Four U.S.-resident controlled foreign affiliates of a Canadian public corporation (“Canco”), namely, CFA1 (wholly-owned by Canco), and CFA2, CFA3 and CFA4 (wholly-owned by CFA1) performed, as their only activity, research and development services (“R&D Services”) for the benefit of Canco, and with the fees paid therefor by Canco being their only revenue.
After finding that s. 95(2)(b) applied to the R&D Services provided to Canco, the Directorate rejected Canco’s argument that the R&D Services provided to Canco should be considered to be services performed in connection with the sale of goods under s. 95(3)(b), stating:
[T]he phrase “services performed in connection with the (...) sale of goods” is limited to services that are directly related to the sales function … .[T]he structure of the phrase refers to activities that are immediately linked or related to the process of selling goods and transferring ownership in the goods from the seller to the purchaser, requiring that the services be directly performed in the actual sale or negotiation process. … [T]he R&D Services … would generally not be immediately linked or related to the process of selling goods and transferring ownership in the goods from the seller to the purchaser.