News of Note
WRD Borger – Tax Court finds that a taxpayer was engaged in trial and error rather than SR&ED
Email this ContentThe taxpayer’s business included installing culverts in housing subdivisions. A particular project was seeking to instal and tie-in new box culverts with existing box culverts that, in turn, hooked into a catchment pond 4 meters below the water surface. After trying various approaches, what ultimately worked was using a combination of a concrete cap, small objects, and pumps to dewater a square culvert (so that its workers could work inside it and instal the necessary tie-ins).
In confirming the disallowance of the taxpayer’s related SR&ED claims, Wong J stated inter alia that the taxpayer’s approach “was more akin to problem-solving by trial and error than formulating hypotheses and systematically testing them to reduce or eliminate a technological uncertainty.”
Neal Armstrong. Summary of WRD Borger Construction Ltd. v. The Queen, 2021 TCC 40 under s. 248(1) - SR&ED.
We have translated 10 more CRA interpretations
We have published a further 10 translations of CRA interpretation released in February and January, 2008, and December 2007. Their descriptors and links appear below.
These are additions to our set of 1,578 full-text translations of French-language severed letters (mostly, Roundtable items and Technical Interpretations) of the Income Tax Rulings Directorate, which covers all of the last 13 ½ years of releases of Interpretations by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall.
ValueClick - French Supreme Court finds that French staff who lined up the contracts (albeit “automatically” signed elsewhere) gave rise to dependent-agent PEs
ValueClick Inc., a US corporation, was one of the market leaders in the online advertising business. Its Irish subsidiary, ValueClick Ireland, had a staff of no more than seven employees, who were responsible for account management and sales of ValueClick services for the world outside North America. ValueClick Ireland established subsidiaries in local European jurisdiction, including in France (“ValueClick France”). The external contracts between ValueClick and French advertisers were formally entered into with ValueClick Ireland rather than ValueClick France. However, a staff of around 50 employees of ValueClick France was responsible for marketing to French advertisers as well as various administrative and support functions, and forwarded contracts to Value-Click Ireland for signing. The intercompany services agreement between ValueClick Ireland and ValueClick France provided that it did not create an agency relationship, and that it did not authorize one party to sign contracts in the name of the other party or to represent that party for the purpose of contractually binding it. ValueClick France was remunerated by Value-Click Ireland under the agreement on a cost-plus-8% basis.
The permanent establishment wording in the French-Irish Convention had the standard OECD wording respecting PEs constituted by agents of a non-independent status. In affirming the position of the French tax authorities that Value-Click Ireland had an agency PE in France, the Supreme Administrative Court stated that a French company could be considered to be habitually exercising the authority to conclude contracts in the name of an Irish company “if, on an habitual basis - even if it does not formally conclude contracts on behalf of the Irish company - it decides on transactions which the Irish company merely endorses and which, once endorsed, bind it.” The Court went on to state:
[W]hile the Irish company sets the model for the contracts concluded with advertisers in order to give them the benefit of the services it engages to be provided, as well as the general pricing conditions, the decision to conclude a contract with an advertiser and all the tasks necessary for its conclusion are the responsibility of the employees of the French company, with the Irish company merely validating the contract by a signature which is of an automatic character.
Neal Armstrong. Summary of [ValueClick case] FR: CE, 11 Dec. 2020, Case No. 420174 (Conseil d'État) under Treaties – Income Tax Conventions – Art. 5.
Bresse Syndics – Federal Court of Appeal finds that a trust deed requirement that the trustees be the Pubco directors gave Pubco de facto control of a trust subsidiary
A public company (CO2 Public), operating a high-tech business, carried on its SR&ED through a private company (CO2 Technologies) that was held by a discretionary trust whose beneficiaries were CO2 Public and special-purpose subsidiaries thereof. A provision in the Declaration of Trust provided that each trustee was required to be a director of CO2 Public.
Noël CJ noted that although “in principle” the determination of whether CO2 Public had de jure control of CO2 Technologies was to be determined having regard to the articles of incorporation of CO2 Technologies and any unanimous shareholders agreement, Duha Printers had indicated that the terms of the deed of trust for a shareholder trust of a corporation could be relevant to determining whether the deed restricted the ability of trustees to exercise their voting rights over the corporation’s shares. However, he found that it was unnecessary to resolve this issue, because the above trust deed restriction gave Public CO2 de facto control of CO2 Technologies within the meaning of s. 256(5.1), so that CO2 Technologies was not a Canadian–controlled private corporation on those grounds. He stated:
Fiducie’s deed of trust operated in such a way that by electing Public CO2’s board of directors, Public CO2’s shareholders also elected Fiducie’s trustees, as they had to be directors of Public CO2. … Thus, Public CO2 had the power to terminate the trustees’ functions by revoking or not renewing their mandate as directors.
