Canada: Tax Court of Canada: Foreign rectification orders not binding on CRA unless properly recognised by Canadian courts
International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX
Copyright © Legal Benchmarking Limited and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Canada: Tax Court of Canada: Foreign rectification orders not binding on CRA unless properly recognised by Canadian courts

Auger
Wang

Francois Auger

Julia Qian Wang

In Canadian Forest Navigation Co Ltd (CFN), the Tax Court of Canada (TCC) determined as a question of law that the Canada Revenue Agency (CRA) is not bound by foreign rectification orders and is not precluded from taking a position contrary to such orders.

CFN had obtained two foreign rectification orders (issued by the Supreme Court of Barbados and the District Court of Nicosia in Cyprus) declaring that amounts that had been paid as dividends by CFN's foreign subsidiaries to CFN were instead loans. The Court was asked whether the CRA was bound by the characterisation set out in the rectification orders which had been obtained by CFN after having received a proposal letter from the CRA challenging the availability of a deduction for such dividends. CFN argued that the foreign rectification orders constituted the judicial reality and that the CRA was bound to accept the characterisation of such amounts as loans. The CRA argued that the foreign rectification orders were only sought by CFN and its foreign subsidiaries to avoid unintended Canadian tax consequences and represented retroactive tax planning. The CRA's position was that it was not bound by the foreign rectification orders because the CRA was not notified of the foreign proceedings and the orders had not been recognised in Canada by a court of competent jurisdiction.

After analysing the applicable law (the civil law of Quebec in this instance) and relevant case law, the Court agreed with the CRA's arguments that the CRA is not bound by the foreign rectification orders on the basis that "under Quebec private international law, foreign judgments are not enforceable in and of themselves", unless they are declared enforceable by the Quebec court following an application for enforcement. Without being recognised by a Quebec court, foreign judgments may only be used as evidence in Canada.

After reviewing the principle of comity underlying the recognition and enforcement of a foreign judgment, the Court concluded that Canadian courts are not to "extend judicial assistance if the Canadian justice system would be used in a manner not available in strictly domestic litigation". The Court further noted that the CRA was not notified of the rectification applications in Barbados and Cyprus, and that such notification would have been required had the rectification application been made in Canada.

Francois Auger (francois.auger@blakes.com) and Julia Qian Wang (julia.wang@blakes.com)

Blake, Cassels & Graydon

Tel: +1 514 982 4000

Fax: +1 514 982 4099

Website: www.blakes.com

more across site & bottom lb ros

More from across our site

View the Social Impact EMEA Awards 2024 shortlist and join us on September 12 at The Waldorf Hotel in London
The announcement is due to be made during the country’s Union Budget statement next week, according to reports
Around 30 roles are to be cut as the firm’s tax controversy and disputes practice will be incorporated into its tax division
The Labour Party has made ambitious commitments to close the UK’s ‘tax gap’, but how can they do it, and what will it mean for business?
The refreshed leadership team does not include Paddy Carney, who previously made headlines for her dual role on PwC Australia’s and PwC International’s boards
Nusetti, global tax head at pharmaceutical company Lupin, tells ITR about being a tax magician, military aspirations and what makes tax cool
The UK tax agency unsuccessfully argued that a software company was not entitled to R&D tax relief
Pillar two anticipation may have led to stable international corporation tax rates according to the OECD; in other news, A&M has continued its lateral hiring spree
Singapore faces controversies with many trade partners and needs to constantly keep tax guidelines up to date, a local tax expert told ITR
With HMRC’s renewed enforcement focus, it’s as important as ever for UK companies to get their NRD compliance affairs in order, writes Lewin Higgins-Green of FTI Consulting
Gift this article