Canada v. Alta Energy Luxembourg S.A.R.L.

Canada v. Alta Energy Luxembourg S.A.R.L.
Collection
Supreme Court Judgments
Date
2021-11-26
Neutral citation
2021 SCC 49
Report
[2021] 3 SCR 590
Case number
39113
Judges
Wagner, Richard; Abella, Rosalie Silberman; Moldaver, Michael J.; Karakatsanis, Andromache; Côté, Suzanne; Brown, Russell; Rowe, Malcolm; Martin, Sheilah; Kasirer, Nicholas
On appeal from
Federal Court of Appeal
Subjects
Taxation
Notes
Case in Brief SCC Case Information
Decision Content
SUPREME COURT OF CANADA
Citation: Canada v. Alta Energy Luxembourg S.A.R.L., 2021 SCC 49, [2021] 3 S.C.R. 590
Appeal Heard: March 19, 2021 Judgment Rendered: November 26, 2021 Docket: 39113
Between:
Her Majesty The Queen Appellant
and
Alta Energy Luxembourg S.A.R.L. Respondent
Coram: Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ.
Reasons For Judgment: (paras. 1 to 97)
Côté J. (Abella, Moldaver, Karakatsanis, Brown and Kasirer JJ. concurring)
Joint Dissenting Reasons: (paras. 98 to 189)
Rowe and Martin JJ. (Wagner C.J. concurring)
Her Majesty The Queen Appellant
v.
Alta Energy Luxembourg S.A.R.L. Respondent
Indexed as: Canada v. Alta Energy Luxembourg S.A.R.L.
2021 SCC 49
File No.: 39113.
2021: March 19; 2021: November 26.
Present: Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ.
on appeal from the federal court of appeal
Taxation — Income tax — Tax avoidance — Application of general anti‑avoidance rule — Large capital gain realized by corporate resident of Luxembourg on sale of shares whose value derived principally from immovable property situated in Canada — Corporation claiming exemption from Canadian tax on basis that shares were protected property under tax treaty between Canada and Luxembourg — Whether general anti‑avoidance rule applicable to deny requested exemption — Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 245 — Convention between the Government of Canada and the Government of the Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital, Can. T.S. 2000 No. 22, art. 13.
In 2011, two American firms founded an American company for the purpose of acquiring and developing unconventional oil and natural gas properties. Alta Energy Partners Canada Ltd. (“Alta Canada”), a wholly owned Canadian subsidiary of that company, was incorporated in order to carry on that business. A restructuring of Alta Canada was undertaken in 2012. As part of the restructuring, Alta Energy Luxembourg S.A.R.L. (“Alta Luxembourg”) was incorporated under the laws of Luxembourg and its shares were issued to a new Canadian partnership. On the same day, Alta Luxembourg purchased all of the shares of Alta Canada. In 2013, it sold those shares, realizing a capital gain in excess of $380 million. Payment for the shares was organized so that Alta Luxembourg did not receive any of the sale proceeds. Following the sale, Alta Luxembourg did not conduct any other business or hold any other investments.
The capital gain was reported to the Luxembourg tax authorities and was subject to full taxation under Luxembourg’s domestic laws. In its Canadian tax return for 2013, Alta Luxembourg claimed an exemption from Canadian tax on the basis that the gain was not included in its “taxable income earned in Canada” under s. 115(1)(b) of the Income Tax Act (“Act”) because the shares were “treaty‑protected property” under art. 13(4) and (5) of the Convention between the Government of Canada and the Government of the Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital (“Treaty”). Article 13(4) of the Treaty creates an exemption for residents of Luxembourg from Canadian tax arising from a capital gain on the alienation of shares the value of which is derived principally from immovable property situated in Canada and in which the business of the company was carried on.
The Minister denied the treaty exemption. Alta Luxembourg appealed to the Tax Court of Canada. The Minister argued that the business property exemption in art. 13(4) of the Treaty did not apply and, in the alternative, if the shares did qualify as treaty‑protected property, that the general anti‑avoidance rule (“GAAR”) in s. 245 of the Act should apply. The Tax Court found that the shares were treaty‑protected property. With respect to the GAAR, the parties agreed that the restructuring was an “avoidance transaction” as defined in s. 245(3) of the Act that resulted in a tax benefit. The Tax Court held that the avoidance transaction did not result in a misuse or abuse of the provisions of the Act or the Treaty. The Federal Court of Appeal dismissed the Minister’s appeal, which raised only the issue of whether the GAAR applied.
