In McKesson, the Tax Court upheld the CRA's transfer price
adjustments (made pursuant to section 247 of the Income Tax Act
(Canada)) that had reduced the discount rate paid under a
receivables sales agreement between McKesson Canada and its parent
company, MIH, from 2.206% to 1.013%. The Tax Court also upheld
the assessment of withholding tax on a deemed dividend that arose
in a secondary adjustment resulting from the lower discount
In its Memorandum, the Appellant states that the Trial Judge
made a "fundamental error of law" and requests that the
appeal be allowed with costs and the matter be remitted to the Tax
Court for a new trial before a different judge. The Appellant
describes the issues on the appeal as follows:
Did the Trial Judge err in law by stepping outside the
pleadings and the case put forward and as developed by the parties
over the course of the trial to find against McKesson Canada,
thereby depriving McKesson Canada of its right to know the case it
had to meet and its right to a fair opportunity to meet that
Did the Trial Judge err in law when he misconstrued the
arm's-length principle by holding that, in determining what
terms and conditions arm's length parties would have made or
imposed, he was to assume that one party (purchaser) controls the
As a result of stepping outside of the pleadings and the case
put forward and as developed by the parties over the course of the
trial and committing an error of law, did the Trial Judge calculate
the discount rate in a manner that ignored the assumption of risk
by MIH, contrary to the terms of the Agreement and resulted in a
discount rate that is commercially absurd?
Did the Trial Judge err in permitting the Minister to assess
non-resident withholding tax after the expiry of the applicable
limitation period and in contravention of Canada's obligations
under a bilateral tax treaty?
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