McKesson Canada versus The Queen case, concerning
receivable sales between McKesson Canada and its parent company
in Luxembourg, heard before the Tax Court of Canada (TCC), was
spearheaded by Justice Patrick Boyle, the judge in the case up
until he recused himself on September 4 2014. Justice Boyle
talks to International Tax Review's Sophie Harding
about the role of the Canadian courts in international tax, the
applicability of OECD guidelines and the challenges facing the
Boyle is a new entry this year
On hearing of his inclusion in the ITR Global Tax
50 2014, Justice Boyle shows his humility and is quick to
broaden the scope of the accolade beyond just himself.
"This honour really recognises the continued importance of
the Canadian courts in international tax with our decisions in
the areas of residence, treaty interpretation, transfer
pricing, hybrid mismatches, beneficial ownership and the
general anti-avoidance rule (GAAR)," says Boyle.
"I think it also reflects the Tax Court of Canada's
substantial role in helping to found and support the
International Association of Tax Judges (IATJ) over the past
With multilateral discussions on tax issues becoming the
norm, the manner in which countries fit into international
frameworks is of increasing importance. On the strength of
Canada in the area of international taxation, Boyle says this
is built on its commitment to giving every taxpayer their day
in court with a full trial, as well as sophisticated tax
legislation, the appointment of very well qualified judges to
the TCC and to the Federal Court of Appeal (FCA), and a Supreme
Court of Canada (SCC) which regularly agrees to hear appeals
from significant tax cases.
"We are fortunate enough to be able to expect well qualified
and prepared lawyers to appear before us on both sides of most
of the cases of significant international interest," he
McKesson, Boyle picks out Spruce Credit Union
and Morguard as two of the standout cases he presided
over in 2014.
"I was pleased to have my GAAR decision in Spruce Credit
Union upheld by the FCA in 2014, and to again have been
part of a panel at this year's IATJ Assembly in DC in October,
addressing the relevance of double non-taxation in treaty
interpretation and application in the member countries. My
decision in Morguard on the income characterisation of
takeover break fees received was upheld in 2013 when the SCC
declined to hear a further appeal, and it has been the subject
of continued discussion and commentary in 2014."
The past year has not been without challenges, though. The
TCC is a national circuit court with a very large country as
its circuit, and Boyle says this places significant and unique
professional, logistical and personal demands on all members of
"That challenge comes with its rewards, as we are sent every
other week to one of 70 different Canadian cities and towns
– not to bring back votes, money or clients, just to
do what we think is right and just in the circumstances after
whatever time for reflection one needs."
Another challenge faced by figures such as Boyle is how to
navigate nebulous concepts that are very much in vogue right
now, such as tax fairness and tax morality. Unsurprisingly,
such concepts represent huge difficulty for judges working
within a legislative framework where grey areas are frowned
upon. Boyle is thankful that such concepts did not crop up in
"The Crown did not directly or indirectly raise any fair
share or fiscal morality arguments that are currently trendy in
international tax circles. It wisely stuck strictly to the tax
fundamentals: the relevant provisions of the legislation and
the evidence relevant thereto. Issues of fiscal morality and
fair share are surely the realm of Parliament."
In McKesson, Boyle was not afraid to go against
OECD transfer pricing guidelines, basing his decision, instead,
on fact-finding and issue evaluation. This is a position he
stands by today.
"The SCC in GlaxoSmithKline reminds us that the
statutory transfer pricing provisions govern and are to be
applied by the judges of our courts, not any particular
methodology or commentary from the OECD Guidelines. In
McKesson I observed:
"OECD Commentaries and Guidelines are written not only
by persons who are not legislators, but in fact are the tax
collection authorities of the world. Their thoughts should be
considered accordingly. For tax administrators, it may make
sense to identify transactions to be detected for further audit
by the use of economists and their models, formulae and
algorithms. But none of that is ultimately determinative in an
appeal to the Courts. The legal provisions of the Act govern
and they do not mandate any such tests or approaches."
Canadian courts are generally able to consider and be helped
by OECD commentaries when interpreting and applying treaties.
This includes later commentaries and revisions that are not in
conflict with the commentaries as at the time the treaty was
ratified. This was most recently stated by the FCA in its
Prevost Car decision on beneficial ownership, and
referred to in my TD Securities LLC decision.
"Coincidentally I had been counsel to Prevost Car
in this tax dispute for several years before my appointment and
prior to it being heard. Ditto re Knights of Columbus
and its permanent establishment tax dispute."