Words and Phrases - "for"
Commissioner of Taxation v PepsiCo Inc, [2025] HCA 30
A U.S. company (“PepsiCo”) entered into an “exclusive bottling appointment” (“EBA”) with an independent Australian bottling company (“SAPL”). PepsiCo agreed in the EBA to sell, or cause a related entity to sell, beverage concentrate to SAPL for bottling and sale, and granted SAPL the right to use the Pepsi and Mountain Dew trademarks in this regard. A Singapore company (“CMSPL”) in the PepsiCo group produced the concentrate, and sold it (at a mark-up over its costs of 0.05%) to an Australian company in the PepsiCo group (“PBS”) which, in turn, supplied it to SAPL and invoiced SAPL therefor. Similar facts applied to an ERB between SAPL and another U.S. corporation (Stokely-Van Camp, Inc., or “SVC”) respecting the bottling of Gatorade under a licence of that trademark.
At issue was whether any portion of the payments made by SAPL constituted a royalty “derived” by PepsiCo (or SVC) from an Australian resident (SAPL) so as to be subject to Australian withholding tax under the Income Tax Assessment Act 1936 (Cth). A “royalty” was relevantly defined as amounts paid or credited as consideration for the use of or the right to use various listed types of intellectual property, including trademarks.
In concluding that the amounts paid by SAPL to PBS were not a royalty, and after discussing the meaning of "consideration for", the majority stated (at para 174):
The Commissioner did not dispute that [the concentrate price] was an arm's length price, or a fair price, or that it was not disproportionately high. When the price paid for goods has those characteristics, it cannot be said that a part of the price paid for those goods is payment of a royalty for the use of intellectual property applied to products partly made with those goods. Observing that the sale of the products produced using the goods increased the value of the PepsiCo Intellectual Property does not show that SAPL paid any part of the amount paid for concentrate to, or for the benefit of, PepsiCo for using the PepsiCo Intellectual Property.
Regarding the question of whether, if instead payments by SAPL had been a royalty, PepsiCo would have derived any amount as a royalty (which the Commissioner accepted required that there have been an antecedent obligation between PepsiCo and SAPL which was being satisfied by payments made under direction), the majority noted that although the ERB had required SAPL in the future to enter into a contract to buy concentrate on specified terms, such clause “did not change the parties to the subsequent transactions for the sale of concentrate, namely PBS and SAPL” so that “[i]f SAPL failed to pay for the concentrate supplied by PBS, it was PBS as the contracting party that had an action for debt under those sale transactions.” (para. 185)
The Commissioner's appeal was dismissed.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Consideration | meaning of “consideration for” | 422 |
Marin v. The Queen, 2022 TCC 49
The taxpayer, a Canadian resident, was generally subject to French income tax on the rental income from a French property to the extent of his interest in a French company (a “société civile immobilière”) holding the property, which was treated as fiscally transparent for French income tax purposes. However, effective January 1, 2019, the French tax on such income commenced to be imposed on a periodic basis during the year as it was earned, rather than being payable in the year following that in which it was earned – and as a result of a transitional relief measure, in 2019 the taxpayer received a credit to offset the French tax otherwise payable in arrears in 2019 on his 2018 rental income.
The taxpayer argued that s.126 should be interpreted to avoid double taxation which, in his view, arose because in 2018 he was subject to tax in France on his French-source income for 2017 and in 2018 was also subject to tax in Canada on his French-source income for 2018. In rejecting such argument, Lafleur J first framed (at para. 45, TaxInterpretations translation) the principal issue as follows:
The issue, therefore, is whether the word "year" in subsection 126(1) as well as in subsection 126(7) (in the definition of "non-business-income tax") refers to the term "taxation year" at the beginning of the subsection and whether the preposition "for" in "for the year" in the same provisions means "during" the year or "in" the year, as claimed by the appellant.
