Collier,
J.
[ORALLY]:—The
plaintiff
is
a
non-resident
corporation.
It
is
a
wholly
owned
subsidiary
of
another
American
corporation.
The
parent
manufactures
solderless
terminals
and
connectors
and
electronic
wiring
devices.
The
plaintiff
maintains
a
branch
in
Toronto.
It
sells
products
largely
manufactured
by
its
parent.
For
some
years,
the
Department
of
National
Revenue,
for
customs
duty
purposes,
ruled
that
a
discount
of
20
per
cent
off
the
plaintiff’s
"best
quantity
discount
prices"
would
be
used
for
calculating
the
fair
market
value
of
the
products
shipped
by
the
parent
to
the
Toronto
operation.
That
ruling
was
for
customs
duty
purposes
only.
The
Toronto
operation
calculated
its
costs
for
Canadian
income
tax
purposes
on
the
same
basis.
The
Revenue
Department
(Taxation)
reassessed
the
plaintiff
for
its
1975
-
1978
taxation
years,
by
reducing
the
so-called
transfer
prices
of
the
products
purchased
by
the
Toronto
operation
to
70
per
cent,
rather
than
80
per
cent,
of
the
list
price.
The
Income
Tax
Convention
between
Canada
and
the
United
States,
Article
III(2)
provides:
The
competent
authority
of
the
taxing
State
may,
when
necessary,
in
execution
of
paragraph
1
of
this
Article,
rectify
the
accounts
produced,
notably
to
correct
errors
and
omissions
or
to
re-establish
the
prices
or
remunerations
entered
in
the
books
at
the
value
which
would
prevail
between
independent
persons
dealing
at
arm's
length.
The
plaintiff
contends
its
net
profits
were
reasonable
and
equal,
at
least,
to
the
average
profits
of
enterprises
engaged
in
similar
businesses
at
arm’s
length.
The
defendant
disagrees.
The
application
of
the
customs
duty
formula
is
also
disputed.
At
examination
for
discovery
in
these
present
proceedings,
the
defendant's
representative
testified
that
comparative
analyses
with
competitors
of
the
plaintiff
had
been
made.
The
comparisons
were
made
in
respect
of
profits.
The
competitors
were:
Burndy
Canada
Ltd.
(Burndy)
Molex
Industries
Limited
(Molex)
Panduit
Canada
Limited
(Panduit)
The
defendant's
representative
testified
he
had
used
the
financial
statements
and
tax
returns
of
those
three
companies
for
the
comparisons.
The
plaintiff,
in
this
motion,
seeks
production
of
the
financial
statements
for
the
years
1976
to
1979
inclusive,
used
in
the
computation
of
the
defendant's
figures
and
materials.
The
defendant
does
not
oppose
the
motion.
It
adopts
a
neutral
position.
I
gave
leave
to
the
three
other
taxpayers
to
intervene
on
this
motion.
Burndy
and
Molex
do
not
oppose
production
of
their
financial
statements
to
the
plaintiff.
They
have
asked
that
certain
confidentiality
directions
be
made
by
the
Court.
Counsel
for
all
parties
have
agreed
on,
or
will
agree
on,
the
terms
of
such
an
order.
Panduit
is
a
private
company.
It
objects
to
the
production
of
its
financial
statements,
filed
with
its
tax
returns,
to
one
of
its
chief
competitors.
I
have
some
sympathy
for
Panduit.
Nevertheless,
I
feel
the
plaintiff
has
brought
itself
within
the
principles
of
Huron
Steel
Fabricators
(London)
Ltd.
et
al.
v.
M.N.R.,
[1972]
C.T.C.
506;
72
D.T.C.
6426
(Federal
Court
—
Trial
Division),
affirmed
[1973]
C.T.C.
422;
73
D.T.C.
5347
(Federal
Court
of
Appeal).
The
Huron
Steel
case
can
be
partially
distinguished
on
its
facts
from
those
in
this
case.
But
it
cannot,
in
my
view,
be
distinguished
in
principle.
Counsel
for
Panduit
contended
the
applicant
must
show
which
particular
parts
of
the
financial
statements
were
used
by
the
Revenue
Department,
before
any
of
them
should
be
produced.
The
plaintiff
cannot,
as
I
see
it,
know
precisely
what
part
of
the
statements
the
Revenue
people
relied
upon
or
used.
In
arriving
at
comparative
figures,
the
defendant's
representatives
may
have
overlooked
some
portions;
they
may
have
felt
other
portions
were
not
relevant;
opinions
of
assessors,
accountants,
and
others
in
this
field
may
differ.
The
plaintiff
has,
in
my
view,
made
out
its
case
for
the
order
sought.
The
defendant
will
produce
the
documents.
The
order,
in
respect
of
confidentiality,
will
apply
to
Panduit.
In
the
circumstances
of
this
case,
there
will
be
no
order
as
to
costs,
in
favour
of
or
against,
any
party.
Order
accordingly.
Email this Content