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Lessons Learned for Transfer Pricing Recharacterization Rules in the Context of Business Restructurings
Taxpayer Certainty Prevailing in the Canadian Federal Court of Appeal's Judgment in Landmark Cameco Case
TheCameco case constitutes another landmark case in the field of transfer pricing elaborating on the notion of legal certainty regarding the conditions for the recharacterization of a transaction for transfer pricing purposes. Being the first case to consider the recharacterization provision in Canada’s Income Tax Act (“recharacterization rules”), in June 2020, the Federal Court of Appeal (FCA) upheld the decision of the Tax Court of Canada (TCC) issued in 2018. The Cameco decision further reinforces that the OECD TPG – as well as the Canadian recharacterization rules – do not support speculative reconstruction exercises by revenue authorities, which often tend to dictate to a taxpayer in what way a business should be run or its operating efficiency, and that actual transactions and business decisions made by the taxpayer should only be disregarded or substituted in exceptional cases, given that specific criteria are met.
1. Background and Facts of the Case
The Cameco Corporation (hereinafter “Cameco” or “group”) constitutes one of the largest uranium producers and providers of uranium conversion and enrichment services worldwide. The group was mainly conducting its business in Canad...