Global Tax 50 2014: Justice Patrick Boyle

Justice Patrick Boyle is a new entry this year

The McKesson Canada versus The Queen case, concerning receivable sales between McKesson Canada and its parent company in Luxembourg, heard before the Tax Court of Canada (TCC), was spearheaded by Justice Patrick Boyle, the judge in the case up until he recused himself on September 4 2014. Justice Boyle talks to International Tax Review's Sophie Harding about the role of the Canadian courts in international tax, the applicability of OECD guidelines and the challenges facing the TCC. On hearing of his inclusion in the ITR Global Tax 50 2014, Justice Boyle shows his humility and is quick to broaden the scope of the accolade beyond just himself.

"This honour really recognises the continued importance of the Canadian courts in international tax with our decisions in the areas of residence, treaty interpretation, transfer pricing, hybrid mismatches, beneficial ownership and the general anti-avoidance rule (GAAR)," says Boyle.

"I think it also reflects the Tax Court of Canada's substantial role in helping to found and support the International Association of Tax Judges (IATJ) over the past five years."

With multilateral discussions on tax issues becoming the norm, the manner in which countries fit into international frameworks is of increasing importance. On the strength of Canada in the area of international taxation, Boyle says this is built on its commitment to giving every taxpayer their day in court with a full trial, as well as sophisticated tax legislation, the appointment of very well qualified judges to the TCC and to the Federal Court of Appeal (FCA), and a Supreme Court of Canada (SCC) which regularly agrees to hear appeals from significant tax cases.

"We are fortunate enough to be able to expect well qualified and prepared lawyers to appear before us on both sides of most of the cases of significant international interest," he says.

Aside from McKesson, Boyle picks out Spruce Credit Union and Morguard as two of the standout cases he presided over in 2014.

"I was pleased to have my GAAR decision in Spruce Credit Union upheld by the FCA in 2014, and to again have been part of a panel at this year's IATJ Assembly in DC in October, addressing the relevance of double non-taxation in treaty interpretation and application in the member countries. My decision in Morguard on the income characterisation of takeover break fees received was upheld in 2013 when the SCC declined to hear a further appeal, and it has been the subject of continued discussion and commentary in 2014."

The past year has not been without challenges, though. The TCC is a national circuit court with a very large country as its circuit, and Boyle says this places significant and unique professional, logistical and personal demands on all members of the Court.

"That challenge comes with its rewards, as we are sent every other week to one of 70 different Canadian cities and towns – not to bring back votes, money or clients, just to do what we think is right and just in the circumstances after whatever time for reflection one needs."

Another challenge faced by figures such as Boyle is how to navigate nebulous concepts that are very much in vogue right now, such as tax fairness and tax morality. Unsurprisingly, such concepts represent huge difficulty for judges working within a legislative framework where grey areas are frowned upon. Boyle is thankful that such concepts did not crop up in McKesson.

"The Crown did not directly or indirectly raise any fair share or fiscal morality arguments that are currently trendy in international tax circles. It wisely stuck strictly to the tax fundamentals: the relevant provisions of the legislation and the evidence relevant thereto. Issues of fiscal morality and fair share are surely the realm of Parliament."

In McKesson, Boyle was not afraid to go against OECD transfer pricing guidelines, basing his decision, instead, on fact-finding and issue evaluation. This is a position he stands by today.

"The SCC in GlaxoSmithKline reminds us that the statutory transfer pricing provisions govern and are to be applied by the judges of our courts, not any particular methodology or commentary from the OECD Guidelines. In McKesson I observed:

"OECD Commentaries and Guidelines are written not only by persons who are not legislators, but in fact are the tax collection authorities of the world. Their thoughts should be considered accordingly. For tax administrators, it may make sense to identify transactions to be detected for further audit by the use of economists and their models, formulae and algorithms. But none of that is ultimately determinative in an appeal to the Courts. The legal provisions of the Act govern and they do not mandate any such tests or approaches."

Canadian courts are generally able to consider and be helped by OECD commentaries when interpreting and applying treaties. This includes later commentaries and revisions that are not in conflict with the commentaries as at the time the treaty was ratified. This was most recently stated by the FCA in its Prevost Car decision on beneficial ownership, and referred to in my TD Securities LLC decision.

"Coincidentally I had been counsel to Prevost Car in this tax dispute for several years before my appointment and prior to it being heard. Ditto re Knights of Columbus and its permanent establishment tax dispute."