Canada vs Alberta Printed Circuits Ltd., April 2011, Tax Court of Canada, Case No 2011 TCC 232

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Alberta Printed Circuits Ltd (APC, the taxpayer) was a Canadian manufacturer of custom prototype circuit boards. The manufacturing process was initially manual and later automated.

In 1996, a Barbados company, APCI Inc.,  was formed via a complex ownership structure.

The Barbados company provided services to Alberta Printed Circuits Ltd. by performing setup functions, software and website development, and maintenance services. APCI charged the appellant a fixed fee for the setup services and a square-inch fee for non-setup services. Alberta Printed Circuits Ltd charged the same fee for the same services to third-party customers.

The tax authorities asserted that the Alberta Printed Circuits Ltd overpaid APCI $3.4 million because the terms and conditions of the agreements differed from those that would have been entered at arm’s length.

Alberta Printed Circuits Ltd provided evidence of internal comparable transactions and transfer prices were determined by the comparable uncontrolled price (CUP) method.

The court held that the price paid to APCI for the setup fees was arm’s length. It allowed the appeal for those amounts but found that the appellant failed to establish that it did not overpay for the non-setup services.

The court disagreed with the CRA’s application of the transactional net margin method. The TCC judge instead accepted the hierarchy of methods established in the 1995 OECD guidelines, which shows a preference for traditional transaction methods and cites the CUP method as providing the highest degree of comparability. Thus, the court preferred the appellant’s internal comparable transactions.


Case No 2011 TCC 232

Canada vs Alberta Printed Circuits 2011