Tax Treaty Case Law around the Globe 2021

S. 280I. Introduction

This case is an appeal from a tax court of Canada decision that was reviewed in Tax Treaty Case Law Around the Globe 2019. The case is a classic example of tax treaty-shopping in which the taxpayer was incorporated as part of a series of transactions in order to obtain the benefit of an exemption in the Canada-Luxembourg Income and Capital Tax Treaty (Canada-Luxembourg Tax Treaty) from source taxation on capital gains from the alienation of shares deriving their value principally from immovable property situated in a contracting state.

At the tax court of Canada, the court rejected the minister’s primary argument that the shares did not satisfy the requirements for the exemption as well as its alternative argument that the transactions were subject to the Canadian general anti-avoidance rule (GAAR). On appeal, the Crown did not challenge the tax court of Canada’s conclusion that the shares satisfied the requirements for the exemption in Article 13(4) but again argued that the transactions were subject to the GAAR. Although the federal court of appeal rejected this argument, the case was appealed to the Supreme Court of Canada which dismissed the Crown’s appeal in a sp...