Canadian Federal Court of Appeal dismisses government's appeal of lower court decision that guarantee fees paid to U.S. parent were deductible

January 2011


In an important decision that could affect U.S. corporations with Canadian subsidiaries, the Canadian Federal Court of Appeal recently dismissed the Canadian government's appeal of the decision of the Tax Court of Canada in General Electric Capital Canada Inc. v. The Queen, holding that fees for financial guarantees paid by a Canadian company to its U.S. parent were not more than an arm's-length amount and are therefore deductible by the Canadian subsidiary.

In ruling for the taxpayer, the appeals court agreed with the Tax Court's rejection of the position of the Minister of National Revenue, who argued that "implicit support" from the parent made unnecessary the explicit guarantee for which the fees were paid. The appellate court found no errors of law or fact in the Tax Court decision.

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