The litigation concerns the tax deductibility of guarantee fees worth $136 million paid by GECC to its US parent General Electric Capital Corporation (GECUS) between 1996 and 2000 for its backing of commercial paper and debenture programmes.
In a memorandum filed with the Federal Court of Appeal last month the Crown outlined detailed grounds of appeal relating to errors of law, errors of fact and the denial of procedural fairness. It also said it was seeking a reduction of the judge's valuation of the explicit guarantees to nil or very low, or a new trial with a new judge.
But the Crown did not introduce any new arguments in the memorandum.
The dispute arose when the Minister of National Revenue made a reassessment disallowing deduction of the guarantee fees on the basis that they weren't at arm's length.
In the Tax Court of Canada, the Crown argued for the Canada Revenue Agency that GECC did not need the explicit guarantee in order to raise its debt, owing to the implicit support that GECUS would be thought by the market to provide. The fees were therefore a gratuitous distribution of value, said the Crown.
GECC argued that distortions from the parties' relationship should not be considered when determining an arm's length result, that its credit rating was lower than GECUS', and that the transactions had a commercial basis.
The tax authorities won a conceptual point when Justice Hogan boosted the credit rating attributed to GECC in his analysis in consideration of the implicit support. However, he didn't accept the Crown's contention that GECC's credit rating was equal to its parent's and concluded that the guarantee fees were not excessive.
The Federal Court's decision may have implications for discussions about transfer pricing in other jurisdictions. It is expected to hear the case this autumn.
A team from Osler Hoskin & Harcourt led by Al Meghji is representing GECC.
