The FCA Decision in Prévost Car Inc. — Beneficial Ownership for Tax Treaty Purposes
On February 26, 2009, the Federal Court of Appeal (FCA) released its decision in The Queen v. Prévost Car Inc.1 The case is the first to deal with the meaning of "beneficial owner" in the context of a Canadian tax treaty. In recent years, when the Canada Revenue Agency (CRA) observed improper "treaty shopping" taking place, as one of its strategies to deny treaty benefits, it used the argument that a particular item of income sourced in Canada was not "beneficially owned" by the direct recipient of that income, a treaty-resident entity.
The FCA decision in Prévost, which upheld the Tax Court of Canada's(TCC)2 ruling in favour of the taxpayer, is significant because it:
- Confirms that arguments based on lack of beneficial ownership are unlikely to become the broad anti-treaty shopping tools that the CRA might have hoped for
- Adds to the limited Canadian jurisprudence on treaty interpretation and permitted interpretive tools
1. 2009 FCA 57.
2. 2008 DTC 3080 (TCC). The case was heard by (then) Associate Chief Justice Rip, who is now the Chief Justice of the Tax Court ofCanada.
