Marzen Artistic Aluminum Ltd. v. Minister of National Revenue, (2016) 480 N.R. 306 (FCA)

JudgeNadon, Scott and Rennie, JJ.A.
CourtFederal Court of Appeal (Canada)
Case DateJanuary 29, 2016
JurisdictionCanada (Federal)
Citations(2016), 480 N.R. 306 (FCA);2016 FCA 34

Marzen Artistic Aluminum v. MNR (2016), 480 N.R. 306 (FCA)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

Temp. Cite: [2016] N.R. TBEd. FE.005

Marzen Artistic Aluminum Ltd. (appellant) v. Her Majesty The Queen (respondent)

(A-387-14; 2016 FCA 34; 2016 CAF 34)

Indexed As: Marzen Artistic Aluminum Ltd. v. Minister of National Revenue

Federal Court of Appeal

Nadon, Scott and Rennie, JJ.A.

January 29, 2016.

Summary:

Marzen was a Canadian corporation that manufactured windows. A sister company (SWI) in the U.S. was unsuccessful in penetrating the U.S. market. Marzen incorporated a wholly-owned subsidiary (SII) in Barbados and paid SII for sales, marketing and support services in the U.S. under a Marketing and Sales Services Agreement. The Minister of National Revenue applied ss. 247(2)(a) and (c) of the Income Tax Act (transfer pricing adjustments) to disallow the amount Marzen deducted from its income for fees paid to SII for 2000 and 2001 and impose a penalty provided for under the Act. The Minister determined that Marzen and SII did not deal at arm's length and the amount paid to SII was greater than the amount a person dealing at arm's length would have paid to SII for sales, marketing and support services. Marzen appealed.

The Tax Court of Canada, in a judgment reported 2014 TCC 194, dismissed the appeal except for a minor adjustment of US $32,500 in both of the years in issue. Marzen appealed.

The Federal Court of Appeal dismissed the appeal.

Income Tax - Topic 3047

Computation of income - Inadequate consideration - Payment to non-resident - Not at arm's length (ss. 247(2)(a) and (c)) - Marzen was a Canadian corporation that manufactured windows - A sister company (SWI) in the U.S. was unsuccessful in penetrating the U.S. market - Marzen incorporated a wholly-owned subsidiary (SII) in Barbados and paid SII for sales, marketing and support services in the U.S. under a Marketing and Sales Services Agreement - The Minister of National Revenue applied ss. 247(2)(a) and (c) of the Income Tax Act (transfer pricing adjustments) to disallow the amount Marzen deducted from its income for fees paid to SII for 2000 and 2001 and impose a penalty provided for under the Act - The Minister determined that Marzen and SII did not deal at arm's length and the amount paid to SII was greater than the amount a person dealing at arm's length would have paid - The Tax Court of Canada dismissed Marzen's appeal except for a minor adjustment - The Federal Court of Appeal dismissed Marzen's appeal - Identifying the fair market value of a transaction between related companies was the underlying principle in transfer pricing - While the Organization for Economic Co-operation and Development (OECD) Guidelines (1995) did not have the force of law, they were relied on by the courts to determine the reasonable amount parties dealing at arm's length would have paid for the services provided - Transfer pricing analysis was inherently fact driven - The Tax Court judge made no error in concluding that SII was essentially an empty shell with no personnel, no assets and no risk or in determining what an arm's length party would have paid for those services - The Guidelines provided for several methodologies - The rejection of the methodology proposed by Marzen in favour of the one proposed by the Minister was supported by the evidence - See paragraphs 47 to 58.

Income Tax - Topic 3048

Computation of income - Inadequate consideration - Payment to non-resident - "Reasonable amount" - Assessment of - Considerations (ss. 247(2)(a) and (c)) - [See Income Tax - Topic 3047 ].

Cases Noticed:

GlaxoSmithKline Inc. v. Minister of National Revenue, [2012] 3 S.C.R. 3; 435 N.R. 82; 2012 SCC 52, refd to. [para. 18].

Housen v. Nikolaisen et al., [2002] 2 S.C.R. 235; 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1; 2002 SCC 33, refd to. [para. 32].

Minister of National Revenue v. General Electric Capital Canada Inc., [2011] C.T.C. 126; 414 N.R. 304; 2010 FCA 344, refd to. [para. 47].

Hickman Motors Ltd. v. Minister of National Revenue, [1997] 2 S.C.R. 336; 213 N.R. 81, refd to. [para. 54].

Minister of National Revenue v. Salaison Lévesque Inc. (2014), 479 N.R. 199; 2014 FCA 296, refd to. [para. 54].

Guibord v. Minister of National Revenue, [2011] N.R. Uned. 196; 2011 FCA 346, refd to. [para. 59].

Statutes Noticed:

Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, sect. 247(2)(a), sect. 247(2)(c), sect. 247(3) [para. 14].

