CIBC World Markets – Federal Court of Appeal finds that a non-resident PE had deemed separate person status sufficient to enjoy zero-rating notwithstanding an ETA s. 150 election

Administrative services provided by the appellant (“WMI”) to its parent (“CIBC”) respecting activities carried on by CIBC through its non-resident branches were treated by CRA as not being zero-rated under ETA Sched. V, Pt. VII, s. 2 because of an ETA s. 150(1) election made between the two companies, which deemed “every supply” between them to be an exempt financial supply (so that WMI’s related inputs did not generate input tax credits). The Crown argued that ETA s. 132(3), which merely deemed CIBC to be a non-resident person in respect of “activities” carried on by it through its non-resident permanent establishments, was inadequate to the task of deeming those PEs to be separate persons for s. 150 purposes.

Noël C.J. approached this issue from the perspective that:

Applying subsection 150(1) to deemed exported supplies under subsection 132(3) would defeat the tax neutrality which this provision is designed to achieve by imposing a less favourable and more onerous tax treatment on financial institutions that operate abroad through foreign branches rather than foreign subsidiaries.

Essentially, he thought the “activities” language in s. 132(3) indeed was adequate because the GST (a “transactional tax”) is therefore essentially only about activities, including those engaged here in the debate as to whether s. 132(3) or s. 150(1) applied in relation to them. The fact that other ETA provisions raised by the Crown had more exacting separate-person language only demonstrated that they were addressing more difficult issues that required the full bench press.

By the way, on Monday evening we will provide abbreviated summaries of all the CRA responses at Wednesday’s IFA CRA Roundtable.

Neal Armstrong. Summaries of CIBC World Markets Inc. v. Canada, 2019 FCA 147 under ETA s. 132(3), s. 123(1) - “closely related group”, s. 132(4), s. 150(2) and Statutory Interpretation - Ordinary Meaning.