Tax memo: Guarantee Fees: Federal Court of Appeal Confirms GE Capital Canada Inc. Decision

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On December 15, 2010, the Federal Court of Appeal (FCA) dismissed the Crown’s appeal of a 2009 Tax Court of Canada (TCC) decision that favoured the taxpayer.

During its 1996 to 2000 taxation years, General Electric Capital Canada Inc. (GECC) deducted $136 million in guarantee fees paid to General Electric Capital Corporation (GECUS), its U.S.-based parent company, for explicitly provided financial guarantees. The Minister of National Revenue (the Minister) disallowed the deductions on the grounds that the fees provided no value to the taxpayer. On December 4, 2009, the TCC allowed GECC’s appeals and ordered that the Minister’s reassessments be vacated, finding that the 1% guarantee fee paid was equal to or below an arm’s length price.

The Crown appealed, contending first that the TCC judge made a number of legal and factual errors and second that his behaviour during the trial gave rise to a reasonable apprehension of bias against the Crown’s position. The Crown asked that the matter be remitted for a new trial before a different judge.

The FCA dismissed the Crown’s appeal, finding no errors of fact or law and no procedural bias.

PwC shares the details in this Tax memo.