http://decisions.fct-cf.gc.ca/fc-cf/decisions/en/item/180623/index.do
CGI Holdings LLC v. Canada (National Revenue) (September 27, 2016 – 2016 FC 1086, McDonald J.).
Précis: In 2007 CGI Holding Inc, a Delaware limited liability corporation (“CGI”), received a dividend of $142 million from its related Canadian resident corporation, 3208170 Nova Scotia Company, as the result of a corporate reorganization. A 25% withholding tax (roughly $35 million) was paid on this dividend. In 2010 the Tax Court released its decision in TD Securities (USA) LLC v The Queen, 2010 TCC 186. CRA subsequently changed its policy as to the treatment of dividends paid to an American LLC where the Canada-US Tax Treaty applied. As a result CGI claimed that the withholding tax on the 2007 dividend should only have been 5%, not 25%, and applied in March of 2012 to CRA for a refund. CRA declined the refund request as being out of time. It however took the request as a timely application for Competent Authority procedure under the Canada-US Tax Treaty. In March of 2013 CGI approached the IRS to open a Competent Authority procedure which it did in November of 2013. CGI provided submissions during the course of that procedure. In November of 2014 CRA advised the IRS that the Competent Authority procedure was terminated because it could not agree to the IRS position that a refund was due to CGI. The IRS then advised CGI that it was closing its file on the matter. CGI then asked CRA on March 5, 2015 to issue an assessment under its discretionary power contained in subsection 227(10.1) of the Income Tax Act which would have permitted CGI to appeal the quantum of withholding tax to the Tax Court. Without waiting for a response to that letter CGI commenced an application for mandamus on March 13, 2015 seeking an order to compel CRA to issue an assessment pursuant to subsection 227(10.1).
There were essentially four points before the Court and it decided against CGI on three of the four points. CGI succeeded in arguing that CRA’s decision to terminate the Competent Authority procedure was a “decision” that the Court could review. However the Court found that CRA’s decision was not demonstrably unreasonable. Moreover CGI had not been denied procedural fairness during the course of the procedure. Finally, in light of the short period of time between the application under subsection 227(10.1) and the application for mandamus (i.e., 8 days), CGI could not demonstrate unreasonable delay or refusal to act on the part of CRA. As a consequence it was not entitled to an order of mandamus.
The application was dismissed with costs to the Crown.
Decision: The decision to terminate the Competent Authority procedure was a “decision” that could be reviewed by the Court:
[41] In a letter dated November 14, 2014, the CRA advised the IRS that the case was concluded, stating as follows:
In reply to your letter of November 4, 2013, in which you requested that Canada issue a refund of CAN $28,463,184 for taxes withheld in 2007 in connection with a dividend paid to CH LLC [CGI] by a Nova Scotia unlimited liability company (NSULC). The refund requested is the amount withheld in excess of the maximum amount that, in your view, was chargeable under Article X(2)(a) of the Canada U.S. Tax Convention (1980).
. . .We have reviewed the circumstances of this case and regret that we cannot for the reasons explained below, issue the refund of tax requested.
[42] CGI was informed of this decision on January 8, 2015, during a telephone conversation between Mr. Massicote of the CRA and Mr. Marcovitz on behalf of CGI. On February 13, 2015, the IRS advised CGI that the two Competent Authorities were unable to resolve the issue under the MAP process, and that the case was closed.
[43] Although CGI did not receive a letter directly from the CRA denying their refund, it is clear from the November 14, 2014 CRA letter that the CRA made a decision, and that decision brought the MAP process to an end without any tax relief for CGI.
[44] Contrary to the position taken by the Respondent, I conclude that there was a “decision” by the CRA acting on behalf of the Minister and that decision properly forms the foundation of this judicial review application.
That decision was not, however, unreasonable:
[51] Here, the CRA determined that the facts and circumstances giving rise to the CGI dividend were not aligned to those in the TD Securities case. It concluded that tax avoidance may have been a factor in the corporate reorganization. Further, the CRA was not satisfied that the dividend was fully and comprehensively taxed in the United States. These factors are addressed in the TD Securities decision. Therefore, it cannot be said that the CRA reached its conclusion without considering the information provided by CGI and consultations with the IRS. These conclusions are within the range of possible outcomes of the MAP process. I therefore find that the CRA acted reasonably and that CGI has failed to demonstrate a reviewable error.
Nor was CGI denied procedural fairness:
[58] CGI argues that since it was not party to the discussions between the CRA and the IRS, it was unaware of the CRA’s concerns that the 2007 dividend was not fully and comprehensively taxed in the US and that there was no valid business purpose to the corporate structure.
[59] This position however is not supported by the evidence on the record. The basis for CGI’s application for a refund was the TD Securities decision. A review of that decision shows that the issues of full taxation and tax avoidance are specifically addressed by the Court in its decision (see para 87-105). Further, the record shows that the CRA put CGI on notice of its position that TD Securities was distinguishable. Accordingly, I conclude that CGI had notice of the CRA’s concerns.
[60] In addition to having notice of these concerns, CGI was afforded the opportunity to provide further submissions to the CRA. In its submissions of May 12, 2014, CGI specifically referenced the issue of taxation of the 2007 dividend and also specifically referenced the CRA’s treatment of avoidance structures in these submissions.
[61] CGI was aware that the issues of full taxation and tax avoidance were concerns for the CRA, and it was afforded the opportunity to address these issues in writing during the MAP process. For these reasons, I find that CGI was aware of the CRA’s concerns and was given an opportunity to respond. As a result, I conclude there has been no breach of procedural fairness in this case.
Finally CGI could not demonstrate unreasonable delay or refusal to act on the part of CRA in its application pursuant to subsection 227(10.1) since it commenced the judicial review proceeding only 8 days after that application was made without waiting for a response to the application:
[66] Applying the reasoning in Abraham, CGI has, at most, the right to ask the Minister to exercise her discretion to assess under subsection 227(10.1). The Minister must then decide whether or not to exercise the discretion provided under this provision.
[67] Here however, CGI has not demonstrated a refusal on the part of the Minister to exercise her discretion. The letter requesting an assessment under the ITA is dated March 5, 2015. CGI then filed its Notice of Application for Judicial Review on March 13, 2015, only a few days after the request for an assessment. In the circumstances, CGI did not provide the Minister with a reasonable period of time to consider the assessment request.
[68] CGI has not established a statutory right to an assessment pursuant to Subsection 227(7) or (10.1) of the ITA that can be enforced by a writ of mandamus. Furthermore, given the short period of time between the request for an assessment and the filing of the present Application, CGI has not shown unreasonable delay or refusal to act on the part of the Minister. CGI is not entitled to an order for mandamus.
As a result the application was dismissed with costs to the Crown.