On Thursday, February 26, 2009, the Federal Court of Appeal
reaffirmed the importance of "certainty and stability" in
the interpretation of bilateral income tax treaties with the
release of its decision in The Queen v. Prévost Car, Inc. The Federal
Court of Appeal unanimously upheld the lower court's decision
that a Dutch holding company was the "beneficial owner"
of dividends received from its Canadian subsidiary for purposes of
the tax treaty between Canada and the Netherlands.
Please click here for prior coverage of the lower court's
decision. In so doing, the Court refused to adopt the ambiguous
and flexible meaning of "beneficial owner" put forward by
the Canada Revenue Agency.
This is a significant victory, not only for the taxpayer in this
case, but for any multinational enterprise that requires certainty
and stability concerning the availability of reduced withholding
tax rates offered under bilateral income tax treaties regarding the
cross-border payment of interest, dividends and royalties. The
Federal Court of Appeal provides clear guidance on the
circumstances in which a foreign holding company will be respected
as the "beneficial owner" for treaty purposes and further
provides useful guidance concerning the relevance of the
commentaries produced by the Organisation for Economic Cooperation
and Development (the "OECD") in interpreting and applying
bilateral income tax treaties. As stated by the Court:
Counsel for the Crown has invited the Court to determine that
"beneficial owner", "beneficiaire effectif",
"mean the person who can, in fact, ultimately benefit from the
dividend". That proposed definition does not appear anywhere
in the OECD documents and the very use of the word "can"
opens up a myriad of possibilities which would jeopardize the
relative degree of certainty and stability that tax treaties seek
to achieve. The Crown, it seems to me, is asking the Court to adopt
a pejorative view of holding companies which neither Canadian
domestic law, the international community nor the Canadian
government through the process of objection, have adopted.
It is unclear at this time whether the Canada Revenue Agency
will seek leave to appeal this decision to the Supreme Court of
The taxpayer, Prévost Car Inc., a subsidiary of Volvo Bus
Corporation, was represented by Fraser Milner Casgrain LLP with a
team consisting of William I. Innes, Chia-yi Chua, and Matthew
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