In rejecting the taxpayer’s interpretation, she stated (at para. 58):
If Parliament had intended that foreign taxes paid "in the year" be taken into account in calculating the foreign tax credit, rather than foreign taxes paid "for the year," it would have made this clear, as in section 2.
Regarding “context” and “purpose” she stated (at paras. 63, 67):
[T]he taxation year covered by the foreign tax credit provisions must be the same taxation year for which the taxable income and taxes payable in Canada are determined and computed. …
The purpose of section 126 is to avoid double taxation where foreign source income is taxed both in Canada and abroad. It is therefore clear that the same income must be taxed twice in order for a foreign tax credit to be allowed.
Accordingly, since the taxpayer had not paid any (net) French tax on his income for his 2018 taxation year, he was not entitled to a credit under s. 126(1) in computing his Canadian tax for 2018.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Treaties - Income Tax Conventions - Article 6 | may-be-taxed language does not confer an exclusive right to tax | 195 |
| Tax Topics - Income Tax Act - Section 126 - Subsection 126(1) | FTC domestic and Treaty provisions are applied re the particular year in which the subject income was earned | 193 |
| Tax Topics - Treaties - Income Tax Conventions - Article 24 | Art. 23 of French Treaty inapplicable where income of a particular taxation year was not otherwise taxed twice | 246 |
Weyerhaeuser Company Limited v. The Queen, 2007 TCC 65
In 1998 the Canadian taxpayer paid $14.3 million to non-resident service providers in the ordinary course of its forestry business. The Minister assessed it for failure to withhold under Reg. 105 on the following payments:
- the portion of service fees allocated to services rendered outside of Canada according to estimates made by the service provider (with no supporting documentation being provided by them for such estimates);
- reimbursements of non-residents' out-of-pocket costs and related items, including travel time and expenses; and
- amounts paid as retainers in relation to services which the service provider expected to be rendered outside of Canada (again, without documentary support).
Bowie J. found (at paras. 6-10) that the purpose of the withholding obligations under s. 153(1)(g) and Reg. 105 was to ensure that, if a non-resident recipient of a payment is, after all the facts are known (i.e. when its annual Canadian tax returns are filed), liable to pay income tax in Canada, there will be funds available, in the form of the 15% withheld and remitted, to satisfy the obligation. He implicitly accepted that disbursements incurred by a non-resident service provider in providing its services might be “in respect of” those services. However, disbursements were not subject to Reg. 105 withholding since they are not “for” the non-resident's services, indicating (at para. 10) that the Reg. 105 wording may "properly be read as including only amounts that may be taxable in Canada in the hands of the recipient, which is to say 'income earned in Canada'." He stated (at para. 7):
[T]he appellant's obligation in respect of the disbursements is simply to repay that which the consultant has paid on the appellant's behalf in the course of rendering the service. To withhold 15% from that amount would not at all further the purpose of paragraph 153(1)(g)… . It is not difficult to foresee that if foreign service providers were to be reimbursed their expenses only to the extent of 85% until such time as they had filed a Canadian income tax return after the year end, and then waited for an assessment and a refund, that would create a considerable disincentive for them to offer their services to Canadian clients
As the expression “a fee, commission or other amount in respect of services rendered in Canada of any nature whatever” in Reg. 105 was capable of being narrowly interpreted so as to conform with what was authorized by ITA s. 153(1)(g), Reg. 105 was intra vires.
Respecting the lack of documentary support for the Canada/U.S. allocation estimates of the non-resident service providers, he stated (at para. 24, see also para. 27) that "there is no requirement at law that those be provided." A "retainer" was in reality a deposit so that it was "not a fee and not referable to any work" (para. 26). Finally, charges for time spent travelling to Canada for meetings were "not earned in Canada, and so [not] taxable in Canada" (para. 28).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Statutory Interpretation - Regulations/Statutory Delegation | narrow construction of Reg. so as to be intra vires | 212 |
| Tax Topics - Statutory Interpretation - Interpretation Act - Section 16 | "in respect of" in Regulation read narrowly to conform with "for" in statute | 169 |