Coréalis entered into “service agreements” with pharmaceutical companies pursuant to which it would develop and manufacture clinical lots of solid oral dosage forms (tablets, capsules and granules) containing an active pharmaceutical ingredient provided by the companies. These along with placebos, which were also manufactured and provided by Coréalis, were used in clinical trials of the drugs by the companies.
Whether equipment that Coréalis had purchased and used in manufacturing the clinical lots qualified for Quebec investment tax credits turned on whether such equipment satisfied the requirement under the description of a Class 29 property that it had been acquired “to be used directly or indirectly by him in Canada primarily in the manufacturing or processing of goods for sale.” The ARQ argued that Coréalis was not making sales to the companies as it had not established that the manufacturing process regarding the clinical lots was more important than the services furnished by Coréalis to them, and in this regard further argued that the companies were essentially accessing Coréalis’ expertise and noted that the active ingredient (viewed by the ARQ as the key material) remained their property at all times.
Before allowing Coréalis’ appeal, Lachapelle JCQ stated (at paras. 206-208, TaxInterpretations translation):
The most important element in this case is the manufacture of the physical product, the actual capsule, without which the clinical tests of Coréalis' customers could not take place. Of course, the customers call on Coréalis' knowledge, but ultimately they are ordering and paying for clinical lots and thus purchasing and receiving delivery of those clinical lots, which the customer will then use as it sees fit.