Held (Wagner C.J. and Rowe and Martin JJ. dissenting): The appeal should be dismissed.
Per Abella, Moldaver, Karakatsanis, Côté, Brown and Kasirer JJ.: The Minister has not discharged her burden of proving abusive tax avoidance. In agreeing to include a specific exemption for immovable property in the Treaty, Canada sought to encourage investments by Luxembourg residents in business assets embodied in immovable property located in Canada and to reap the ensuing benefits. Alta Luxembourg made exactly such an investment. It is a resident of Luxembourg and, as such, is exempt from Canadian taxes on the capital gain realized on the disposition of shares of its wholly owned Canadian subsidiary.
The GAAR acts as a legislative limit on both tax certainty and the well‑accepted principle that taxpayers are entitled to arrange their affairs to minimize the amount of tax payable. It bars abusive tax avoidance transactions, including those in which taxpayers seek to obtain treaty benefits that were never intended by the contracting states, but it cannot be used to fundamentally alter the criteria under which a person is entitled to the benefits of a treaty. Applying the GAAR involves a three‑part process meant to determine: (1) whether there is a tax benefit arising from a transaction; (2) whether the transaction is an avoidance transaction; and (3) whether the avoidance transaction is abusive. To determine whether a transaction is abusive, the Court has set out a two‑step inquiry. Under the first step, the provisions relied on for the tax benefit are interpreted to determine their object, spirit, and purpose. In cases of treaty interpretation, this must be done with a view to implementing the true intention of the parties. Under the second step, a factual analysis determines whether the avoidance transaction at issue frustrates the object, spirit, and purpose of the provisions.
The object, spirit, and purpose of the business property exemption provided for in art. 13(4) and (5) of the Treaty are to foster international investment. The object, spirit, and purpose of arts. 1 and 4, which make residence central to the application of the Treaty, are to allow all persons who are residents under the laws of one or both of the contracting states to claim benefits under the Treaty, so long as their resident status could expose them to full tax liability. According to art. 4, “residence” under the Treaty is based on liability to tax in one or both of the contracting states by reason of domicile, residence, place of management or another similar criterion. In the context of corporations, the “liable to tax” requirement is met where the domestic law of a contracting state exposes a corporation to full tax liability because it has its residence in that state. Residence is to be defined by the laws of the contracting state in which residence is claimed. Consistent with international practice, Luxembourg law grants resident status to corporations having either their legal seat or their central management in Luxembourg. This does not depart from accepted usage such that the bargain struck in the Treaty could be upheld only if Luxembourg residents claiming benefits have sufficient substantive economic connections to their country of residence. If the drafters had truly intended to include only corporations with sufficient substantive economic connections to their country of residence within the scope of the Treaty, they would have clearly signalled their intention to depart from a well‑established criterion like the “place of incorporation” or “legal seat”.
Another contextual element further reinforces the conclusion that the purpose of arts. 1 and 4 of the Treaty is not to reserve benefits to corporations with sufficient substantive economic connections to their country of residence: the inclusion of art. 28(3) in the Treaty, which denies benefits to certain Luxembourg holding companies. The parties’ choice of this approach should be understood as a rejection of the relevance of economic ties for delineating which corporations should be entitled to benefits and which should not. This choice suggests that the drafters intended to exclude a corporation with minimal economic connections to one of the contracting states only where the corporation is a holding company benefiting from Luxembourg’s well known international tax haven regime. In light of this clear intention, the spirit of arts. 1 and 4 was not to limit access to the benefits of the Treaty to corporations with sufficient substantive economic connections to their country of residence.
Although the absence of specific anti‑avoidance rules is not necessarily determinative of the application of the GAAR, their absence sheds light on the contracting states’ intention. This is not a case where Parliament did not or could not have foreseen the tax strategy employed by the taxpayer. The use of conduit corporations — legal entities created in a state essentially to obtain treaty benefits that would not be available directly — was not an unforeseen tax strategy at the time of the Treaty. Options to remediate the situation were available and known by the parties, but they made deliberate choices to guard some benefits against conduit corporations and to leave others unguarded. Had the parties truly intended to prevent such corporations from taking advantage of the business property exemption, they could have done so. Combined with Canada’s preference at the time of the Treaty for taking advantage of the economic benefits yielded by foreign investments rather than higher tax revenues, this makes the rationale of the business property exemption even clearer. The fact that the capital gains may not be taxed in Luxembourg, leading to double non‑taxation, and the fact that conduit corporations can take advantage of the business property exemption are tax planning outcomes consistent with the bargain struck between Canada and Luxembourg.