Counsel:

Steven M. Cook and S. Nathasha Reid, for the appellant, Marzen Artistic Aluminum Ltd.;

Michael Taylor and Selena Sit, for the respondent, Minister of National Revenue.

Solicitors of Record:

Thorsteinssons LLP, Vancouver, British Columbia, for the appellant, Marzen Artistic Aluminum Ltd.;

William F. Pentney, Deputy Attorney General of Canada, Ottawa, Ontario, for the respondent, Minister of National Revenue.

This appeal was heard on November 19, 2015, at Vancouver, B.C., before Nadon, Scott and Rennie, JJ.A., of the Federal Court of Appeal.

On January 29, 2016, Scott, J.A., delivered the following judgment for the Court of Appeal.

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5 practice notes
  • Bowker v. The Queen, 2022 TCC 43
    • Canada
    • Tax Court (Canada)
    • April 8, 2022
    ...an unreasonable conclusion.” Cited in Transalta Corp. v. R., 2013 FCA 285 at para 13 [Transalta], Marzen Artistic Aluminum Ltd. v. R., 2016 FCA 34 at para 59 [Marzen]. [46] Lau, supra note 23 at para 5; Landry, supra note 20 at para 22; Guibord, supra note 24 at para 10; Martin FCA, supra n......
  • Agracity Ltd. v. The Queen, 2020 TCC 91
    • Canada
    • Tax Court (Canada)
    • August 27, 2020
    ...of economic analysis of transfer pricing in Marzen Artistic Aluminium Ltd. v. The Queen, 2014 TCC 194 in our Court in 2014 (Affirmed: 2016 FCA 34). In Marzen his Expert Report was ruled inadmissible but Justice Sheridan went on to rely on his Rebuttal Report. FNA Group of [32] FNA is descri......
  • Cameco Corporation v. The Queen, 2018 TCC 195
    • Canada
    • Tax Court (Canada)
    • September 26, 2018
    ...The Income Tax Amendments Act, 1997 received royal assent on June 18, 1998. [775] For example, Marzen Artistic Aluminum Ltd. v. The Queen, 2016 FCA 34 (“Marzen”) and The Queen v. General Electric Canada Inc., 2010 FCA 344 (“GE Capital”). [776] See the definition of “taxpayer” in subsection ......
  • Sifto Canada Corp. v. The Queen, 2017 TCC 37
    • Canada
    • Tax Court (Canada)
    • March 10, 2017
    ...(1) of Article IX of the Convention because they conformed to the arm’s length principle. In Marzen Artistic Aluminum Ltd. v. The Queen, 2016 FCA 34 (“Marzen Artistic Aluminum”), the Federal Court of Appeal described this principle in the context of Canada’s domestic transfer pricing [15] S......
  • Request a trial to view additional results
5 cases
  • Bowker v. The Queen, 2022 TCC 43
    • Canada
    • Tax Court (Canada)
    • April 8, 2022
    ...an unreasonable conclusion.” Cited in Transalta Corp. v. R., 2013 FCA 285 at para 13 [Transalta], Marzen Artistic Aluminum Ltd. v. R., 2016 FCA 34 at para 59 [Marzen]. [46] Lau, supra note 23 at para 5; Landry, supra note 20 at para 22; Guibord, supra note 24 at para 10; Martin FCA, supra n......
  • Agracity Ltd. v. The Queen, 2020 TCC 91
    • Canada
    • Tax Court (Canada)
    • August 27, 2020
    ...of economic analysis of transfer pricing in Marzen Artistic Aluminium Ltd. v. The Queen, 2014 TCC 194 in our Court in 2014 (Affirmed: 2016 FCA 34). In Marzen his Expert Report was ruled inadmissible but Justice Sheridan went on to rely on his Rebuttal Report. FNA Group of [32] FNA is descri......
  • Cameco Corporation v. The Queen, 2018 TCC 195
    • Canada
    • Tax Court (Canada)
    • September 26, 2018
    ...The Income Tax Amendments Act, 1997 received royal assent on June 18, 1998. [775] For example, Marzen Artistic Aluminum Ltd. v. The Queen, 2016 FCA 34 (“Marzen”) and The Queen v. General Electric Canada Inc., 2010 FCA 344 (“GE Capital”). [776] See the definition of “taxpayer” in subsection ......
  • Hull v. Canada, 2023 FCA 72
    • Canada
    • Court of Appeal (Canada)
    • March 29, 2023
    ...is the appellant’s appeal from this Order of the Tax Court. [3] As noted by this Court in Marzen Artistic Aluminum Ltd. v. Canada, 2016 FCA 34: [59] On the third issue regarding the granting of costs to the respondent, it is a well-established principle that orders granting costs are......
  • Request a trial to view additional results

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