Canada vs. Burlington Resources Finance Company, Aug 2017, case NO. TCC 144

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This case i about the legal requirement to submit evidence.

The revenue service argues that the disputed questions are relevant to the matters in issue and that Burlington Resources Finance Company has either improperly refused to answer, or not fully answered, the questions. Burlington Resources Finance Company argues that all proper questions have been fully answered and that answers to improper questions have been correctly refused.

The underlying tax assessment relates to disallowence of tax deductions for guarantee fees paid by Burlington Resources Finance Company Canada (“Burlington”) to it’s US parent, Burlington Resources Inc. (“BRIâ€), a resident U.S. corporation. Burlington’s business involved obtaining financing to fund the operations of affiliated Canadian companies. Specifically, Burlington was involved in borrowing funds from public markets and “on-loaning†those funds to its affiliated Canadian entities, which were conducting businesses related to crude oil and natural gas assets. BRI unconditionally guaranteed the payment of the Notes and Burlington “on-loaned†the proceeds to its Canadian sister companies. Prior to the issuance of the Notes, BRI ensured that Burlington would be able to make all the payments due under the bonds, by putting in place a series of transactions, which included intercompany promissory notes, forward purchase agreements, letters of direction, capital contribution agreements, contribution agreements, and swap agreements (collectively referred as the “Hybrid Instrumentsâ€). In 2001 and 2002, Burlington borrowed approximately US $3 billion by issuing the below seven bonds (the “Notesâ€) to arm’s-length parties. Burlington and BRI agreed that Burlington would pay guarantee fees to BRI based on an annual guarantee fee of 50 basis points (or 0.5 percent) of the principal amount of the Notes. According to Burlington, the fees were incurred in exchange for BRI’s guarantees and were based upon advice received from investment banks. During its 2002 to 2005 taxation years, Burlington paid approximately $83 million in guarantee fees to BRI. The total tax in dispute for the years under appeal is $21,179,800, but this is a minimum since the liability issues continue until the last bond matures in 2031. Burlington deducted the guarantee fees in computing its income for the 2002 to 2005 taxation years.

The Canadian Revenue Service issued an tax assessment to Burlington in respect of those years, disallowing the deductions of the guarantee fees.

The Court concluded that Burlington would have to answer the questions asked by the Canadian Revenue Service.

Canada vs. Burlington Resources Finance Company, 2017, case NO. TCC 144





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