In raising the GAAR, Canada is now seeking to revisit its bargain in order to secure both foreign investments and tax revenues. Tax treaties are replete with choices. One key choice made by Canada and Luxembourg in negotiating the Treaty was to deviate from the OECD Model Tax Convention on Income and on Capital by allocating to a person’s residence state the right to tax capital gains realized on the disposition of shares or other similar interests deriving their value principally from immovable property used in a corporation’s business. The business property exemption is a clear departure from the theory of economic allegiance, under which the parties to a treaty avoid double taxation by allocating the right to collect taxes to the contracting state to which the income and the taxpayer are more closely connected. Canada effectively agreed to give up its right to tax certain entities incorporated in Luxembourg in exchange for the jobs and economic opportunities that the business property exemption would promote.
The provisions of the Treaty operated as they were intended to operate —the avoidance transaction neither defeated nor frustrated the object, spirit, or purpose of the provisions in issue. Therefore, there was no abuse, so the GAAR cannot be applied to deny the tax benefit claimed. The Treaty makes it clear that Canada and Luxembourg agreed that the power to tax would be allocated to Luxembourg where the conditions of the business property exemption were met. There is nothing in the Treaty suggesting that a single‑purpose conduit corporation resident in Luxembourg cannot avail itself of the benefits of the Treaty due to some other consideration. The provisions of the Treaty operated as they were intended to operate; there was no abuse, and, therefore, the GAAR cannot be applied to deny the tax benefit claimed.
Per Wagner C.J. and Rowe and Martin JJ. (dissenting): The appeal should be allowed. Alta Luxembourg’s claim for a tax benefit under the Treaty is the result of abusive avoidance transactions. The courts below did not properly identify the rationale underlying the relevant provisions of the Treaty. They gave weight only to the text and failed to consider why the provisions were put in place. This is not the exercise mandated under the GAAR. Technical compliance with a tax treaty in a way that frustrates the underlying rationale of the provisions relied upon by the taxpayer is precisely what triggers the GAAR. Although it is a long standing principle in Canadian law that taxpayers may arrange their affairs to minimize their amount of tax payable, an unbridled application of that principle can mislead taxpayers into believing that tax plans that merely comply with the technical provisions of the Act are acceptable. Similarly, treaty shopping is not inherently abusive, but where taxing rights in a tax treaty are allocated on the basis of economic allegiance and conduit entities claim tax benefits despite the absence of any genuine economic connection with the state of residence, treaty shopping is abusive.
Canada has acted to curb abusive international tax avoidance by enacting the GAAR, which denies tax benefits when taxpayers engage in transactions that conform with the text of the tax rules relied upon, but do not accord with their rationale. As such, the GAAR vests upon courts the unusual duty to look beyond the words of the applicable provisions to determine whether the transactions in question frustrate their underlying rationale. An interpretation confined to the black letter of these legislative provisions would defeat Parliament’s will and fail to fulfil the courts’ role. As the question under the GAAR is not whether the taxpayer can claim a tax benefit, but rather why the benefit was conferred, a GAAR analysis is not constrained by the text in the same way as a traditional statutory interpretation. While this gives rise to a degree of uncertainty for taxpayers, allowing the GAAR to create this uncertainty was a deliberate choice that Parliament made when it enacted a provision that can defeat tax avoidance schemes that exploit Canada’s legislation and treaties. Where those schemes cross the line into abusive tax avoidance, a finding that the GAAR applies does not run counter to the principles of certainty, predictability and fairness.
The allocation of taxing powers in the Treaty follows the theory of “economic allegiance”, so the object, spirit or purpose of the relevant provisions of the Treaty is to assign taxing rights to the state with the closest economic connection to the taxpayer’s income. Under art. 13(5), the state of residence retains its jurisdiction to tax capital gains unless the exceptions in art. 13(1) to (4) apply. Article 13(1) preserves the right of the source state to tax gains derived from immovable property situated in that state, and art. 13(4) preserves the source state’s right to tax capital gains arising from the disposition of shares the value of which is derived principally from immovable property situated in that state, unless the company carries on business in the property. The business property exemption assigns the right to tax capital gains arising from the disposition of immovable property in which business is carried on to the resident state. The rationale behind the business property exemption is to encourage investment; it reflects the fact that the business activity, rather than the immovable property itself, drives the value of the property. Article 13(4) therefore allocates to Luxembourg the right to tax its residents’ indirect gains from immovable property situated in Canada used in a business.
