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 (the “US Affiliates”) so that it could benefit from their IP and from the tech expertise and services of their employees, who mostly remained in the US. The US Affiliates charged fees to BlackBerry for R&D services on a cost plus 8% basis, and BlackBerry provided service of greater value to the US Affiliates.
After finding that s. 95(2)(b)(i) did not apply to include the fees of the US Affiliates in computing the foreign accrual property income (FAPI) given the reciprocal nature of the services, Bocock J found, in the alternative, in light of the broad meaning of “in connection with” and the important and ongoing role which the R&D services played in meeting the immediate demands of smartphone customers (e.g., teleco carrier testing and bug fixes), that the exclusion in s. 95(3)(d) applied.