Following the Tax Courts decision in 2013 (2013 TCC 404), Judge Boyle J. in an order from September 2014 recused himself from completing the McKesson Canada proceeding in the Tax Court. This extended to the consideration and disposition of the costs submissions of the parties, as well as to confidential information order of Justice Hogan in this case and its proper final implementation by the Tax Court and its Registry. Postscript An appeal was filed by McKesson with the Federal Court, but the appeal was later withdrawn and a settlement agreed with the tax authorities. In May 2015 McKesson filed a 10-K with the following information regarding the settlement “…Income tax expense included net discrete tax benefits of $33 million in 2015, net discrete tax expenses of $94 million in 2014 and net discrete tax benefits of $29 million in 2013. Discrete tax expense for 2014 primarily related to a $122 million charge regarding an unfavorable decision from the Tax Court of Canada with respect to transfer pricing issues. We have received reassessments from the Canada Revenue Agency (“CRA”) related to a transfer pricing matter impacting years 2003 through 2010, and have filed Notices of Appeal to the Tax Court of Canada for all of these years. On December 13, 2013, the Tax Court of Canada dismissed our appeal of the 2003 reassessment and we have filed a Notice of Appeal to the Federal Court of Appeal regarding this tax year. After the close of 2015, we reached an agreement in principle with the CRA to settle the transfer pricing matter for years 2003 through 2010. Since the agreement in principle did not occur within 2015, we have not reflected this potential settlement in our 2015 financial statements. We will record the final settlement amount in a subsequent quarter and do not expect it to have a material impact to income tax expense.” Further information on the settlement was found in McKesson’s 10-Q filing from July 2015 “…We received reassessments from the Canada Revenue Agency (“CRA”) related to a transfer pricing matter impacting years 2003 through 2010, and filed Notices of Appeal to the Tax Court of Canada for all of these years. On December 13, 2013, the Tax Court of Canada dismissed our appeal of the 2003 reassessment and we filed a Notice of Appeal to the Federal Court of Appeal. During the first quarter of 2016, we reached an agreement to settle the transfer pricing matter for years 2003 through 2010 and recorded a discrete income tax benefit of $12 million for a previously unrecognized tax benefit.” ...

Lender S.A had granted a loan to a related entity but had not collected the agreed interest payments and not added the interest to its taxable income. The tax authorities stated that granting an interest-bearing loan to a related entity but not collecting the interest still results in taxable revenue. The reason Lender S.A. did not collect interest on the loan was due to the group relationship. Lender S.A. filed an appeal where it argued that since the interest was not received, it could not be taxed. Judgement of the Court The Supreme Administrative Court stated that the arm’s length principle applies to agreements concluded on arm’s length terms, where these are not implemented in accordance with there wording. Hence, the arm’s length standard also applies when the parties do not follow the agreement. Click here for English translation Click here for other translation ...