositive and that the Minister has no choice… but to accept the dividends are actually loans because the orders from Barbados and Cyprus say so.

…[W]hat remains to be determined is the foreign orders’ effect vis-à-vis the Minister…and the weight ascribed to the foreign orders as facts…. These determinations are for the Tax Court judge to make, with a full evidentiary record at his or her disposal. …

On this basis, he concluded that Lamarre ACJ should not have answered the Rule 58 question, and set aside her judgment and dismissed the Rule 58 motion before the Tax Court.

He did not mention Fairmont, which is unsurprising as the issue was the weight to be given to the (foreign) rectification orders rather than whether rectification was available.

Neal Armstrong. Summary of Canadian Forest Navigation Co. Ltd. v. The Queen, 2017 FCA 39 under General Concepts – Rectification.