Cameco – Tax Court of Canada finds that having Swiss/Lux subsidiaries enter into long-term purchase contracts at a somewhat fixed price with third parties and the taxpayer did not engage s. 247(2)

Cameco Canada formed a Swiss subsidiary (“CESA/CEL,” - more precisely, a two-employee Swiss branch of a Luxembourg subsidiary ("CESA"), that was succeeded a few years later by a Swiss subsidiary ("CEL")), that entered into long-term contracts (guaranteed by Cameco Canada) for the purchase of Russian-sourced uranium from a third party (e.g., "Tenex"). CESA/CEL also purchased uranium from the Cameco Canada under long-term base-escalated supply contracts (the “BPCs”), and then sold that uranium to Cameco US (who had marketed the uranium) at 98% of the sales price obtained by Cameco US. When the price of uranium subsequently increased significantly, CESA/CEL made substantial profits from the resale of the uranium under both types of contract given that its purchase prices only partially escalated with increasing uranium market prices. Owen J essentially found that both sets of contracts had terms that reflected the depressed uranium market at the time they were concluded and renewed, and that s. 247(2) did not authorize CRA to deem most of the profit to have instead accrued to Cameco Canada through applying s. 247(2) to effectively transfer the benefit of the advantageous Tenex purchase contract to Cameco Canada, or to deem Cameco Canada to have received a higher selling price under the BPCs.

His comments included:

  • The concept of a “series” under s. 247(2) should be interpreted narrowly in order to not make it impossible to engage in the comparative analysis contemplated under that section and the OECD Guidelines.
  • Ss. 247(2)(b) and (d) essentially dealt with “commercially irrational” transactions, which was not the case here.
  • The decision of Cameco Canada to offshore the contracts to CESA/CEL was consistent with “the purpose of the foreign affiliate regime … to allow Canadian multinationals to compete in international markets through foreign subsidiaries without attracting Canadian income tax.”
  • “The Appellant’s and CESA/CEL’s strategic decision to enter into the BPCs when they did may have been based on the subjective views of those parties as to the price of uranium, but that fact has no bearing on whether the terms and conditions agreed to in the Long-term Contracts are arm’s length terms and conditions.”
  • S. 247(2)(a) permitted the taxpayer to fall "within an arm’s length range of prices" rather than requiring the taxpayer to hit a pinpoint price.

Neal Armstrong. Summaries of Cameco Corporation v. The Queen, 2018 TCC 195 under s. 247(2) and General Concepts - Sham.