http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/142519/index.do
Canadian Forest Navigation Co. Ltd. v. The Queen (February 12, 2016 – 2016 TCC 43, Lamarre A.C.J.)
Précis: The appellant received payments in 2004, 2005 and 2006 from its foreign affiliates. The payments were described as dividends. Subsequently the appellant obtained rectification orders in Cyprus and Barbados declaring such payments not to be dividends but rather transfers that resulted in indebtedness by the appellant to the foreign affiliates in the amount of the transfers. The appellant applied for an order under section 58 of the Tax Court of Canada Rules (General Procedure) that a question of law be determined before the hearing:
Is the Minister required to not treat the transfers as dividends, or to not take the position that the transfers are dividends in this Appeal, by virtue of the foreign rectification orders, but rather to treat the transfers as resulting in indebtedness by the Appellant to the foreign affiliates in the amount of the transfers?
The Tax Court concluded:
that the respondent is not bound by the foreign judgments since they have not been recognized in Canada by a court of competent jurisdiction, and therefore the respondent is not precluded from taking the position at trial that the appellant received dividends, rather than amounts in the form of loans and other indebtedness, during the period at issue.
Decision: The Court reviewed the applicable legislation and case law in Quebec and concluded that the Crown could not be bound by the foreign court orders unless they were homologated by a competent Quebec tribunal:
[20] In the present case, the appellant argues that the Foreign Judgments were requested because the intent had been, from the beginning, to take the profits out of the Barbados Subco and the Cyprus Subco on a tax‑free basis, in order to comply with the international shipping rules set out in subsection 250(6) of the ITA.
[21] In my view, the approach that must be taken in the present case is the same as that which would be applicable for non-money foreign judgments. This means that, as stated in Pro Swing, supra, the domestic court may have to consider relevant factors so as to ensure that the Foreign Judgments do not disturb the structure and integrity of the Canadian legal system and do not conflict with domestic law. It is not merely a matter of facilitating the execution of a debt or an obligation that was adjudicated upon by the foreign tribunal. A careful review of the Foreign Judgments is required in order to ensure that the Canadian court does not extend judicial assistance if the Canadian justice system would be used in a manner not available in strictly domestic litigation.
[22] That is why I conclude that the Foreign Judgments would have to be homologated by a competent tribunal in the province of Quebec in order to bind the respondent. This is all the more true since the respondent never had a chance to intervene to present her own arguments or to test the stated common intentions of the parties at the time the transfers of money occurred (or to ensure that all necessary information and all the tax ramifications were squarely before the foreign courts), especially given that the context was one in which the Foreign Judgments were issued after the Canada Revenue Agency had sent a notice of proposed reassessment (in the case of the Barbados application) and notices of reassessment (in the case of the Cyprus application) with respect to taxing the dividend income that was intended to be distributed tax‑free (see AES, supra, at par. 51; Dale v. Canada, [1997] 3 F.C. 235, at par. 50, [1997] F.C.J. No. 476 (QL), at par. 17; Beals v. Saldanha, 2003 SCC 72, [2003] 3 S.C.R. 416, at par. 62; Aim Funds Management Inc. v. Aim Trimark Corporate Class Inc., [2009] O.J. No. 2408 (QL) (Ontario Superior Court of Justice), at par. 22; A c. B, 2013 QCCS 575, at par. 42-43 and 50).
[23] Unfortunately, this Court does not have jurisdiction to grant an equitable remedy of rectification. Nevertheless, it is still open to the appellant to rely on the Foreign Judgments in presenting its evidence before this Court at trial, and it will be up to the presiding judge to determine the weight to be given to the Foreign Judgments when ruling on the correctness or incorrectness of the assessments being appealed.
[24] For all these reasons, I answer in the negative to the question raised by the parties in this section 58 motion, and I conclude that the respondent is not bound by the Foreign Judgments and is not precluded from taking the position that the appellant received dividends rather than amounts in the form of loans and other indebtedness during the period at issue.
Costs were awarded to the Crown.
Comment: It will be interesting to follow the next steps in this intriguing piece of litigation.