One of the most talked about transfer pricing cases this year
has undoubtedly been McKesson Canada Corp. versus The
Queen. A judgement, a damning appeal and a controversial recusal have brought the
case to the forefront of the tax world.
|McKesson is a
new entry this year
The case concerns a receivable sales
agreement between McKesson Canada and its parent company (MIH)
MIH agreed to buy receivables from McKesson in 2002 for $460
million and purchase all eligible receivables daily for the
next five years, subject to a $900 million cap. McKesson used a
discount rate of 2.206%.
In a ruling in December 2013, Justice Patrick J Boyle, of
the Tax Court of Canada, said an arm's-length rate in the range
of 0.959% to 1.17% would have been acceptable and dismissed the taxpayer's appeal.
Justice Boyle found that the "primary
purpose" of the transaction was to save taxes and expressed his
concern that neither party had provided the level of evidence
he had expected.
The decision was based on fact finding and issue evaluation,
rather than the application of an OECD methodology. "For the
first time, a Canadian court questioned the value and weight of
the OECD's guidelines," says Shaun MacIsaac QC.
On June 11 2014, McKesson filed a memorandum of fact and
law claiming Justice Boyle "erred" in his findings. The
memorandum alleged he had ignored the assumption of risk by
MIH, misconstrued the arm's-length principle and relied on
propositions that were never put to McKesson.
On September 4 2014, Justice Boyle filed a
47 page recusal, which stated that McKesson's appeal
contained "clear untruths" and made "allegations of
impartiality". The judge added: "the Appellant and
Appellant’s counsel, together with its co-counsel
in the Federal Court of Appeal in respect of the appeal of the
trial decision, had made certain public written statements
about me in its factum in the Federal Court of Appeal (the
"Factum") which, upon reflection, appear to me to clearly
include: (i) allegations that I was untruthful and deceitful in
Justice Boyle acknowledged that his recusal was unusual:
"Canadians should rightly expect their trial judges to have
broad shoulders and thick skins when a losing party appeals
their decision, but I do not believe Canadians think that
should extend to accusations of dishonesty by the judge, nor to
untruths about the judge."
While the outcome is still unclear, this case is sure to be
talked about for years to come.