Burlington Resources – Crown abandons its position that s. 247(2)(c) applied to reduce guarantee fees paid by a ULC to its non-resident parent

Burlington, a Nova Scotia ULC, borrowed approximately U.S.$3 billion in 2001 and 2002 by issuing notes that were guaranteed by its non-resident parent (“BRI”). The Minister reassessed Burlington’s 2002 to 2005 taxation years to deny, under ss. 247(2)(a) and (c), deductions for the “guarantee fees” paid by Burlington to BRI. The October 2012 Reply to Burlington’s Notice of Appeal relied on s. 247, and also asserted that the fees were not incurred for the purpose of earning or producing income under s. 20(1)(e.1) (they were “redundant” due to Burlington’s status as a ULC).

D’Auray J has now granted a Crown motion to file an amended Reply in which it has abandoned its position that the transfer pricing rules in s. 247 applied to the quantum of the fees, and takes the position that the deductions instead should be denied on the grounds that they were not “guarantee fees” within the meaning of s. 20(1)(e.1) and, in the alternative, they were not incurred by Burlington for the purpose of borrowing money, within the meaning of s. 20(1)(e.1).

Burlington argued that the Court should not grant leave for the making of the amendments since they constituted purported withdrawals of admissions that the fees had been paid as guarantee fees. D’Auray J found that, in the broader context, such admissions had not been made, and that even if they had been, they could now be withdrawn given inter alia that “there is a triable issue which ought to be tried in the interests of justice.”

The requested amendments were granted in light inter alia of the request having been made well in advance of the trial, and the position on s. 20(1)(e.1) having been made known on discoveries of the Crown in 2014.

Neal Armstrong. Summary of Burlington Resources Finance Company v. The Queen, 2020 TCC 32 under Rule 132.