News of Note

The owner of a British exhibition centre (“NEC”) sold tickets on behalf of third parties holding events at the centre. Where the customers paid by credit card, NEC increased the ticket prices by about 10%, and retained this amount as a booking fee.

The U.K. Upper Tribunal referred a question to the European Court of Justice respecting whether the card processing services of NEC were VAT-exempt payment services. Before answering, the Court questioned whether the NEC booking fees were consideration for a separate supply, stating that it previously had held “that the additional charges invoiced by a service provider to its customers, where the latter pay for those services by credit card…do not constitute consideration for a supply of services distinct and independent from the principal supply of services in respect of which that payment was made.” The Court did not explain how there could be a single supply and two suppliers (NEC supplying a card-processing service, and the third parties supplying tickets).

Turning to the question posed, the Court held that there was no exempt financial service because NEC did not debit or credit the customer’s account or otherwise provide a direct payment service but instead was merely involved in the exchange of information with its correspondent bank who, in turn, exchanged information with the card-issuer bank. This reasoning may suggest that it was crucial in Global Cash Access that Global actually issued its own “cheques” rather than merely facilitating payments by others.

Neal Armstrong. Summaries of HMRC v National Exhibition Centre Ltd., [2016] BVC 19 under ETA – s. 123(1) – supply, s. 123(1) – financial service – para. (a).

A claim for an SR&ED deduction must be made on a properly completed T661 form. Although s. 37(11) provides that the form can be filed up to 12 months after the taxpayer’s filing-due date, it is dangerous for a corporation to rely on this accommodation: if CRA rejects the form as being incomplete, the corporation has no recourse (unless it can persuade CRA to reassess the related return, which CRA is not obligated to do.)

This is what happened to AFD, which filed a T661 right on the extended due date, with only 2 of the 7 pages in the form completed. Bowell J noted that if AFD had filed the T661 with its T2 return, it would have been able to deal with any CRA concerns with the manner of completion of the form by filing a notice of objection, so that the absence of recourse based on what AFD actually had done did not represent procedural unfairness.

It seems odd to effectively impute a Parliamentary intention to provide what looks like a gift but, in fact, is a trap. What if the taxpayer clearly had made a bona fide effort to make a good T661 filing?

Neal Armstrong. Summary of AFD Petroleum Ltd. v. A.G., 2016 FC 547 under s. 37(11).

Reg. 204(1) provides that a trustee having control of or receiving income, gains or profits must file an information return – so that even though the property of the trust is subject to s. 75(2) so that its income is attributed to another person and the trust itself will have not tax payable, it still must file the T3 return. CRA has stated that this return-filing requirement does not apply where the property of the s. 75(2) trust does not “not generate any income, profits or gains.” “Income” presumably has its usual meaning of net income, so that if all the trust’s revenue-generating properties were producing losses, there apparently would be no T3 return-filing requirement.

Neal Armstrong. Summary of 10 June 2016 STEP Roundtable, Q. 13 under ITR 204(a).

In order to help fund its indirect purchase of TECO Energy for approximately U.S.$8.6 billion, Emera is proposing to issue U.S.$1.2 billion of subordinated notes which mature in 2076, are automatically convertible into preferred shares bearing a cumulative dividend equal to the notes’ interest rate on the occurrence of an Emera insolvency (as defined in detail) and accord Emera the right to defer the due date for any given interest coupon for up to five years. The notes are redeemable at Emera’s option at par after June 15, 2026 (at which point, the interest thereon also converts from fixed to floating).

The notes also can be redeemed at par at Emera’s option before that date if it receives a Canadian or U.S. legal opinion that its treatment or intended treatment of the notes in its tax returns (e.g., as to interest deductibility) will not be respected by an applicable tax authority. The Canadian tax disclosure treats the notes as debt, whereas the U.S. tax disclosure is diffident on this issue.

Neal Armstrong. Summary of Emera Prospectus Supplement and Short Form Base Shelf Prospectus under Offerings – Convertible Debentures – Automatically Convertible.