The taxpayer (“BlackBerry”), which in its 2010 taxation year generated $8 billion in sales of smartphones to BlackBerry US, which on-sold them, had acquired four US companies so that it could benefit from their IP and from the tech expertise and services of their employees, who mostly remained in the US. Those US companies charged fees to BlackBerry for R&D services on a cost plus 8% basis, and BlackBerry provided service of at least equal value going the other way.
Bocock J indicated (at para. 36) that the FAPI regime has two objectives: “to prevent erosion of the Canadian tax base and to protect the competitiveness of Canadian businesses operating abroad.” He further indicated (at para. 76) that s. 95(2)(b)(i) “is unclear whether only the R&D services paid for by the taxpayer are to be considered or whether all services provided between the foreign affiliate and the taxpayer should be considered.” However, he considered, given that there was no base erosion going on where the cross-border services were fully reciprocal (as here), that s. 95(2)(b)(i) should be interpreted as applying “solely to situations where a net positive amount is paid from Canada to the foreign affiliate” (para. 76) – so that s. 95(2)(b)(i) did not apply here given the greater value of the southbound services of BlackBerry.