Cases
Sun Life Assurance Co. of Canada v. Pearson, [1984] BTC 223 (HC), aff'd [1986] BTC 282 (C.A.)
The fact that a British branch of a Canadian life insurance company faced a higher level of taxation than the branch would have faced had it been an enterprise resident in the U.K. did not constitute discrimination. Article 22 of the 1967 and 1980 Canada-U.K. Conventions are "designed to preclude and nullify specific provisions which discriminate against a branch", and the U.K. branch - tax provisions were not objectionable in that sense.
See Also
Hillis v. A.G. (Canada), 2015 FC 1082
One of the challenges brought by the appellant to the Canadian FATCA legislation (i.e., the Canada-United States Enhanced Tax Information Exchange Agreement Implementation Act (enacting the "IGA") and ss. 263 to 269 of the Income Tax Act) was that "the collection and disclosure of the taxpayer information contemplated by the IGA subjects US nationals resident in Canada to taxation and requirements connected therewith that are more burdensome than the taxation and requirements connected therewith to which Canadian citizens resident in Canada are subjected" contrary to Art. XXV of the Canada-U.S. Income Tax Convention (para. 62). In rejecting this argument (as well as rejecting other Treaty-based arguments), Martineau J stated (at para. 73):
[T]he burden of disclosing banking information is imposed by Part XVIII on financial institutions…and to the extent that the IGA and Part XVIII of the ITA impose burdensome requirements connected to taxation of US nationals resident in Canada, such burden is equally imposed on Canadian nationals in similar circumstances.
See summary under Treaties – Art. 27.
Saipem UK Limited v. The Queen, 2011 DTC 1053 [at 297], 2011 TCC 25, aff'd 2011 DTC 5148 [at 6159], 2011 FCA 243
The taxpayer was a non-resident UK corporation operating in Canada through a permanent establishment. It claimed capital losses of a related non-resident corporation that was wound up into the taxpayer under s. 88(1.1). The Minister disallowed the deductions on the basis that s. 88(1.1) is only available to Canadian corporations, and the taxpayer was not a "Canadian corporation" under s. 89(1). The taxpayer argued that the definition of "Canadian corporation" discriminated on the basis of nationality, contrary to Article 22 of the Canada-UK tax treaty.
Angers J. found that the definition was not discriminatory in the circumstances, because it excluded non-resident corporations of any nationality. He remarked at para. 44 that "discrimination on the basis of residence does not amount to discrimination on the basis of nationality" for tax treaty purposes. Moreover, he held at paras. 49-50 that the definition was not discriminatory on its face because, under paragraph (b) of the definition, corporations incorporated outside of Canada could qualify as Canadian corporations if they had been resident in Canada since June 18, 1971.
Ramada Ontario Ltd. v. The Queen, 94 DTC 1071 (TCC)
The 1983 amendments to s. 18(4) of the Act were merely intended to tighten the original provisions, and not to fundamentally alter or change the general nature thereof for purposes of Article XXV.8 of the Canada-U.S. Convention.
Administrative Policy
24 October 1991 T.I. (Tax Window, No. 11, p. 7, ¶1531)
Paragraph 9 of Article XXV of the Canada-U.S. Income Tax Convention does not override the territorial scope limitation in s. 20(1). Accordingly, self-employed members of a national business organization cannot deduct the cost of a cruise from a Canadian port to a U.S. port even if the ship stays entirely within the territorial waters of Canada and the U.S.
Articles
Hugh J. Ault, "Some Reflections on the OECD and the Sources of International Tax Principles", Tax Notes International, 17 June, 2013, p. 1195
After referring to the 1998 release by the OECD of a report on harmful tax competition that signaled an important change of focus in international cooperation efforts and to the OECD's base erosion and profit shifting (BEPS) project, he considered the following case.
R Co., resident in state R, transfers intangibles that it has developed, often in the use of subsidies for research and development in state R, to an intermediary company, I Co., based in a tax haven. I Co. then licenses the intangibles to related company S, which uses the intangibles to earn profits in state S, and deducts the payments to I Co. Thus, the profits are shifted from R. Co. to I Co. through the manipulation of the transfer pricing rules, and the tax base of state S is eroded by the deductible payments to I Co., resulting in income that is not taxed anywhere, which some have begun to refer to as "stateless" income. What to do? A number of the techniques described above could be applied to this situation. State R could prevent the shifting by applying its CFC rules to I Co. and tax directly the income of I Co. to R Co. Or state R could ignore the transaction under its domestic GAAR and also tax the income directly to R. Co. and not I Co. Or state S could deny a deduction for the license payments under tis domestic rules which might limit the deductibility of payments to low-tax jurisdictions.
Now suppose state R is the U.S., I Co. is located in Ireland or the Netherlands, and state S is Germany. Treaty rules may restrict the ability of state S to deny deductions under non-discrimination principles in article 24. Under at least some interpretations of the treaty, there may also be a limit on the ability of state R in some circumstances to apply its CFC rules, and if state R and the state in which I Co. is located are EU countries, the European Court of Justice decisions limiting CFC application to wholly artificial transactions may also limit CFC application. Similarly, some courts do not adopt the OECD position that domestic anti-avoidance rules like GAAR apply to treaty situations and these courts would not allow the tax authorities to ignore the existence of I Co. as long as it technically meets the definition of a treaty resident. So there is much work to be done in evaluating the extent to which treaty rules need to be modified to deal effectively with the problems identified in the BEPS project.
John Avery Jones et al., "Article 24(5) of the OECD Model in Relation to Intra-group Transfers of Assets and Profits and Losses," [2011] British Tax Review, No. 5, p. 535; World Tax Review, Vol. 3, No. 2, June 2011 (dual publication).