In 2013 and 2014, the Canadian tax authorities conducted the Transfer Pricing Audit of Bank of Nova Scotia.
Prior to issuing tax assessment letters for FY 2007, 2008, 2009 and 2010, the Bank entered into a settlement agreement with the Minister of National Revenue in respect of the Transfer Pricing Audit.
The settlement agreement provided for the Minister to reassess the Bank to include certain amounts in its income as transfer pricing adjustments in its 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013 and 2014 Taxation Years. In this regard, the agreement was to result in an increase of the Bank’s taxable income for the 2006 Taxation Year of $54,916,616.
The Bank then wrote to the Minister to carry back $54,000,000 of non-capital loss that arose in the Bank’s taxation year ended October 31, 2008 to its 2006 Taxation Year in order to offset the pending $54,916,616 Transfer Pricing Adjustment.
The Minister did so and as part of the reassessment, interest was calculated based on the date of the written request (i.e. March 12, 2015).
The Bank of Nova Scotia was of the opinion that the interest should have been calculated based on the filing date of the loss year return (i.e. April 28, 2009).
The Tax Court’s decision
The Tax Court ruled in favor of the tax authorities and dismissed the appeal.
“The wording of the provision is unambiguous and when applied to the present circumstances, the correct deemed payment date is April 11, 2015 which is 30 days after March 12, 2015, i.e. based on subparagraph 161(7)(b)(iv). For the purposes of the refund interest, the correct deemed overpayment date is also April 11, 2015, based on paragraph 164(5)(l). The Minister’s error in using March 12, 2015 for her calculation rather than April 11, 2015, resulted in 30 days’ less interest being assessed and this Court cannot put the taxpayer in a worse position”