Dow Chemical – Tax Court of Canada finds that it has jurisdiction to review whether a CRA denial of a downward s. 247(10) adjustment was “correct in fact and law”
In reassessing the taxpayer under s. 247(2), the Minister did not allow a requested “downward” adjustment under s. 247(10) (to increase the interest expense on a loan from a Swiss affiliate by $3.26 million) because of a limitation period in the Canada-Switzerland Tax Treaty. A Rule 58 question was put to the Tax Court, which was essentially whether it was the Tax Court that had jurisdiction regarding the taxpayer’s challenge to this denial, or whether the only recourse was to the Federal Court for judicial review of the Minister’s decision to disallow.
Monaghan J found that the Tax Court had jurisdiction over the reassessment, including as it related to the denial of the downward adjustment. True, a decision under s. 247(10) is one for the Minister to make and, in that sense, it is a discretionary (although it is non-discretionary in that it must be made.) However, “that decision must be made judicially, i.e., in accordance with proper legal principles.” This situation was similar to the line of cases finding that the Exchequer Court could review whether the Minister’s exercise of a right under the Income War Tax Act to disallow (through a corresponding assessment) expenses that the Minister determined to be unreasonable was “well-founded in fact and law.”
If the Tax Court determines that the Minister’s determination under s. 247(10) was not “correct in fact and law,” the resulting assessment can, for example, be sent back to the Minister for redetermination.
Monaghan J stated:
… The Tax Court will address all challenges to the correctness of the assessment made after the transfer pricing provisions have been applied, including whether the conditions for their application are met, the amount of any adjustments, the liability for penalties and whether the Minister exercised her discretion properly. Once the Tax Court decides to allow an appeal of an assessment on the basis that the Minister did not act properly in exercising her discretion, the powers available to it under section 171 provide it with the relevant remedies.