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McKesson: Respondent’s Factum Filed

Earlier this year, McKesson Canada Corporation appealed the decision of the Tax Court of Canada in McKesson Canada Corporation v. The Queen (2013 TCC 404) (see Federal Court of Appeal File Nos. A-48-14 and A-49-14).

At issue was the appropriate discount rate paid under a receivables sales agreement between McKesson Canada and its parent company, MIH, under section 247 of the Income Tax Act (Canada). A secondary issue was the assessment of withholding tax on a deemed dividend that arose as a result of the lower discount rate. For our earlier blog post on the Tax Court decision see here.

In the Federal Court of Appeal, the Appellant’s Memorandum of Fact and Law was filed on June 11, 2014. For our earlier post summarizing the appellant’s memorandum see here.

The Respondent’s Memorandum of Fact and Law was recently filed on August 11, 2014.

In its Memorandum, the Respondent states that the trial judge’s “carefully reasoned decision” and findings were “amply supported” by the evidence at trial and no palpable and overriding error can be found in the trial judge’s conclusions.

The Respondent summarizes its points at issue at paragraph 56 of its Memorandum:

  • The trial judge applied the correct test. His decision was based on what arm’s-length persons would agree to pay for the rights and benefits obtained and not on findings of tax avoidance, lack of need for funds, or group control.
  • Ample evidence supports the trial judge’s determination of the arm’s-length discount rate. Since no palpable and overriding error was committed, his decision should not be disturbed.
  • The trial judge did not commit an error of law in concluding that the five-year limitation period in Article 9(3) of the Canada-Luxembourg Tax Treaty does not apply to the Part XIII tax reassessment at issue.

No hearing date has yet been set for the hearing in the Federal Court of Appeal.

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McKesson: Respondent’s Factum Filed

Communications With Experts: Moore v. Getahun and the Advocates’ Society Report

An expert does not draft his/her report in a vacuum. Communication with counsel is required. Ultimately, an expert must provide independent and objective evidence at a hearing. So the question arises as to what amount of communication is appropriate between counsel and the expert during the drafting stage. This was an issue considered by the Ontario Superior Court of Justice in Moore v. Getahun (2014 ONSC 237).

In Moore, the plaintiff suffered a wrist injury in a motorcycle accident, and claimed medical negligence against the treating doctor. The defendants called an expert to testify on the medical treatment of the plaintiff following the accident. During the preparation of the expert’s report, the expert and defence counsel had a 90-minute conference call during which the draft report was discussed.

In 2010, sections 4.1 and 53.03 of the Ontario Rules of Civil Procedure were amended to (among other things) codify the expert’s duty to the court and to require the execution and filing of an expert’s certificate acknowledging this duty.

These amendments are similar to the recent amendments to the Tax Court of Canada Rules (General Procedure): Section 145 (“Expert Witnesses”), Form 145(2) (“Certificate Concerning Code of Conduct for Expert Witnesses”) and Schedule III (“Code of Conduct for Expert Witnesses”).

In Moore, the court considered the Ontario Rules of Civil Procedure amendments and concluded:

Whether it is appropriate for counsel to review experts’ draft reports

[519]      Defence counsel reviewed Dr. Taylor’s draft report during a one-and-a-half-hour telephone conference call.

[520]      The purpose of Rule 53.03 of the Rules of Civil Procedure is to ensure the independence and integrity of the expert witness. The expert’s primary duty is to the court. In light of this change in the role of the expert witness under the new rule, I conclude that counsel’s practice of reviewing draft reports should stop. There should be full disclosure in writing of any changes to an expert’s final report as a result of counsel’s corrections, suggestions, or clarifications, to ensure transparency in the process and to ensure that the expert witness is neutral.

(See also the court’s discussion of this issue at paragraphs 47-52 of the Moore decision.)

Not surprisingly, the Ontario court’s narrow interpretation of Rule 53.03 attracted the attention of litigators across the country.

In response, the Advocates’ Society has drafted a position paper (and a set of nine principles) regarding communications with expert witnesses. The Advocates’ Society has taken the position that the view expressed by the court in Moore (i.e., that the amendments constitute a change in the role of expert witnesses) is mistaken. The case law prior to Moore on the subject of experts’ testimony had established that experts must testify independently and objectively. Further, the amendments were likely responding to the specific problem of “hired guns” or “opinions for sale”, and thus codified the expert’s duty and imposed the certificate requirement so that testifying experts clearly understand their duty to the court.

The report also notes the problems and unintended consequences of the court’s ruling in Moore – namely, that the ruling fails to recognize the “important and entirely appropriate role” of advocates in ensuring that expert evidence is presented in a cogent, succinct and well-organized fashion that will assist the trier of fact; further, a “one-size-fits-all” approach to communications with experts is discordant with the realities of modern litigation.

