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FEDERAL INCOME TAX - Foreign income - Tax treaties - Appeals - Tax Court of Canada - Determination of preliminary questions - Questions of law

Friday, March 03, 2017 @ 8:47 AM  


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Appeal by the appellant, Société Générale Valeurs Mobilières (SocGen), from a preliminary determination of questions of law. The appellant was a Canadian tax resident that earned bond interest income in Brazil, and income from other Canadian taxable sources. At issue was interpretation of the tax sparing provision in the double tax Treaty between Brazil and Canada. Generally, the provision required Canada to provide a foreign tax credit on qualifying Brazilian income as if Brazilian tax had been imposed, even if the income was not taxed in Brazil. The parties sought determination of whether the relevant Treaty provision required Canada to provide a foreign tax credit calculated by reference to Canadian tax on gross income, with determination of the proper test for determining inclusions and deductions from gross income arising from Brazilian sources. The Tax Court determined that Canada was entitled to limit the foreign tax credit to actual Canadian tax on net bond interest. SocGen appealed on the basis the relevant amount should be calculated with reference to gross bond interest multiplied by the Canadian tax rate.

HELD: Appeal dismissed. The Tax Court judge correctly determined the questions of law as presented by the parties. The judge's interpretation was consistent with the ordinary meaning of the Treaty provision, which took into account both gross income taxable by Brazil, and actual Canadian tax computed under the Income Tax Act, which was based on net income. The judge's interpretation was most consistent with the wording, the context, and the purpose of the provision. The fact that the Treaty differed from Canada's other tax treaties did not justify a different interpretation for the provision.

Société générale valeurs mobilières inc. v. Canada, [2017] F.C.J. No. 35, Federal Court of Appeal, J.D.D. Pelletier, D.W. Stratas and J.M. Woods JJ.A., January 10, 2017. Digest No. 3640-015