SUPREME COURT OF CANADA

Minister of National Revenue

v.

Tara Exploration and Development Co. Ltd.*

ABBOTT, MARTLAND, JUDSON, RITCHIE

AND LASKIN, JJ.

JUNE 19, 1972

†Article II of Canada-Ireland Income Tax Treaty, S.C. 1955, c. 10 - Taxation Years 1965 and 1966 - Respondent T was incorporated under Corporations Act of Ontario, but its principal business was that of exploring for minerals in Ireland and its management and control was also in Ireland where all directors were resident - During relevant years it sold shares of G, purchased by it in 1964, at a substantial profit which was assessed for income tax - On appeal to Exchequer Court, respondent's appeal was allowed - Minister appealed against that decision - Whether office in Toronto was not a "permanent establishment" within definition of that term contained in Treaty since said office was maintained to enable respondent to comply with requirements of Corporations Act - Held, yes - Whether profit made on purchase and sale of G's shares was not "attributable" to such establishment since decision to purchase and sell shares was made by respondent in Ireland - Held, yes - Whether, therefore appeal was to be dismissed - Held, yes [In favour of assessee]

FACTS

The respondent, T was incorporated under the Corporations Act of Ontario, but its principal business was that of exploring for minerals in Ireland and its management and control was also in Ireland where all the directors were resident. In 1965 and 1966, respondent sold the shares of G, purchased by it in 1964, at a substantial profit which was assessed for income tax by the Minister. On appeal to the Exchequer Court, the respondent's appeal was allowed and the assessments for the 1965 and 1966 taxation years were referred back for reassessment on the basis that the profits referred to were not subject to tax.

The Minister appealed against that decision:

HELD

All management and executive decisions relating to the conduct and control of the respondent's business were taken in Ireland. The respondent had no employees at its head office in Toronto, and no person resident in Canada had the authority to contract or conduct business on its behalf. [Para 9]

Although the respondent maintained a bank account in Toronto, most decisions with regard to the writing of cheques on this account emanated from the President of the respondent, who was resident and domiciled in Ireland at all material times. An employee of the respondent's accountant in Toronto, in charge of accounts payable, had authority to co-sign cheques without obtaining approval from Ireland for routine administrative accounts. On such occasions, approval was obtained from the respondent's solicitor in Toronto, who in turn obtained the requisite approval from Ireland. [Para 10]

It was doubtful whether the office in Toronto was a "permanent establishment" within the definition of that term contained in the Treaty. It seemed to have been little more than an office maintained to enable the respondent to comply with the requirements of the Corporations Act. In any event, the profit made on the purchase and sale of the G's shares was not "attributable" to such establishment. The decision to purchase and sell the shares was made by the management of the respondent in Ireland. No one resident in Canada was authorized to make that decision. [Para11]

The appeal was to be dismissed with costs. [Para 12]

D.S. Maxwell, (Solicitor),G.W. Ainslie and A.P. Gathierfor the Appellant.Fasken & Calvin, (Solicitor), W.B. Williston and H. Henderson for the Respondent.

JUDGMENT

Abbott, J. - The respondent was incorporated in 1953 under the Corporations Act of Ontario, but its principal business was that of exploring for minerals in Ireland. At all material times, the management and control of the respondent (and of a closely related company Northgate Explorations Limited) was in Ireland where all the directors were resident. The learned trial judge found as a fact that the respondent was not a resident of Canada and counsel for the Minister did not challenge that finding.

Respondent raised capital in Canada for mining development in Ireland and, in 1964, used some of the money not immediately required for such purposes to buy shares of Gortdrum Mines Limited, another closely related company that had just been incorporated in Ontario to develop mining properties in Ireland adjacent to those of respondent.

Save as set out below, the respondent has not purchased any shares, stocks or bonds or other securities. In 1964, the respondent purchased:

(a)  72,000 shares in Northgate Exploration Limited;

(b)  180,000 shares in Gortdrum Mines Limited; and

(c)  1,000 shares in Canada Malting Company.

