In the leading case of Maya Forestales S.A. v. The Queen, 2005 TCC 66, the Tax Court of Canada analyzed whether a non-resident corporation was carrying on business in Canada such that it would be liable to pay tax on its taxable income earned in Canada.
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Maya Forestales S.A. v. The Queen, 2005 TCC 66
The taxpayer was a Costa Rican corporation that owned a teak-tree plantation in Costa Rica. It sold portions of this plantation to several Canadians. The Minister assessed the taxpayer on the basis that the taxpayer was a non-resident that carried on a business in Canada during the years in issue and was therefore liable to pay tax on its taxable income earned in Canada by virtue of subsection 2(3), subparagraph 115(1)(a)(ii), and paragraph 253(b) of the Income Tax Act (“Act").
During the years in issue, the taxpayer offered and sold the opportunity to invest in its plantation to several Canadians. These Canadian investors signed a contract with the taxpayer to develop the lot, by planting the trees with a view to later selling the timber.
Two corporations were incorporated in Canada for the purpose of promoting investment in the taxpayer’s Costa Rican plantation. One of these Canadian corporations, Maya Inc., had a written mandate to represent the taxpayer in Canada. All of the contracts with the Canadian investors were signed in Canada and then forwarded to Costa Rica. Furthermore, the taxpayer was listed in the telephone book and had an address and telephone number in Canada matching those of Maya Inc.
In its analysis, the court used the extended meaning of "carrying on business" in paragraph 253(b) of the Act to find that the taxpayer was indeed carrying on business in Canada during the years in issue: "For the purposes of this Act, where in a taxation year a person who is a non-resident person or a trust to which Part XII.2 applies ... (b) solicits or offers anything for sale in Canada through an agent or servant, whether the contract or transaction is to be completed inside or outside Canada or partly in and partly outside Canada, or ... the person shall be deemed, in respect of the activity or disposition, to have been carrying on business in Canada in the year.”
Accordingly, the court found that the taxpayer, through a mandatary, offered for sale, in Canada, lots or parts of lots of its plantation in Costa Rica and solicited orders for services to be performed with respect to the lots.
The taxpayer’s counsel referred to Interpretation Bulletin IT-270R2 - Foreign Tax Credit in an attempt to argue that the determination of the place where a business is carried on necessarily requires a consideration of all relevant facts, such as the place where the property is situated, in the case of a business involving the development and sale of real property. The court stated that while this is based on generally accepted common law rules, paragraph 253(b) ousts the common law rules and contains a deeming rule, and the conditions necessary for its application had been met in the case at bar.
Blue J Tax Case Analysis
The Carrying on Business predictor takes into account in its analysis all the relevant statutory provisions that act as deeming rules, as well as the common law factors. As a result of the operation of the deeming rule in paragraph 253(b), Blue J Tax correctly predicts with 95%+ confidence that Maya Forestales was carrying on business in Canada.
If the deeming rule in paragraph 253(b) did not apply in this case and the carrying on business analysis was undertaken based purely on the common law factors, Blue J Tax predicts that Maya Forestales would still have been found to be carrying on business in Canada, but with a lowered confidence level of 89%. This is attributable to the factors present in Canada: The taxpayer was listed in the telephone book in Canada; the taxpayer engaged entities in Canada to assist in its business; the taxpayer earned profits through its operations in Canada; and the contracts with the Canadian investors were signed in Canada.
Even if the contracts with the Canadian investors were not signed in Canada, Blue J Tax predicts that Maya Forestales would still have been found to be carrying on business in Canada, but with a lowered confidence level of 70%.
Carrying on Business Insights
74% of cases on the issue of carrying on business have resulted in a finding that the taxpayer was carrying on business in Canada.
Where the duration of activities or operations in Canada was 24 months or less, 36% of cases were held to be not carrying on business in Canada.
In every case where the taxpayer engaged in only a one-time transaction in Canada, it was held to be not carrying on business in Canada.
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