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PAGE 6 COMMENT Law Times Group Publisher ....... Karen Lorimer Editorial Director ....... Gail J. Cohen Editor .................. Glenn Kauth Staff Writer ............. Robert Todd Staff Writer ....... Michael McKiernan Copy Editor ......... Heather Gardiner CaseLaw Editor ...... Jennifer Wright Art Director .......... Alicia Adamson Account Co-ordinator .... Catherine Giles Electronic Production Specialist ............. Derek Welford Advertising Sales .... Kimberlee Pascoe Sales Co-ordinator ......... Sandy Shutt ©2010 Thomson Reuters Canada Ltd. All rights reserved. No part of this publication may be reprinted or stored in a retrieval system without written permission. The opinions expressed in articles are not necessarily those of the publisher. Information presented is compiled from sources believed to be accurate, however, the publisher assumes no responsibility for errors or omissions. Law Times disclaims any warranty as to the accuracy, completeness or currency of the contents of this publication and disclaims all liability in respect of the results of any action taken or not taken in reliance upon information in this publication. December 6, 2010 • Law Times Law Times Thomson Reuters Canada Ltd. 240 Edward Street, Aurora, ON • L4G 3S9 Tel: 905-841-6481 • Fax: 905-727-0017 www.lawtimesnews.com Publications Mail Agreement Number 40762529 • ISSN 0847-5083 Law Times is published 40 times a year by Thomson Reuters Canada Ltd., 240 Edward St., Aurora, Ont. L4G 3S9 • 905-841-6481. lawtimes@clbmedia.ca CIRCULATIONS & SUBSCRIPTIONS $159.00 + HST per year in Canada (HST Reg. #R121351134) and US$259.00 for foreign addresses. Single copies are $4.00 Circulation inquiries, postal returns and address changes should include a copy of the mailing label(s) and should be sent to Law Times 240 Edward St., Aurora, Ont. L4G 3S9. Return postage guar- anteed. Contact Jacquie Clancy at: jclancy@ clbmedia.ca or Tel: 905-713-4392 • Toll free: 1-888-743-3551 or Fax: 905-841-4357. ADVERTISING Advertising inquiries and materials should be directed to Sales, Law Times, 240 Edward St., Aurora, Ont. L4G 3S9 or call Karen Lorimer at 905-713-4339 klorimer@clbmedia.ca, Kimberlee Pascoe at 905-713-4342 kpascoe@clbmedia.ca, or Sandy Shutt at 905-713-4337 sshutt@clbmedia.ca Law Times is printed on newsprint containing 25-30 per cent post-consumer recycled materials. Please recycle this newspaper. Editorial Obiter Should Crowns have 2011 conference at Blue Mountain? J ust as Rob Ford was about to take of- fice in Toronto last week, an arbitra- tor's ruling related to a cancelled 2010 conference for Ontario's Crown lawyers hinted at the prospects of a public outcry on the lines of the new mayor's campaign against the so-called "gravy train." The case, R. v. Association of Law Officers of the Crown, involved the law- yers' annual conference held at the Blue Mountain Conference Centre near Collingwood, Ont., planned for May 5-7 of this year. It never took place due to government concerns about the optics of paying for the association, which represents roughly 750 lawyers and articling students (excluding the province's criminal law division), to hold the event at the tony resort. It had taken place there in previous years. The ruling by arbitrator Christopher Albertyn notes the government's par- ticular concerns given the challenging recessionary and fiscal environment. As he noted, the association was ready to go ahead with the conference, which the government had committed to funding under its collective agreement with the lawyers, when assistant deputy attorney general Malliha Wilson began raising concerns about it in February. By then, cancelling it would force the association to forfeit its $20,500 de- posit to Blue Mountain. To its credit, the association worked with the government to try to resolve the problem. For its part, the province pro- posed potentially cheaper government- owned venues, such as the Kempenfelt Conference Centre and Georgian Col- lege. But Kempenfelt, with only 79 rooms available, couldn't accommodate the 400 people expected to attend, while Georgian didn't have availability at the scheduled time. In the meantime, the as- sociation generously offered to subsidize the roughly $600 cost per person for the conference. The result would be a 50-per- cent reduction in the government's con- tribution, according to the ruling. Wilson, however, responded that "unfortunately, Blue Mountain will not be an acceptable venue." In the end, the government reimbursed the association for the lost deposit. The association, in turn, grieved the can- cellation based on the government's obligation to support the conference. Albertyn, in his Nov. 22 decision, ruled the government had breached the collective agreement. In doing so, he noted that the province's support was subject to fiscal and operational considerations. On the fiscal front, he noted that given the union's subsidy of- fer and that a cheaper and still suitable alternative wasn't available, the govern- ment failed to make its case. On the operational question, he said that while optics may be a legitimate concern, it was