Global Tax 50 2014: McKesson
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 recusalhave brought the case to the forefront of the tax world. The caseconcerns a receivable sales agreement between McKesson Canada and its parent company (MIH) in Luxembourg.
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 Boylefound 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 my Reasons".
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.
The Global Tax 50 2014
Gold tier (ranked in order of influence)
1. Jean-Claude Juncker 2. Pascal Saint-Amans 3. Donato Raponi 4. ICIJ 5. Jacob Lew 6. George Osborne 7. Jun Wang 8. Inverting pharmaceuticals 9. Rished Bade 10. Will Morris
Silver tier (in alphabetic order)
Joaquín Almunia • Apple • Justice Patrick Boyle • CTPA • Joe Hockey • IMF • Arun Jaitley • Marius Kohl • Tizhong Liao • Kosie Louw • Pierre Moscovici • Michael Noonan • Wolfgang Schäuble • Algirdas Šemeta • Robert Stack
Bronze tier (in alphabetic order)
Shinzo Abe • Alberto Arenas • Piet Battiau • Monica Bhatia • Bitcoin • Bono • Warren Buffett • ECJ Translators • Eurodad • Hungarian protestors • Indian Special Investigation Team (SIT) • Chris Jordan • Armando Lara Yaffar • McKesson • Patrick Odier • OECD printing facilities • Pier Carlo Padoan • Mariano Rajoy • Najib Razak • Alex Salmond • Skandia • Tax Justice Network • Edward Troup • Margrethe Vestager • Heinz Zourek