Dow ULC – Federal Court of Appeal finds that the Tax Court cannot reverse a CRA opinion that a requested s. 247(10) downward adjustment is inappropriate

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.

In reversing the decision below, and indicating that the s. 247(10) adverse opinion was a Federal Court matter, Webb JA noted:

  • S. 247(10) explicitly requires that a downward adjustment can only occur with a favourable opinion of the Minister that such an adjustment was appropriate (and here there was none).
  • The jurisdiction accorded to the Tax Court under ITA s. 171(1) is only to vacate or vary an assessment or refer it back to the Minister, whereas a s. 247(10) opinion is not an assessment (although it will affect an assessment.)

He then stated:

Even if the Tax Court could review the opinion without quashing it, since the existing opinion would remain in place (and therefore there would not be an opinion of the Minister that it would be appropriate to make the downward adjustment), on what basis could the assessment be referred back to the Minister? Without the opinion of the Minister that it is appropriate to make the downward adjustment, the assessment (which does not reflect this downward adjustment) is correct.

Neal Armstrong. Summaries of Canada v. Dow Chemical Canada ULC, 2022 FCA 70 under s. 247(10), s. 247(11), s. 169(1) and Federal Courts Act, s. 18.5.