BETWEEN:
and
Heard at Calgary, Alberta, on June 13, 2007.
Judgment delivered from the Bench at Calgary, Alberta, on June 13, 2007.
REASONS FOR JUDGMENT OF THE COURT BY: PELLETIER J.A.
Docket: A-416-06
Citation: 2007 FCA 236
CORAM: DÉCARY J.A.
SEXTON J.A.
PELLETIER J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
MIL (INVESTMENTS) S.A.
Respondent
REASONS FOR JUDGMENT OF THE COURT
(Delivered from the Bench at Calgary, Alberta, on June 13, 2007)
[1] In order to succeed in this appeal, the appellant Her Majesty the Queen must persuade us that one transaction in the series of transactions in issue is an avoidance transaction, and that the tax benefit achieved by the respondent MIL (Investments) S.A. is an abuse or misuse of the object and purpose of article 13(4) of the Convention between Canada and the Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of fiscal Evasion with respect to Taxes on Income and on Capital (the Tax Treaty).
[2] The Tax Court judge found that the series of transactions consisted of the respondent’s sale of 703,000 shares of Diamond Fields Resources Ltd. (DFR), the payment of the Final Dividend (as described in the Tax Court judge’s reasons) and the continuance of the respondent as a Luxembourg corporation. The Tax Court judge found that the respondent’s August 1996 sale of its remaining shares in DFR was not part of the series because “at the end of the series of transactions, DFR management, including co-chairman Boulle (the directing mind of the respondent) and therefore the appellant [respondent in the appeal] had no intention of selling”: Reasons for Decision, at para. 67.
[3] The appellant’s task has been made easier by the respondent’s admission that its continuance as a Luxembourg corporation was an avoidance transaction. As a result, and even though the Tax Court judge found that the respondent’s August 1996 sale of its shares in DFR was not, in and of itself, an avoidance transaction, the tax benefit which the respondent ultimately obtained following that sale may be subject to the General Anti-Avoidance Rule (GAAR) if the sale was part of the series of transactions or was undertaken in contemplation of the series of transactions.
[4] Counsel for the appellant and counsel for the respondent, each in their turn, took us to the evidence in support of their position. The fact that there is evidence in support of each side’s position makes it unlikely that the Tax Court judge’s conclusion was the result of a palpable and overriding error.
[5] We do not have to answer that question as we are of the view that the appeal would fail in any event as we are unable to see in the specific provisions of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the Act) and the Tax Treaty to which we were referred, interpreted purposively and contextually, any support for the argument that the tax benefit obtained by the respondent was an abuse or misuse of the object and purpose of any of those dispositions.
[6] It is clear that the Act intends to exempt non-residents from taxation on the gains from the disposition of treat exempt property. It is also clear that under the terms of the Tax Treaty, the respondent’s stake in DFR was treaty exempt property. The appellant urged us to look behind this textual compliance with the relevant provisions to find an object or purpose whose abuse would justify our departure from the plain words of the disposition. We are unable to find such an object or purpose.
[7] If the object of the exempting provision was to be limited to portfolio investments, or to non-controlling interests in immoveable property (as defined in the Tax Treaty), as the appellant argues, it would have been easy enough to say so. Beyond that, and more importantly, the appellant was unable to explain how the fact that the respondent or Mr. Boulle had or retained influence of control over DFR, if indeed they did, was in itself a reason to subject the gain from the sale of the shares to Canadian taxation rather than taxation in Luxembourg.
[8] To the extent that the appellant argues that the Tax Treaty should not be interpreted so as to permit double non-taxation, the issue raised by GAAR is the incidence of Canadian taxation, not the foregoing of revenues by the Luxembourg fiscal authorities.
[9] As a result, the appeal will be dismissed with costs.
“J.D. Denis Pelletier”
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-416-06
STYLE OF CAUSE: Her Majesty the Queen
v. MIL (Investments) S.A.
PLACE OF HEARING: Calgary, Alberta
DATE OF HEARING: June 13, 2007
REASONS FOR JUDGMENT OF THE COURT BY: DÉCARY J.A.
SEXTON J.A.
PELLETIER J.A.
DELIVERED FROM THE BENCH BY: PELLETIER J.A.
APPEARANCES:
|
Mr. Warren J. A. Mitchell |
FOR THE APPELLANT
|
|
|
FOR THE RESPONDENT
|
SOLICITORS OF RECORD:
|
Deputy Attorney General of Canada Ottawa, Ontario
|
FOR THE APPELLANT
|
|
Vancouver, British Columbia |
FOR THE RESPONDENT
|