INCOME TAX |
Non-Residents |
Kinguk Trawl Inc. v. Canada
A-86-02, A-87-02
2003 FCA 85, Noël J.A.
18/2/03
17 pp.
Appeals from decision of Tax Court of Canada (2002 DTC 1399) substantially dismissing appeals with respect to assessments raised for failure to deduct and remit tax on certain interest payments made to Danish company F. Uhrenholt Holdings A/S (FUH), during taxation years 1994, 1995, 1996 and 1997--Tax Court Judge (T.C.J.) concluding shrimp catch became property of FUH upon landing and accordingly, all selling activities subsequently taking place those of FUH and not those of appellants--T.C.J. placed great reliance on plain and simple meaning of trade agreements-- Approach taken in construing trade agreements unjustified-- Specifically, T.C.J. erred in basing interpretation on literal meaning of few words while ignoring rest of agreements-- When agreements construed as whole, only possible conclusion that catch remained beneficially owned by appellants until sold by FUH--Also significant, and incompatible with conclusion reached by T.C.J., fact appellants paid interest on 70 per cent advance received upon catch being landed--Not open to T.C.J. to hold ownership of catch meant to be conveyed to FUH upon landing-- Conclusion, based on literal meaning of two isolated words, cannot stand when trade agreements as whole considered-- Once accept appellants retained beneficial ownership of catch until sold by FUH, activities carried on by FUH under trade agreements conducted on behalf of appellants as agent--In Royal Securities Corp. Ltd. v. Montreal Trust Co. et al. (1966), 59 D.L.R. (2d) 666 (Ont. H.C.), Court identified following essential ingredients of agency relationship: (1) consent of both principal and agent; (2) authority given to agent by principal, allowing former to affect latter's legal position; (3) principal's control of agent's actions--Under trade agreements, FUH had authority to sell appellants' catch only at highest obtainable price, and appellants undoubtedly bound by any sale made in conformity with authority-- Agreements also gave appellants means to enforce terms through arbitration--All ingredients of agency relationship therefore present--Respondent submitted finding of agency not sufficient to allow Court to conclude appellants carrying on business in Denmark so as to bring appellants within Income Tax Act, s. 212(1)(b)(iii)(E)--In present case, activities conducted by FUH go far beyond simple soliciting of orders--Whole of sales functions, from marketing of catch to making of contracts, conducted by FUH--Having regard to fact selling catch essential component of appellants' business and activities took place in Denmark and perhaps elsewhere, FUH carrying on business in foreign country within meaning of s. 212(1)(b)(iii)(E)--Appeal allowed and matter referred back to Tax Court of Canada for determination of portion of interest credited by appellants to FUH properly relating to business carried on by FUH--Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 212(1)(b)(iii)(E).