Cameco – Federal Court of Appeal rejects an expansive interpretation of the recharacterization rule in ss. 247(2)(b) and (d)
Cameco arranged its affairs so that long-term contracts for the purchase of uranium - that turned out to have a quite advantageous (i.e., lower-than-market) purchase price - were entered into by a Lux subsidiary, and then assigned to a Swiss sub at a time that the uranium market price was still depressed. The Crown argued that Cameco would not have entered into the transactions that it did with its two subs, with an arm’s length person, so that Cameco effectively should be treated under s. 247(2)(d) as the bargain purchaser, with the profits generated in Switzerland thus reallocated to Cameco.
Webb JA found that this submission departed from the text of s. 247(2)(b)(i), which effectively referred to transactions that would not have been entered into by any arm’s length persons (what he referred to as a “hypothetical persons” test, as contrasted to the above “subjective test” of the Crown), and noted that the effect of the Crown’s submission was that whenever a “corporation in Canada wants to carry on business in a foreign country through a foreign subsidiary, the condition in subparagraph 247(2)(b)(i) … would be satisfied” i.e., it therefore “would not sell its rights to carry on such business to an arm's length party.” He also noted that the OECD Guidelines indicated that “except in exceptional circumstances, transfer pricing arrangements should be examined based on the transactions undertaken by the parties,” i.e., except in exceptional circumstances, the term-adjustment rule in s. 247(2)(c) rather than the recharacterization rule in s. 247(2)(d), is applicable.
The Crown’s appeal was dismissed.
Neal Armstrong. Summaries of Canada v. Cameco Corporation , 2020 FCA 112 under s. 247(2)(b) and Statutory Interpretation - Marginal Notes.