Dow Chemical – Supreme Court of Canada indicates that the Tax Court lacks jurisdiction to review CRA decisions regarding s. 247(10) downward adjustments

The Minister indicated that she would not exercise her discretion to allow the request of the Canadian taxpayer (“Dow”) a requested “downward” adjustment under s. 247(10) (to increase the interest expense of Dow on a loan from a Swiss affiliate); and subsequently assessed Dow so as to make upward transfer pricing adjustments, but not any downward adjustment. After appealing a reassessment to the Tax Court, a Rule 58 question was posed, which was essentially whether it was the Tax Court that had jurisdiction regarding Dow’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.

Côté J, for the three dissenting Justices, indicated (at para. 131) that since s. 247(10), unlike other discretionary provisions, gave the Minister discretion in determining the amount of a taxpayer’s income before that income was assessed, an s. 247(1) “decision is inextricably linked to the assessment” so that a denied downward adjustment is within the scope of the Tax Court’s jurisdiction over an assessment. Furthermore, although “the Tax Court does not have the power to substitute its opinion for that of the Minister” (para. 200), the words of s. 171(1)(b)(iii) “imply ... that the Tax Court may, in referring the assessment back for reconsideration and reassessment, remit the matter of the downward pricing adjustment to the Minister as part of a ‘reconsideration’” (para. 200).

Kasirer J, in speaking for the majority, found that the Minister’s decision under s. 247(10) cannot be appealed as part of an appeal of an assessment to the Tax Court. Among other considerations, he indicated:

  • The Dow position that the Minister’s decision under s. 247(10) is part of an assessment, was “inconsistent with the understanding of a tax assessment as a ‘product’ and not a ‘process’” (para. 6).
  • Dow’s theory would lower the “bar by interpreting s. 18.5 to exclude the Federal Court’s jurisdiction not just where a decision is subject to an express statutory appeal, but also where it is merely captured by an appeal provision by implication” – which was “likely to provoke litigation about which discretionary decisions are caught, implicitly, by statutory appeal provisions in other settings” (para. 8).
  • Given that, if the Minister did not issue an assessment after she made a discretionary decision under s. 247(10), the only recourse would be seeking judicial review in the Federal Court, this implied “an untenable solution in which the Federal Court would retain its judicial review jurisdiction over discretionary decisions by the Minister as a general rule, but it would lose its jurisdiction to conduct judicial review of those same discretionary decisions if they are followed by assessments” (para. 95).
  • The remedies granted to the Tax Court did not extend to the power to vary or quash an s. 247(10) opinion of the Minister, so that “[i]f the Tax Court issues an order for reconsideration and reassessment, the Minister will simply be required to issue a reassessment that correctly reflects the very decision that the taxpayer sought to challenge since that decision would not have been quashed”(para. 105).

Neal Armstrong. Summary of Dow Chemical Canada ULC v. Canada, 2024 SCC 23 under s. 247(10).