In 2022 the Federal Court of Canada ruled in favour of the Revenue Agency and dismissed Dow Chemicals’ appeal regarding the Tax Court’s jurisdiction to make a downward adjustment. The Federal Court held that the Tax Court could not overturn the Revenue Agency’s (Minister’s) opinion that a requested downward adjustment was inappropriate because the Tax Court’s jurisdiction is only to set aside, vary or remit an assessment to the Minister, whereas an opinion is not an assessment. According to the Federal Court, the jurisdiction to judicially review an opinion lies with the Federal Court. Following the Federal Court’s decision, Dow Chemicals filed an application for leave to appeal to the Supreme Court. In a judgment of 23 February 2023, the application for leave to appeal was granted and the question of the Tax Court’s jurisdiction would therefore be considered by the Supreme Court. Judgment of the Supreme Court The Supreme Court dismissed the appeal of Dow and confirmed that a taxpayer’s challenge to a discretionary decision of the Minister of National Revenue should be brought before the Federal Court, as the Tax Court does not have jurisdiction to review the Minister’s discretionary decision. “when the Minister has exercised her discretion under section 247(10) of the ITA to deny a taxpayer’s request for a downward pricing adjustment, that decision falls outside of the jurisdiction of the Tax Court in respect of an appeal of the taxpayer’s assessment. The Minister’s discretionary decision is not part of the assessment. The meaning of “assessment” is settled in law, and the Minister’s opinion formed under section 247(10) is qualitatively distinct from that concept. As there is no express right of appeal to the Tax Court, the proper forum to challenge the Minister’s discretionary decision under section 247(10) is the Federal Court, pursuant to its exclusive jurisdiction in judicial review under section 18(1) of the Federal Courts Act. Only the Federal Court has the jurisdiction to apply the appropriate standard of review and access to the appropriate range of administrative law remedies.” Click here for translation ...

This decision is about the jurisdiction of the Tax Court of Canada, or perhaps more accurately about the scope of an appeal of an assessment. It arises in the context of an appeal by Dow Chemical Canada ULC of a reassessment of its 2006 taxation year. The reassessment increased Dow Chemical’s income under the transfer pricing provisions in section 247 of the Income Tax Act. In reassessing Dow Chemical for its 2006 and 2007 taxation years, the tax authorities had increased Dow Chemical’s income in respect of certain transactions with non-residents to which Dow Chemical is related. The authorities initially indicated that the transfer pricing provisions also would result in a downward adjustment to Dow Chemical’s income in those taxation years in respect of another transaction. However, the most recent reassessment of Dow Chemical’s 2006 taxation year did not reflect the downward adjustment, although the reassessment of its 2007 taxation year did. Dow Chemical has appealed the 2006 reassessment. The problem was the tax authorities decision to deny Dow Chemical the benefit of the downward adjustment. While the amount of the adjustment is not in dispute, the authorities, determined that it is not appropriate in the circumstances to give effect to the adjustment. The dispute concerns whether that determination was proper. The issue faced by Dow Chemical was where to bring the remaining issue in dispute. The Tax Court has the jurisdiction to consider an appeal of an assessment. The Federal Court has jurisdiction to judicially review a decision of the Minister, but only if the matter is not otherwise appealable. The uncertainty concerning the proper forum for the dispute led the parties to submit a question of law to the Tax Court under section 58 of the Tax Court of Canada Rules (General Procedure). “Where the Minister of National Revenue has exercised her discretion pursuant to subsection 247(10) of the Income Tax Act (“ITA”) to deny a taxpayer’s request for a downward transfer pricing adjustment, is that a decision falling outside the exclusive original jurisdiction granted to the Tax Court of Canada under section 12 of the Tax Court of Canada Act and section 171 of the ITA?” The Tax Court’s decision “The Court has determined that where the Minister has decided, pursuant to subsection 247(10) of the Income Tax Act (Canada) [the ITA], to deny a taxpayer’s request for a downward transfer pricing adjustment, that decision is not outside the exclusive original jurisdiction granted to the Court under section 12 of the Tax Court of Canada Act and section 171 of the ITA provided that the assessment resulting from that decision has been properly appealed to the Court.” ...