News Share

The Tax Hub

Daily Tax Newsletter

Canada

1 December 2021

Responsive image

Supreme Court of Canada Upholds Appeals Court Judgment that Restructuring to Benefit from Tax Treaty with Luxembourg Not Subject to GAAR

On 26 November 2021, the Supreme Court of Canada issued its judgment in the case Canada v. Alta Energy Luxembourg S.A.R.L. (Alta Luxembourg). The case concerns the application of Canada's general anti-avoidance rule (GAAR) to deny Alta Luxembourg from benefiting from the capital gains provisions of the 1999 Canada-Luxembourg tax treaty in relation to gains from the alienation of shares in a Canadian corporation, Alta Canada. In February 2020, the Canadian Federal Court of Appeal issued its judgment finding that there was no abuse of the treaty, and therefore no abuse of the Income Tax Act. Since there was no abuse of the Act, the GAAR could not be applied. This was appealed, with the Supreme Court upholding the judgment of the Court of Appeal. The case in brief provided by the Supreme Court is as follows:

---

Case in Brief

Canada v. Alta Energy Luxembourg S.A.R.L.

The Supreme Court rules a Luxembourg company can benefit from a Canadian tax exemption due to an existing tax treaty.

An American oil and gas company created a Luxembourg subsidiary called Alta Luxembourg, which had its own subsidiary in Canada called Alta Canada. A subsidiary is a company that is owned by another company.

In 2013, Alta Luxembourg sold its shares in Alta Canada and made more than $380 million in profit. Alta Luxembourg paid taxes on the profit to Luxembourg tax authorities. In its Canadian tax return, Alta Luxembourg claimed a tax exemption on the basis that the profit was not "taxable income earned in Canada". It supported its claim by relying on the tax treaty between Canada and Luxembourg. The agreement exempts Luxembourg companies who profit from selling shares in Canada from paying taxes as long as the shares relate to buildings and lands in Canada where the company conducts business.

The Minister of National Revenue of Canada denied the exemption and Alta Luxembourg appealed to the Tax Court of Canada.

Before the Tax Court, the Minister argued that Alta Luxembourg could not quality for the exemption because Alta Canada did not do business on the property. The Minister also said that the only reason Alta Luxembourg existed was to sell the shares without having to pay taxes to Canadian tax authorities. Lawyers for the Minister said that was abusive tax avoidance. The Tax Court sided with Alta Luxembourg.

The Minister appealed that decision to the Federal Court of Appeal. It also sided with Alta Luxembourg, finding no abusive tax avoidance.

The Minister then turned to the Supreme Court of Canada.

The Supreme Court has dismissed the appeal.

There was no abusive tax avoidance.

Writing for the majority, Justice Côté said the Minister had not proven abusive tax avoidance. She said Canada had agreed to include exemptions for buildings and lands in the tax treaty to encourage investments by Luxembourg residents and companies. Alta Luxembourg made such an investment. As a result, it can claim a tax exemption and the anti-avoidance provisions of the Canadian Income Tax Act cannot be used to deny the exemption.

Powerful Tax Tools

NEW

FX Rates

Global FX Rates including Tax Year Average FX Rates and Spot Rates for all Reporting Currencies.

NEW

Corporate Tax Rates

Corporate tax rates, surtaxes, and effective tax rates for the current year, as well as historical rates and approved future rates.

NEW

Country Analysis

Detailed tax guidance for companies doing business in over 100 countries, including summaries and snapshots of key tax facts and issues.

NEW

Cross Border Tax Calculator

Calculate total tax costs and benefits of a cross border transaction including withholding tax, participation exemption and foreign tax credit rules.

NEW

Cross Border Tax Rates

Provides Domestic, treaty and EU cross border tax rates for over 5,000 country combinations for 9 different payment streams.

NEW

OECD BEPS Project

Complete overview of the OECD BEPS Project, including daily BEPS news, country adoption of BEPS measures, and an overview of the 15 BEPS Actions.

NEW

Tax Calendar

Customizable calendar tool that tracks corporate income tax, value added tax and transfer pricing obligations by country or entity.

NEW

Tax Forms

English translations of key tax forms for over 80 countries, including tax return forms, treaty benefit forms, withholding tax forms, and more.

NEW

Worldwide Tax Treaties

Repository including thousands of tax treaties (in English), OECD, UN and US Models, relevant EU Directives, Technical Explanations, and more.

NEW

Worldwide Tax Planner

Calculates the worldwide tax cost of what-if scenarios based on legal entity structure, taxable income, and cross border transactions.

NEW

Certified Rates Report

Customizable Certified Rates Report providing updated corporate and withholding tax rates at the end of each month for over 100 countries.

NEW

Withholding Tax Minimizer

Enables quick calculation of tax costs and benefits of cross border transactions considering all possible transaction combinations and optimal routes.

NEW

VAT Rates

Provides value added tax (VAT) rates, goods and services tax (GST) rates and other indirect tax rates for over 100 countries.

NEW

NOL Calculator

Country specific calculator to determine how net operating losses can be utilized in carryback and carryforward years.

NEW

Transfer Pricing Calculator

Calculates TP ratios under various TP methods and calculates the difference between target ratios and actual ratios.

NEW

Individual Income Tax Rates

Individual tax rates for over 100 countries.

Play of the Day

Worldwide Tax Treaties

Repository including thousands of tax treaties (in English), OECD, UN and US Models, relevant EU Directives, Technical Explanations, and more.

We’re here to help

We’re here to answer any questions you have about the Orbitax products and services.

Send us a message

Who’s behind Orbitax?

We’re committed to providing high value, low cost tax research and management solutions.

Learn More