- The Supreme Court of Canada ruled that Loblaw Financial Holdings should not have to pay Canadian taxes on profits earned through a subsidiary in Barbados.
The Supreme Court of Canada ruled that Loblaw Financial Holdings should not pay Canadian taxes on profits earned through a subsidiary in Barbados.
On Friday, the Supreme Court declared 7-0 that the Canadian provisions at issue in the case do not apply to Glenhuron Bank, meaning that tax on its revenue is not payable in Canada.
Loblaw Financial, a division of the well-known food store, established the company in 1992. Barbados’ central bank allowed it to operate as an offshore bank.
Glenhuron was dissolved in 2013, and its assets were liquidated to assist Loblaw in its acquisition of Shoppers Drug Mart.
Between 1992 and 2000, Loblaw Financial and its affiliates made substantial investments in Glenhuron, a corporate banking firm.
For numerous taxation years between 2001 and 2010, Loblaw Financial did not include Glenhuron’s foreign accrual property income or FAPI in its Canadian tax returns.
The federal revenue minister reassessed Loblaw Financial, requiring it to pay tax on Glenhuron’s revenues since it fell under the requirements.
In 2018, the federal Tax Court agreed with the minister that Glenhuron’s revenue did not qualify for a foreign bank exclusion.
The court determined that Glenhuron’s primary business was with related corporations rather than parties it dealt at arm’s length, as required under the Act.
The ruling was rejected by the Federal Court of Appeal, which remanded the reassessments to the minister for reconsideration. The Crown then pleased the Supreme Court.
The Supreme Court ruled unanimously that because the great bulk of transactions was performed between Loblaw Financial’s foreign affiliate and arm’s-length parties, the exception in the law did apply.
The Supreme Court ruled that when a parent corporation provides capital and performs corporate oversight, it does not conduct business with its overseas affiliate.
Glenhuron traded in short-term debt securities, cross-currency swaps, and interest swaps at arm’s length wrote Justice Suzanne Cote on behalf of the court.
“These were by far Glenhuron’s most profitable activities, accounting for at least 86% of company income throughout the relevant years.”
Source: CTV News
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