In the instant case, the abuse is clear. Alta Luxembourg had no genuine economic connections with Luxembourg as it was a mere conduit interposed in Luxembourg for residents of third‑party states to avail themselves of a tax exemption under the Treaty. This lack of any genuine economic connection to Luxembourg frustrates the rationale of the relevant provisions of the Treaty. The federal government did not deliberately set out to create the conditions for unlimited tax avoidance by means of schemes such as that in which Alta Luxembourg was used. The Court should not legitimize such blatantly abusive tax avoidance based on the view that Canada should have negotiated different treaty terms. Ex ante speculation about how the treaty parties ought to have proceeded based on alternatives said to have been available to them gives primacy to what is not there. Parliament was entitled to rely on the GAAR to address abusive uses of the Treaty rather than negotiate the inclusion of a specific rule. The focus should be on what was actually agreed upon and whether the underlying rationale of the relevant provisions was frustrated by the avoidance transactions undertaken. In the give and take of treaty negotiation, Canada certainly did not give up the GAAR.
The facts of this case are a patent example of a sophisticated taxpayer effecting a restructuring on the basis of professional tax advice to avoid Canadian tax. In such cases, the principle of fairness ought not to be ignored. As for the degree of uncertainty introduced by the GAAR, it is counterbalanced by the Crown’s burden to show that the avoidance transactions frustrates the object, spirit or purpose of the provisions relied on by the taxpayer and by the fact that any doubt under the GAAR analysis is to be resolved in favour of the taxpayer.
Cases Cited
By Côté J.
Applied: Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601; Copthorne Holdings Ltd. v. Canada, 2011 SCC 63, [2011] 3 S.C.R. 721; approved: Prévost Car Inc. v. Canada, 2009 FCA 57, [2010] 2 F.C.R. 65; referred to: R. v. MIL (Investments) S.A., 2007 FCA 236, [2007] 4 C.T.C. 235; MIL (Investments) S.A. v. R., 2006 TCC 460, [2006] 5 C.T.C. 2552; Commissioners of Inland Revenue v. Duke of Westminster, [1936] A.C. 1; Lipson v. Canada, 2009 SCC 1, [2009] 1 S.C.R. 3; R. v. Melford Developments Inc., [1982] 2 S.C.R. 504; Crown Forest Industries Ltd. v. Canada, [1995] 2 S.C.R. 802; Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536; J. N. Gladden Estate v. The Queen, [1985] 1 C.T.C. 163; Cudd Pressure Control Inc. v. R., [1999] 1 C.T.C. 1; SA Andritz, No. 233894, Conseil d’État (Section du Contentieux), December 30, 2003; R. v. Hauser, [1979] 1 S.C.R. 984; R. v. McLeod (1950), 97 C.C.C. 366; Dilworth v. Commissioner of Stamps, [1899] A.C. 99; Shell Canada Ltd. v. Canada, [1999] 3 S.C.R. 622; Sun Indalex Finance, LLC v. United Steelworkers, 2013 SCC 6, [2013] 1 S.C.R. 271.
By Rowe and Martin JJ. (dissenting)
Commissioners of Inland Revenue v. Duke of Westminster, [1936] A.C. 1; Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601; Shell Canada Ltd. v. Canada, [1999] 3 S.C.R. 622; Copthorne Holdings Ltd. v. Canada, 2011 SCC 63, [2011] 3 S.C.R. 721; Lipson v. Canada, 2009 SCC 1, [2009] 1 S.C.R. 3; RMM Canadian Enterprises Inc. v. R., [1998] 1 C.T.C. 2300; McNichol v. The Queen, 97 D.T.C. 111; MIL (Investments) S.A. v. R., 2006 TCC 460, [2006] 5 C.T.C. 2552; Prévost Car Inc. v. Canada, 2009 FCA 57, [2010] 2 F.C.R. 65; Crown Forest Industries Ltd. v. Canada, [1995] 2 S.C.R. 802; Fundy Settlement v. Canada, 2010 FCA 309, [2012] 2 F.C.R. 374; R. v. MIL (Investments) S.A., 2007 FCA 236, [2007] 4 C.T.C. 235; Fundy Settlement v. Canada, 2012 SCC 14, [2012] 1 S.C.R. 520; Canada v. 594710 British Columbia Ltd., 2018 FCA 166, [2019] 5 C.T.C. 1.
