In a 7-0 ruling on Friday, the Supreme Court said the Canadian provisions at issue in this case do not apply to the subsidiary Glenhuron Bank, meaning that tax on its income is not payable to the Canada.
Loblaw Financial, part of a larger group that includes the well-known grocery retailer, incorporated the subsidiary in 1992. The Central Bank of Barbados issued a license to operate as an offshore bank .
In 2013, Glenhuron was dissolved and its assets were liquidated to help Loblaw buy Shoppers Drug Mart.
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Loblaw Financial and affiliates invested in Glenhuron, which operated commercial banking activities, between 1992 and 2000.
For several tax years from 2001 to 2010, Loblaw Financial did not include income earned by Glenhuron on its Canadian income tax returns as foreign accumulated property income, known as FAPI.
The federal Minister of Revenue issued reassessments to Loblaw Financial that required it to pay income tax to Glenhuron on the grounds that it fell within the scope of the provisions.
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The Federal Tax Court agreed with the minister in 2018 that Glenhuron’s income did not qualify for an exclusion granted to foreign banks.
The court found that Glenhuron did business primarily with affiliates, and not with parties it dealt with at arm’s length, as required by law.
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The Federal Court of Appeal overturned the decision, sending the reassessments back to the Minister for reconsideration. The Crown then took its case to the Supreme Court.
In its unanimous decision, the trial court found that the vast majority of cases were between the foreign affiliate of Loblaw Financial and arm’s length parties, so the statutory exception applied. in fact.
A parent company does not do business with its foreign affiliate when providing capital and overseeing the business, the Supreme Court has said.
On the independent side, Glenhuron has invested in short-term debt securities, currency swaps and interest swaps, wrote Justice Suzanne Côté on behalf of the court.
“These are by far the most lucrative businesses undertaken by Glenhuron, accounting for at least 86% of its income in the years in question. “