Saturday, 4 August 2018

Canadian Tax Court upholds POEM for Dutch co. in Canada, applies central management & control test

Tax Court of Canada holds the Dutch co. (appellant) as tax resident of Canada as it was centrally managed and controlled from Canada through the Backxes (shareholders in appellant co. and immigrated to Canada), upholds capital gains taxability for disposition of a partnership interest in a dairy-farm operation located in Ontario ; Notes that in subject tax year 2009, the Backxes incorporated Dairy Farm co. in Canada and transferred their 51% interest in the Dairy-farm partnership to the company, rejects appellant’s contention that it was non-resident in Canada since it was incorporated in the Netherlands and its sole director (Ms. Van Gorp, a relative of the Backxes) was also from the Netherlands; Firstly, Court observes that the common law test for making the determination of residential status is the central management and control test, rules that cogent evidence is required to displace the well-established notion that de jure directors hold primary responsibility for the management and control of a company; Observes that in present case, despite no experience in farming, Ms. Van Gorp had accepted the title of director to assist the Backxes, further observes that she neither participated in the decision to invest in the Farm Partnership nor in the decision to dispose of the Farm Partnership in 2009 and merely implemented decision made by the Backxes in Canada; Accepts Revenue’s stand that although the Appellant was registered and incorporated in the Netherlands,it was the Backxes who assumed effective and independent control of the Appellant from Canada, and its sole director, Ms. Van Gorp, performed only administrative/clerical tasks in the Netherlands. 

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