Statutes and Regulations Cited
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Convention between the Government of Canada and the Government of the Republic of Kazakhstan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital, Can. T.S. 1998 No. 13, arts. 11(8), 12(7), 28(3).
Convention between the Government of Canada and the Government of the Republic of Peru for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital, Can. T.S. 2002 No. 23, arts. 10(7), 11(7), 12(7), 28(3).
Convention between the Government of Canada and the Government of the Republic of Uzbekistan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital, Can. T.S. 2000 No. 18, arts. 11(8), 12(7).
Convention between the Government of Canada and the Government of Ukraine for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital, Can. T.S. 1997 No. 39, arts. 11(8), 12(8).
Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, Can. T.S. 2019 No. 26.
Vienna Convention on the Law of Treaties, Can. T.S. 1980 No. 37, arts. 26, 31.
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APPEAL from a judgment of the Federal Court of Appeal (Webb, Near and Locke JJ.A.), 2020 FCA 43, [2020] 5 C.T.C. 193, 2020 D.T.C. 5021, [2020] F.C.J. No. 204 (QL), 2020 CarswellNat 314 (WL Can.), affirming a decision of Hogan J., 2018 TCC 152, [2019] 5 C.T.C. 2183, 2018 D.T.C. 1120, [2018] T.C.J. No. 124 (QL), 2018 CarswellNat 4615 (WL Can.). Appeal dismissed, Wagner C.J. and Rowe and Martin JJ. dissenting.
Michael Taylor and Natalie Goulard, for the appellant.
Matthew G. Williams and E. Rebecca Potter, for the respondent.
The judgment of Abella, Moldaver, Karakatsanis, Côté, Brown and Kasirer JJ. was delivered by
Côté J. —
TABLE OF CONTENTS
Paragraph
I. Overview
1
II. Background
11
III. Judicial History
18
A. Tax Court of Canada, 2018 TCC 152, [2019] 5 C.T.C. 2183 (Hogan J.)
18
B. Federal Court of Appeal, 2020 FCA 43, [2020] 5 C.T.C. 193 (Webb, Near and Locke JJ.A.)
23
IV. Issues
28
V. Analysis
29
A. General Anti-Avoidance Rule (“GAAR”)
29
B. International Tax Treaties
34
(1) General Principles
34
(2) OECD Commentaries as Interpretative Aids
38
C. Cautionary Preface to the GAAR Analysis
46
D. First Step: Object, Spirit, and Purpose of the Relevant Provisions
50
(1) Residence (Arts. 1 and 4(1))
52
(2) Carve-Out from Source-Based Capital Gains Tax (“Business Property Exemption” (Art. 13(4) and (5))
68
E. Second Step: Abusiveness of the Transaction
90
VI. Conclusion
97
I. Overview
[1] The principles of predictability, certainty, and fairness and respect for the right of taxpayers to legitimate tax minimization are the bedrock of tax law. In the context of international tax treaties, respect for negotiated bargains between contracting states is fundamental to ensure tax certainty and predictability and to uphold the principle of pacta sunt servanda, pursuant to which parties to a treaty must keep their sides of the bargain.
[2] Section 245 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (“Act”), known as the general anti-avoidance rule (“GAAR”), acts as a legislative limit on tax certainty by barring abusive tax avoidance transactions, including those in which taxpayers seek to obtain treaty benefits that were never intended by the contracting states. This intention is found by going behind the text of the provisions under which a tax benefit is claimed in order to determine their object, spirit, and purpose. In the bilateral treaty context, there are two sovereign states whose intentions are relevant; a robust analysis must take both into consideration in order to give proper effect to the tax treaty as a carefully negotiated instrument.
[3] In this case, the appellant, Her Majesty The Queen, as represented by the Minister of National Revenue (“Minister”), submits that the transaction at issue abused the Convention between the Government of Canada and the Government of the Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital, Can. T.S. 2000 No. 22 (“Treaty”). According to the Minister, the drafters did not intend the Treaty to benefit residents without “sufficient substantive economic connections” to their state of residence (A.F., at para. 100). In the view of the respondent, Alta Energy Luxembourg S.A.R.L. (“Alta Luxembourg”), the Minister has failed to discharge her burden of establishing that the object, spirit, or purpose of the provisions was frustrated or defeated.