reasonable to expect that the public, should the media make an issue of the conference, could "make their judgment on the basis of accurate information and not a sensational misapprehension." In the end, Albertyn declined to award damages but ordered the gov- ernment to support the conference at Blue Mountain next year. On the whole, it's clear that both the province and association tried to act reasonably. Certainly, the idea of send- ing lawyers to a resort during hard times would raise predictable complaints about gravy trains. The association, however, re- sponded in a responsible fashion. Nevertheless, the ruling did note that cheaper alternatives at various post- secondary institutions would have been available at other times. So rather than send lawyers to Blue Mountain next year, the association should use the time it has to explore those other options. Of course, given that many of its members likely work in Toronto, can't we save the hotel costs and hold the conference in the pro- vincial capital next year at a government facility? That would truly debunk an out- cry over gravy trains. — Glenn Kauth trade negotiations with India. The deal will happen because the prime ministers of both countries are behind it and believe in trade. As they seek to improve their global returns on equity, Cana- dian multinational corporations should welcome a trade agree- ment with one of the world's ris- ing economic powers. Watch out, however, for the exuberance of tax authorities. India expects to be the P growth economy of the next de- cade. Recent studies, including one by Goldman Sachs, predict the labour force in India will grow by 110 million people in the next 10 years compared to 11 million for the United States. The incremental rate of growth of the gross domestic product attributable to the demographic changes alone is estimated at four per cent per year. India overreaches with its taxing jurisdiction Financial rime Minister Stephen Harper has announced that Canada will open free- There are perils, however, associated with international expansion into new markets. One of the lurking risks is the propensity of taxing authori- ties to overreach. Apart from improving returns on equity, we need to be aware of the gravitational pull of jurisdic- tions assessing tax based on their alleged source of income in the foreign country. Indian tax au- thorities, for example, have as- sessed Vodafone Group PLC for US$2.6 billion in taxes on capital gains that it triggered on a share sale of a non-resident company between two non-residents. The amount of the assessment is more than the Indian govern- ment's entire annual power budget, which creates a financial windfall with strong domestic gravitational pull. Vodafone, one of Britain's largest corporations, acquired a 67-per-cent stake in India's Hutchison Essar Ltd. in 2007 Matters By Vern Krishna for US$11.1 billion. Vodafone's Dutch subsidiary, Vodafone In- ternational Holdings BV, pur- chased CPGL Ltd., a Cayman Is- lands company owned by Hong Kong-based Hutchison Telecom- munications International Ltd., which controlled its Indian sub- sidiary through a maze of compa- nies. CPGL owned Hutchison's Indian assets. The share purchase transaction was entirely between non-residents of India and in- volved only residents of Britain, the Netherlands, and the Cay- man Islands. The Indian tax authorities al- lege that the Cayman company was just a shell corporation for the Indian entity, Hutchison www.lawtimesnews.com Essar. Thus, they argued that al- though the capital gains nomi- nally belonged to Hutchison Telecommunications Inter- national, they were subject to Indian withholding tax as the substance of the transaction was essentially a transfer of the underlying Indian assets of the Indian subsidiary. The authori- ties assert that the objective of the share purchase was to acquire control of the Indian telecommu- nications company. Thus, Voda- fone should have withheld the taxes and remitted them to the Indian government. The Bombay High Court agreed, saying the rights and entitlements of a share constitute capital assets. Prior to Vodafone, the prevail- ing view was that India wouldn't tax non-residents when they purchase assets outside of India. A judicial decision that under- mines that position would seri- ously cloud corporate structures that multinational corporations use to invest in India. India will need more than bodies to keep growing. It will need new jobs, at least 40 million of them over the next 10 years, to accommodate the increased labour force. To achieve that level of economic activity, India must attract foreign capital. By over- reaching its taxing jurisdiction, the country could retard new capital investment. Multinational corporations will be watching the interplay between the form and sub- stance of their corporate struc- tures closely. Such actions by governments and exuberant tax bureaucrats to bolster their national treasuries aren't in the best interests of free trade. LT Vern Krishna is tax counsel with Borden Ladner Gervais LLP and executive director of the CGA Tax Research Centre at the University of Ottawa. His e-mail is vkrishna@ blg.com.