Words and Phrases - "credit"
Vega International Car Transport and Logistic — Trading GmbH v. Dyrektor Izby Skarbowej w Warszawie, ECLI:EU:C:2019:412 (European Court of Justice, 8th Chamber)
The business of the subsidiaries of Vega International included the transport of commercial vehicles from the manufacturer to customer. International provided fuel cards to its subsidiaries which drivers used to purchase fuel, with International charging the subsidiaries on a monthly basis for the cost of the fuel plus a 2% surcharge.
In finding that International was not purchasing fuel and on-supplying the fuel to its subsidiaries, and instead was supplying credit to its subsidiaries (in this reference, its Polish subsidiary), the Court stated (at paras. 36, 44, 48):
Vega International does not dispose of the fuel in respect of the purchase of which it seeks reimbursement of VAT as if it were the owner. That fuel is purchased by Vega Poland directly from the suppliers and at its sole discretion. Accordingly, Vega Poland decides on, in particular, the fuel purchasing arrangements in so far as it may choose, from among the service stations of the suppliers indicated by Vega International, which service station to refuel at and may freely decide on the quality, quantity and type of fuel, as well as when to purchase and how to use it … .
[T]he expression ‘the granting and the negotiation of credit’ used in [the VAT] provision ... must be interpreted broadly, so that its scope cannot be limited only to loans and credit granted by banking and financial institutions … .
[B]y applying that surcharge of 2% to Vega Poland, Vega International receives a payment for the service provided to its Polish subsidiary. Vega International thus provides a financial service to Vega Poland by financing in advance the purchase of fuel and therefore acts, for that purpose, in the same way as an ordinary financial or credit institution.
The appellant (“North Shore”) entered into contracts in 2010 with Menova Energy Inc. for the purchase of solar panels, under which it paid one-half of the purchase price plus HST up front with the balance payable on delivery. Menova eventually cancelled 10 of 18 contracts, issued credit memos that documented its obligation to refund the associated up-front payment, including HST, but did not satisfy this obligation before becoming bankrupt. North Shore ultimately only recovered a relatively small portion of what was owed. The Minister issued reassessments to North Shore Power Group Inc. that added to its net tax amounts of HST that were “credited” to North Shore as described above.
Woods J stated (at paras 28- 29):
The question is whether an agreement to refund tax is a “credit” within the meaning of “refund or credit” in subsection 232(2)… .
…[T]he Tax Court erred in concluding that the term “credit” in subsection 232(1) takes its meaning from the commercial terms “credit note” and “credit memorandum.” …[T]hese commercial terms do not appear in subsections 232(1) and (2), which are the provisions that engage section 232 by giving the supplier the option to adjust tax. The term “credit note” is used in subsection 232(3) only to describe the documentation required if section 232 has been engaged.
Woods J further found (at paras 35, 38, and 45):
[A]t the time section 232 of the Act was introduced into law, existing case law had ascribed to the term “credit” in an income tax context the narrow interpretation from Le Petit Robert [(operation by which someone puts a sum of money at the disposal of someone else)]… .
Section 232 appears to contemplate that a credit given under this provision will actually be satisfied. It makes no sense for the supplier to be allowed a deduction from net tax and for the purchaser to be required to add an amount to its net tax if there is no transfer of funds.
[T]he term “credit” in section 232 should have the meaning from Le Petit Robert, above… . I do not suggest that money must actually be set aside, but it is not sufficient if there is no sum at the disposal of the purchaser.
She concluded (at paras 50 and 51) that as “Menova did not put funds at the disposal of North Shore when it issued the credit memos … section 232 does not apply to the transactions at issue as HST was not credited to North Shore.”
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|Tax Topics - Excise Tax Act - Section 231 - Subsection 231(1)||no bad debt credit under s. 231 for a s. 232 credit which becomes bad||148|
Canada v. Gillette Canada Inc., 2003 DTC 5078, 2003 FCA 22
Some of the shares held by the taxpayer in its French subsidiary were purchased for cancellation by the subsidiary in consideration for the assignment to the taxpayer of a note (denominated in French-francs) owing to the subsidiary by a French partnership whose principal partner was the U.S. parent of the taxpayer. A month later, the note was converted into indebtedness denominated in Canadian dollars.
The conversion of the note to Canadian dollars did not give rise to a payment, credit or loan given that the Canadian dollar note was issued and accepted as replacement for the original note in circumstances where the terms were remained the same except the currency of payment.
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|Tax Topics - General Concepts - Payment & Receipt||replacement with different currency note||58|
|Tax Topics - Income Tax Act - Section 15 - Subsection 15(2)||148|
Richard Lewin Re: The J.J. Herbert Family Trust #1 v. The Queen, 2011 DTC 1354 [at 1979], 2011 TCC 476, aff'd 2013 DTC 5006 [at 5525], 2012 FCA 279 [but overridden by s. 214(3)(f)(i)(C)]
The taxpayer was a trustee for a family trust, which received a dividend in 2001 of over $2 million. The trust adopted an unconditional resolution on 11 September 2001 to pay a distribution of the dividend to the non-resident capital beneficiary, with the beneficiary having the right to require payment to himself at any time. The taxpayer then resigned as a trustee on 12 January 2002 and the beneficiary was paid on 18 January 2002. The trust failed to withhold and remit the 25% Part XIII tax.
Bédard J. found that the taxpayer was not liable under s. 215(6) for the failure to remit because s. 212(1) specifies that the trustee's withholding obligation arises in respect of amounts paid or credited rather than payable. While the dividend was payable from the date of the resolution, the taxpayer resigned before it was actually paid.
Bédard J. rejected the Minister's contention that "to credit" in s. 212(1) "refers to a situation where a creditor has the right to enforce payment of a sum but grants the debtor deferral" to a later time (para. 11). If a person has a right to enforce payment of an amount, then the amount is, by definition, payable to that person. The Minister's definition of "to credit" would therefore have the effect of replacing the phrase "pays or credits" in s. 212 with "makes payable" (para. 41). Bédard J. concluded (at para. 61):
[T]he Court should adopt the definition of "credited" suggested by the CRA and interpret it as meaning: the unconditional placing of funds - on a practical level - at the disposal of the Beneficiary in fulfilment of the Trust's obligation to pay.
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|Tax Topics - Income Tax Act - Section 227 - Subsection 227(5)||163|
|Tax Topics - Statutory Interpretation - Expressio Unius est Exclusio Alterius||136|
La Compagnie Minière Québec Cartier v. M.N.R., 84 DTC 1348 (TCC)
The taxpayer received demand loans from its U.S. parent which provided for the semi-annual payment of interest but provided that the taxpayer, on giving ten days' prior written notice, could elect that interest which otherwise would become due on a semi-annual payment date would be added to the principal amount. In its books of account, the taxpayer credited 85% of the capitalized interest as an amount owing to the non-resident creditor, and 15% as an amount owing to the Receiver General. In finding that interest which had been so capitalized had not been "credited", Tremblay J. stated (p. 1357) that in his view:
"A strict interpretation of s. 212(1)(b) leaves to interpreting the word 'credit' according to its substance, 'making available to', and not according to the form of making an entry 'on the right side of an account'."