[4] In my view, the Minister is asking this Court to use the GAAR to change the result, not by interpreting the provisions of the Treaty through a unified textual, contextual, and purposive analysis, but by fundamentally altering the criteria under which a person is entitled to the benefits of the Treaty, thus frustrating the certainty and predictability sought by the drafters.
[5] Tax treaties are replete with choices. One key choice made by Canada and Luxembourg was to deviate from the Organisation for Economic Co‑operation and Development (“OECD”) Model Tax Convention on Income and on Capital (“OECD Model Treaty”)[1] by including a specific carve-out provision for immovable property, also called the business property exemption. This carve-out allocates to a person’s residence state the right to tax capital gains realized on the disposition of shares or other similar interests deriving their value principally from immovable property used in a corporation’s business. The rationale of the carve-out is not connected to the theory of economic allegiance. In fact, this provision is a clear departure from this theory, for the source state normally has the greater economic claim to tax income derived from immovable property or a business situated within its territory.
[6] Canada’s decision to forego its right to tax such capital gains realized in Canada was based on economic considerations broader than generating tax revenues. Tax law is designed not only to bring revenues into a state’s coffers but also to incentivize or disincentivize certain behaviours (Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601, at para. 53). Indeed, in agreeing to include the carve-out in the Treaty, Canada sought to encourage investments by Luxembourg residents in business assets embodied in immovable property located in Canada (e.g., mines, hotels, or oil shales) and to reap the ensuing economic benefits. This incentive was never intended to be limited to Luxembourg residents with “sufficient substantive economic connections” to Luxembourg. Internationally, residency typically does not depend on the existence of such connections; formal criteria for residency are just as well accepted as factual criteria.
[7] In this case, Alta Luxembourg made exactly such an investment. It is a resident of Luxembourg and, as such, is exempt from Canadian taxes on the capital gain realized on the disposition of shares of its wholly owned Canadian subsidiary.
[8] In my respectful view, my colleagues Rowe and Martin JJ. undertake their analysis as though the Treaty were a simple statute rather than a freely negotiated bargain whose interpretation must reflect the intentions of the parties that drafted it. Canada understood that it was dealing with a low-tax jurisdiction, and, in recognition of this reality, it agreed to specific terms in the Treaty, such as the business property exemption. In this way, Canada effectively agreed to give up its right to tax certain entities incorporated in Luxembourg in exchange for the jobs and economic opportunities that the business property exemption would promote. This decision can hardly be questioned.
[9] In raising the GAAR, Canada is now seeking to revisit its bargain in order to secure both foreign investments and tax revenues. But if the GAAR is to remain a robust tool, it cannot be used to judicially amend or renegotiate a treaty.
[10] For the reasons that follow, I agree with the courts below that the Minister has not discharged her burden of proving abusive tax avoidance. Therefore, I would dismiss the appeal.
II. Background
[11] In April 2011, Alta Resources LLC, a Texas-based oil and gas firm, and Blackstone Group LP (“Blackstone”), a New York-based private equity firm, founded Alta Energy Partners, LLC, a Delaware limited liability company, for the purpose of acquiring and developing unconventional oil and natural gas properties in North America. One such property was the Duvernay shale formation in northwestern Alberta. Alta Energy Partners Canada Ltd. (“Alta Canada”), a wholly owned Canadian subsidiary of the Delaware limited liability company, was incorporated in order to carry on that business. Alta Canada invested almost $300 million in its Canadian business through its acquisition of the oil and natural gas drill and recovery rights in certain lands in Alberta.
[12] A restructuring of Alta Canada was undertaken in 2012. As part of the restructuring, Alta Luxembourg was incorporated under the laws of Luxembourg to hold interests in Luxembourg and foreign companies. Prior to the restructuring, Blackstone’s counsel obtained a ruling from the Luxembourg tax authorities that the restructuring was in compliance with tax legislation and administrative policies in Luxembourg. The shares of Alta Luxembourg were issued to a new Canadian partnership formed in Alberta, Alta Energy Canada Partnership (“Partnership”). On the same day, the Delaware limited liability company sold all of its shares of Alta Canada to Alta Luxembourg. This was a taxable transaction in Canada under the Act, as more than 50 percent of the value of the shares was derived from