The Minister indicated that she would not exercise her discretion to allow the request of the Canadian taxpayer (“Dow”) a requested “downward” adjustment under s. 247(10) (to increase the interest expense of Dow on a loan from a Swiss affiliate); and subsequently assessed Dow so as to make upward transfer pricing adjustments, but not any downward adjustment. After appealing a reassessment to the Tax Court, a Rule 58 question was posed, which was essentially whether it was the Tax Court that had jurisdiction regarding Dow’s challenge to this denial, or whether the only recourse was to the Federal Court for judicial review of the Minister’s decision to disallow.
Côté J, for the three dissenting Justices, indicated (at para. 131):
While the Minister generally has no discretion in determining a taxpayer’s liability … the power the Minister has under s. 247(10) is not permissive when a downward adjustment is sought and/or established … [and] must be exercised in order to determine the amount of tax liability. Since a decision under s. 247(10) directly impacts the amount of income and taxable income and precedes the determination of the ultimate amount of tax owing, such a decision is inextricably linked to the assessment. Therefore, in its essential nature, a taxpayer’s objection to the Minister’s decision to deny a downward transfer pricing adjustment pertains to the amount of tax owing.
Furthermore, although “the Tax Court does not have the power to substitute its opinion for that of the Minister” (para. 200), the words of s. 171(1)(b)(iii) “imply ... that the Tax Court may, in referring the assessment back for reconsideration and reassessment, remit the matter of the downward pricing adjustment to the Minister as part of a ‘reconsideration’” (para. 200).
Kasirer J, in speaking for the majority, found that the Minister’s decision under s. 247(10) cannot be appealed as part of an appeal of an assessment to the Tax Court. Among other considerations, he indicated:
- “Dow’s position would upset Parliament’s choice to leave judicial review of discretionary administrative acts to the Federal Court, where an appropriate standard of reasonableness review may be applied and where the proper administrative law remedies are available” (para. 5).
- The Dow position that the Minister’s decision under s. 247(10) is part of an assessment, was “inconsistent with the understanding of a tax assessment as a ‘product’ and not a ‘process’” (para. 6).
- Dow’s theory would lower the “bar by interpreting s. 18.5 to exclude the Federal Court’s jurisdiction not just where a decision is subject to an express statutory appeal, but also where it is merely captured by an appeal provision by implication” – which was “likely to provoke litigation about which discretionary decisions are caught, implicitly, by statutory appeal provisions in other settings” (para. 8).
- Given Dow’s acknowledgement that, if the Minister did not issue an assessment after she made a discretionary decision under s. 247(10), her decision could be challenged by way of judicial review in the Federal Court, this implied “an untenable solution in which the Federal Court would retain its judicial review jurisdiction over discretionary decisions by the Minister as a general rule, but it would lose its jurisdiction to conduct judicial review of those same discretionary decisions if they are followed by assessments” – which raised the “difficulty of there being two different courts — applying two different standards of review — with jurisdiction to review discretionary decisions under s. 247(10), depending on whether or not an assessment is issued after the decision is made” (para. 95).
- The remedies granted to the Tax Court did not extend to the power to vary or quash an s. 247(10) opinion of the Minister, so that “[i]f the Tax Court issues an order for reconsideration and reassessment, the Minister will simply be required to issue a reassessment that correctly reflects the very decision that the taxpayer sought to challenge since that decision would not have been quashed” and “an order for reconsideration and reassessment cannot compel the Minister to reconsider her discretionary decision under s. 247(10) because such a decision is not an assessment nor part of one” (para. 105).