The Tax Court of Canada (the "Court")
recently rendered a decision in the case of
PricewaterhouseCoopers Inc. agissant ès qualité
de syndic à la faillite de BioArtifi cial Gel Technologies
Inc. (Bagtech) c. Sa Majesté la faillite de BioArtificial
Gel Technologies Inc. (Bagtech) c. Sa Majesté La
Reine1 on the impact of a unanimous
shareholders' agreement ("USA") on
the status of a corporation as a "Canadian controlled private
corporation" ("CCPC") within the
meaning of the Income Tax Act (Canada)
The central issue before the Court was to determine what impact
Bagtech's USA had on its status as a CCPC (under subsection
125(7) ITA). More specifically, the Court had to decide whether the
provisions of the USA, which provided that the non-resident
shareholders could not elect a majority of the members of the
corporation's board of directors, were sufficient for Bagtech
to be considered a CCPC despite the fact that its non-resident
shareholders held a majority of the voting shares during the
taxation years in question.
The Court concluded, for purposes of the definition of CCPC,
that the clauses of a USA governing the election of a
corporation's directors must be taken into account in
determining the de jure control of the corporation.
Relying on the decision of the Supreme Court of Canada in Duha
Printers, the Court found that any restriction under a USA on
the power of the majority shareholders to elect members of the
board of directors must be taken into account for purposes of
determining de jure control. Having so found, the Court
concluded that Bagtech was a CCPC for the taxation years in
question because the majority of the directors were appointed by
resident Canadian shareholders according to the terms of the USA,
despite the fact that the non-resident shareholders held a majority
of the voting shares.
This decision is particularly interesting because of the new
possibilities it creates for corporations having a majority of
nonresident shareholders. For example, the conclusion by a
corporation's shareholders of a USA with similar provisions to
that in Bagtech will enable the corporation to claim refundable
investment tax credits, among other things. This is a much simpler
way of qualifying for tax incentives as compared with some of the
other structures which have been developed over the years to get
around the definition of CPCC. However, it should be noted that
this decision has been appealed to the Federal Court of Appeal.
1 Decision dated April 12, 2012, file
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