Given the similar language in the Tax Court’s rules regarding expert evidence, Moore could have an impact on the manner in which expert reports are to be prepared for a Tax Court proceeding.

Moore has been appealed to the Ontario Court of Appeal.

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Communications With Experts: Moore v. Getahun and the Advocates’ Society Report

McKesson: Appellant’s Factum Filed‏

On January 10, 2014, McKesson Canada Corporation appealed the decision of the Tax Court of Canada in McKesson Canada Corporation v. The Queen (2013 TCC 404) (see Federal Court of Appeal File Nos. A-48-14 and A-49-14).

In McKesson, the Tax Court upheld the CRA’s transfer price adjustments (made pursuant to section 247 of the Income Tax Act (Canada)) that had reduced the discount rate paid under a receivables sales agreement between McKesson Canada and its parent company, MIH, from 2.206% to 1.013%. The Tax Court also upheld the assessment of withholding tax on a deemed dividend that arose in a secondary adjustment resulting from the lower discount rate.

The Appellant’s Memorandum of fact and law was filed on June 11, 2014.

In its Memorandum, the Appellant states that the Trial Judge made a “fundamental error of law” and requests that the appeal be allowed with costs and the matter be remitted to the Tax Court for a new trial before a different judge. The Appellant describes the issues on the appeal as follows:

Did the Trial Judge err in law by stepping outside the pleadings and the case put forward and as developed by the parties over the course of the trial to find against McKesson Canada, thereby depriving McKesson Canada of its right to know the case it had to meet and its right to a fair opportunity to meet that case?

Did the Trial Judge err in law when he misconstrued the arm’s-length principle by holding that, in determining what terms and conditions arm’s length parties would have made or imposed, he was to assume that one party (purchaser) controls the other (seller)?

As a result of stepping outside of the pleadings and the case put forward and as developed by the parties over the course of the trial and committing an error of law, did the Trial Judge calculate the discount rate in a manner that ignored the assumption of risk by MIH, contrary to the terms of the Agreement and resulted in a discount rate that is commercially absurd?

Did the Trial Judge err in permitting the Minister to assess non-resident withholding tax after the expiry of the applicable limitation period and in contravention of Canada’s obligations under a bilateral tax treaty?

See our previous commentary on the Tax Court’s McKesson decision here.

 

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McKesson: Appellant’s Factum Filed‏

There’s A Litigation App For That?

We were intrigued to learn that KosInteractive LLC has created the U.S. “Fed Courts” app for Android and Apple devices which contains helpful information about U.S. federal courts rules of procedure and court information. The app provides access to the PACER (Public Access to Court Electronic Records) database, and the procedural rules for appellate, bankruptcy, civil, and criminal proceedings. The federal rules of evidence and the U.S. Supreme Court procedural rules are also available. One drawback – the information isn’t searchable or indexed with hyperlinks.

In any event, there seems to be no Canadian equivalent for litigation or procedural apps.

A quick search in the Apple iTunes stores for “Canada tax” returns 54 results, including an array of federal and provincial tax calculators. ”Canada courts” returns five items, including apps related to the Controlled Drugs and Substances Act, mortgage foreclosures, U.S. Miranda warnings, and a car dealership. A search for “Ontario civil procedure” returns one item, and “Canada tax court” returns zero items.

We are reminded of the very helpful event app developed by the Canadian Tax Foundation that has become a regular feature of the Foundation’s national and regional conferences.

We are confident that Canadian tax professionals would welcome a broader array of court and litigation procedure apps that would provide mobile access to most or all of the court and procedural information we’re stuffing into our oversized litigation bags.

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There’s A Litigation App For That?

U.S. Supreme Court Justice Scalia on Advocacy and Judging

The U.S. Supreme Court’s Fall term began on October 7, and there has been no shortage of recent articles on the docket and Judges of the Court. In a previous post, David Spiro noted a remarkable piece on U.S. Supreme Court Chief Justice John Roberts’ advocacy practice before he was appointed to the Court, and in a recent issue of New York Magazine, Justice Antonin Scalia provided his candid views on advocacy and judging.

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U.S. Supreme Court Justice Scalia on Advocacy and Judging

What Kind of Appellate Lawyer was Justice Roberts?

I first heard of John Roberts Jr. when he was nominated to the United States Supreme Court as Chief Justice.  I watched the coverage on C-SPAN which replayed a seminar that he gave to a group of law students on advocacy.  I was quite impressed – but not as impressed as I was after reading this article from The American Lawyer magazine.  Appellate advocates have much to learn from the Chief Justice of the United States:

http://www.americanlawyer.com/PubArticleTAL.jsp?id=1202620317367

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What Kind of Appellate Lawyer was Justice Roberts?