… [T]he mechanism put in place clearly gave Public CO2 the ability to change the appellant’s board of directors or to influence in a very direct manner those who had that ability.
Neal Armstrong. Summary of Bresse Syndics Inc. acting for the bankruptcy of CO2 Solution Technologies Inc. v. The Queen, 2021 FCA 115 under s. 256(5.1).
CRA indicates that a sublease of land to a mobile home occupant is a supply of part of a residential complex, unless the site is a residential trailer park
A corporation, which has been headleased land, subdivides the land into residential lots that are registered in the land registry, and subleases the lots to persons who install manufactured homes (qualifying as “mobile homes,” as defined in ETA s. 123(1)) on the lots. CRA indicated that the subleasing of the land would be regarded as the supply of “part of a residential complex” – except that if the land was a site in a residential trailer park, the s. 123(1) definition of residential complex as it applied (in para. (d) thereof) to a mobile home, excluded the land from the residential complex (consisting only of the mobile home), so that the sublease instead would be a supply of bare land. CRA did not discuss whether such supplies were exempted under Sched. V, Pt. I, s. 6(a) or 7(b).
Neal Armstrong. Summaries of 1 December 2020 GST/HST Interpretation 193361r under ETA Sched. V, Pt. I, s. 6(a) and s. 123(1) - residential trailer park.
GST/HST Severed Letters December 2020
This morning's release of four severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their December 2020 release) is now available for your viewing.
GST/HST Severed Letters November 2020
This morning's release of four severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their November 2020 release) is now available for your viewing.
CRA indicates that a COVID lockdown closing in-store shopping or seated restaurant dining can be a “public health restriction” notwithstanding curbside pickups or deliveries/take-out
Regarding whether the “public health restriction” definition would apply to retail stores or food court restaurants in a shopping mall subject to a COVID lockdown, the Directorate stated:
[W]here a particular order or decision prohibits customers from physically entering a Store to shop, then “in-person shopping” activities could be considered restricted activities. The fact that customers of a Store are permitted to collect their orders at a designated location within the shopping mall, via curbside pickup or delivery, would not preclude a Store from having restricted activities related to “in-person shopping”.
Similarly, where a particular order or decision requires public seating areas of a shopping mall available to customers of the Restaurants in the food court to close, such that customers of the Restaurants are no longer permitted access to the seating area of the food court, the Restaurants’ “sit-down dining” activities could be considered restricted activities. The fact that take out service may continue would not preclude the Restaurants from having restricted activities related to “sit-down dining”.
Neal Armstrong. Summary of 7 June 2021 Internal T.I. 2020-0873601I7 under s. 125.7(1) - public health restriction – para. (f).
CRA indicates that a COVID lockdown closing a travel agency office qualified as a “public health restriction” even if the personnel continued bookings from home
Element B of the rent subsidy formula in s. 125.7(2.1) provides a “rent top-up percentage” for a qualifying renter in respect of a qualifying property that is subject to a “public health restriction” in the qualifying period, which in very rough terms, references a COVID lockdown measure requiring the cessation of activities (“restricted activities”) of the eligible entity at the property (para. (f)) from which at least 25% of its qualifying revenues for the prior reference period were derived (para. (g)).
The Directorate indicated that the para. (f) test would likely be satisfied by a travel agency that was required to close its office due to COVID lockdown measures, so that its employees started working from home, assuming that clients, prior to the lockdown, had been making in-person visits to the office to arrange travel bookings. It indicated that there were insufficient facts provided to conclude on the para. (g) test, but made the bold statement:
[I]f, during the relevant prior reference period, all activities were performed in-person at the travel agency, then it may be reasonable to conclude that at least approximately 25% of its qualifying revenues in the prior reference period, that were earned from the qualifying property, were derived from the restricted activities.
Neal Armstrong. Summary of 7 June 2021 Internal T.I. 2020-0873601I7 under s. 125.7(1) - public health restriction.
Income Tax Severed Letters 9 June 2021
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.