Law Times

Page 10 January 29, 2018 • Law Times www.lawtimesnews.com Cameco and Oxford cases front and centre in 2018 BY JIM MIDDLEMISS For Law Times A ll eyes in the tax bar are on two important cor- porate tax cases cur- rently wending their way through the courts, which could see judgments as early as the first half of 2018. The first case, Canada (Na- tional Revenue) v. Cameco Corporation, involves uranium producer Cameco Inc. and the Canada Revenue Agency over the country's transfer pricing rules. The 60-day mega trial at the Tax Court of Canada wrapped up in September. With more than $2 billion in tax at stake, it is one of the biggest cases ever to hit the Tax Court. The second case, Oxford Properties Group Inc. v. The Queen 2016 TCC 204 (Can- LII), is in the Federal Court of Appeal and involves the conten- tious General Anti-Avoidance Rule of the Income Tax Act, known as GAAR. It centres on a number of transactions un- dertaken by Oxford Properties Group Inc., which the Minister of National Revenue challenged and lost. "These are decisions that all tax lawyers have their eyes on," says Margaret Nixon, a tax law- yer at Stikeman Elliott LLP in Toronto. The rulings are expected to provide some clarity in two of the most important areas of corporate tax law, transfer pric- ing and GAAR, and there are a number of cases in the system that could be impacted as a re- sult of the rulings. Claire Kennedy, a tax partner at Bennett Jones LLP in Toronto, added that, as 2018 proceeds, there will be a "big focus" on GAAR. "I think what will be impor- tant for the Federal Court of Appeal to do is to impose some discipline in the utilization of GAAR," she says. "We are now getting into the more difficult questions," Al Meghji, a tax partner at Osler Hoskin & Harcourt LLP, who is acting for the taxpayers in both cases, says regarding GAAR and transfer pricing. He says one of the challenges is that, over the last two to three years in Canada, tax law has been "injected" with morality. "We have moved away from taxes simply being a technical subject matter and injected it with moral questions. That cre- ates uncertainty," he says. "I hope that courts will adopt the view that Parliament is charged with the business of re- f lecting policy and morality in our tax laws and judges ought not to indulge their personal views of fiscal morality in the interpretation and application of our tax laws." Meghji says the ideal is a "rules-based system where ev- erybody knows the rules." The Cameco case Transfer pricing is one of the more controversial tax issues facing corporations that operate globally and deals with methods and rules for pricing transac- tions between enterprises that have common ownership or control and are not arm's length. The Cameco dispute reaches back to 2008, when the Canada Revenue Agency took issue with Cameco's corporate structure and the pricing methodology the company used in uranium sale and purchase agreements with its Swiss-based subsidiary. Cameco set up the subsid- iary, Cameco Europe Limited, in 1999 to buy uranium from the Canadian parent and other arm's-length sellers, which it sold to Cameco's U.S. subsidiary. The parent company entered into a 17-year uranium deal with its European counterpart, agree- ing to sell uranium at $US10 a pound, which was the then- trading price. Since then, Uranium has spiked and receded. Cameco booked massive profits on the deal in the lower-taxed Swiss jurisdiction, while claiming its Canadian operation lost money. The CRA challenged that, arguing the Canadian opera- tion substantially understated its taxable income and should be reassessed under the sham doc- trine because the Swiss company wasn't engaged in the uranium business. The CRA was to shift more than $7 billion in earnings back to Canada for tax years 2003 to 2015. The tax authorities maintain that the intercompany transac- tions were commercially unrea- sonable and undertaken only to achieve a tax benefit and were abusive. Cameco, however, argued that it acted properly and that its agreements ref lected commer- cial reality at that time. The company noted in its cor- porate statements that "transfer pricing is a complex area of tax law, and it is difficult to predict the outcome of cases like ours." It pointed out that tax author- ities test two things, such as the "governance (structure) of the corporate entities involved in the transactions" and "the price at which goods and services are sold by one member of a corpo- rate group to another." "We have a global customer base and we established a mar- keting and trading structure involving foreign subsidiar- ies, including Cameco Europe Limited (CEL), which entered into various intercompany ar- rangements, including purchase and sale agreements, as well as uranium purchase and sale agreements with third parties," according to the company's an- nual report in 2015. "Cameco and its subsidiaries made reasonable efforts to put arm's-length transfer pricing ar- rangements in place, and these arrangements expose the parties FOCUS Claire Kennedy says there will be a 'big focus' on the General Anti-Avoidance Rule in 2018. See Onus, page 12 18th Annual TLA Awards Reception © 2017 Thomson Reuters Canada Limited 00238SJ-88292-NP The Honourable Justice John I. Laskin will be honoured with the Toronto Lawyers Association Award of Distinction. Ian Hull will be honoured with the Honsberger Award. 18th Annual TLA Awards Reception Thursday, March 8, 2018 OMNI KING EDWARD HOTEL Vanity Fair Ballroom 37 King Street East, Toronto Reception at 6:00 p.m. Presentation to follow at 7:00 p.m. Hors d'oeuvres and food stations. Business attire is requested. tlaonline.ca/event/2018Awards Untitled-1 1 2018-01-16 9:06 AM

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