MEGlobal Canada ULC had sought a downward transfer pricing adjustment, which the tax authorities had refused to grant.
An appeal was filed with the Tax Court which held that the refusal to grant such an adjustment was a discretionary decision, distinct from a non-discretionary assessment. Because the Tax Court can only hear appeals related to assessments and cannot interfere with the Minister’s discretionary authority, it lacked jurisdiction to consider the merits of the company’s request. The Court also declined to allow the company to amend its Notice of Appeal.
Not satisfied with this decision MEGlobal filed an appeal with the Federal Court of Appeal.
Judgment
The Federal Court of Appeal also dismissed the appeal.
“[12] There is no authority to refer a matter back to the Minister for reconsideration of an issue that may lead to a reassessment, if the Minister exercises his discretion to allow a downward transfer pricing adjustment. As noted by the Supreme Court in Canada (Attorney General) v.
TeleZone Inc., 2010 SCC 62, at paragraph 44 “[a] court has jurisdiction if its authority extends to ‘the person and the subject matter in question and, in addition, has authority to make the order sought’”. Absent the authority to make the order sought, the Tax Court does not have the jurisdiction to address the issue raised by MEGlobal.
[13] It should also be noted that, in denying the requested downward adjustment, the Minister, in effect, also stated why the request would not be granted even if the appropriate transfer price was as proposed by MEGlobal (which the Minister also did not accept):
The request seeks a reduction of the reported taxable income as filed in the 2008, 2010 and 2011 taxation years in Canada only. While there is an alleged over-reporting of the income for Canadian tax purposes, there is no corresponding under-reporting of the income for UAE tax purposes since there is no taxation of this income in that jurisdiction. Allowing the request would in effect create double non taxation.
Finally, subsection 247(10) is a relief provision aimed at situations where a taxpayer wants to correct an improper allocation of income and expenses between entities in two jurisdictions. To the extent there is no taxation in the other jurisdiction or no double taxation, no relief should be granted under s. 247.”