The decisions to purchase all these shares were made in Ireland.

[Page 1059]

In 1965 and 1966, respondent sold the shares of Gortdrum Mines Limited at a substantial profit which was assessed for income tax by the Minister. On appeal to the Exchequer Court, the respondent's appeal was allowed and the assessments for the 1965 and 1966 taxation years referred back for reassessment on the basis that the profits referred to are not subject to tax under Part I of the Income Tax Act. The present appeal by the Minister is from that decision.

There are only two points in issue on this appeal (1) whether the profits realized by respondent were taxable profits under s. 2(2) of the Income Tax Act and (2) if they were, whether such profits were exempt from tax in virtue of the Canada-Ireland Tax Agreement Act, Statutes of Canada 1955, c. 10.

As to the first of the questions, the learned trial judge appears to have proceeded on the assumption that the profits in question were taxable under s. 2(2) as profits from an adventure in the nature of trade. I agree with that assumption and, in my view, such profits would have been taxable income in the hands of a resident of Canada. However, since I am of opinion that respondent is entitled to exemption under the Canada-Ireland Income Tax Treaty, I prefer to dispose of the appeal on that basis.

Article III, para. 1, of the Treaty reads:

1. The industrial or commercial profits of an Irish enterprise shall not be subject to Canadian tax unless the enterprise is engaged in trade or business in Canada through a permanent establishment situated therein. If it is so engaged, tax may be imposed on those profits by Canada, but only on so much of them as is attributable to that permanent establishment.

[Page 1060]

Article II, para. (g) and (h) define "Irish enterprise" and "permanent establishment" as follows:

1. ?

(g) The terms "Irish enterprise" and "Canadian enterprise" mean respectively an industrial or commercial enterprise or undertaking carried on by a resident of Ireland and an industrial or commercial enterprise or undertaking carried on by a resident of Canada; and the terms "enterprise of one of the territories" and "enterprise of the other territory" mean an Irish enterprise or a Canadian enterprise, as the context requires.

(h) The term "permanent establishment" when used with respect to an enterprise of one of the territories, means a branch or other fixed place of business, but does not include an agency unless the agent has, and habitually exercises, a general authority to negotiate and conclude contracts on behalf of the enterprise or has a stock of merchandise from which he regularly fills orders on its behalf. In this connection-

(i)  An enterprise of one of the territories shall not be deemed to have a permanent establishment in the other territory merely because it carries on business dealings in that other territory through a bona fide broker or general commission agent acting in the ordinary course of his business as such;

(ii)  The fact that an enterprise of one of the territories maintains in the other territory a fixed place of business exclusively for the purchase of goods or merchandise shall not of itself constitute that fixed place of business a permanent establishment of the enterprise;

(iii)  The fact that a company which is a resident of one of the territories has a subsidiary company which is a resident of the other territory or which carries on a trade or business in that other territory (whether through a permanent establishment or otherwise) shall not of itself constitute that subsidiary company a permanent establishment of its parent company.

All management and executive decisions relating to the conduct and control of the respondent's business were taken in Ireland. The respondent had no employees at its head office in Toronto, and no person resident in

[Page 1061]

Canada had the authority to contract or conduct business on its behalf.

Although the respondent maintained a bank account in Toronto, most decisions with regard to the writing of cheques on this account emanated from the President of the respondent, who was resident and domiciled in Ireland at all material times. An employee of the respondent's accountant in Toronto, in charge of accounts payable, had authority to co-sign cheques without obtaining approval from Ireland for routine administrative accounts. On such occasions, approval was obtained from the respondent's solicitor in Toronto, who in turn obtained the requisite approval from Ireland.

I doubt whether the office in Toronto was a "permanent establishment" within the definition of that term contained in the Treaty. It seems to have been little more than an office maintained to enable the respondent to comply with the requirements of the Corporations Act. In any event, my opinion is that the profit made on the purchase and sale of the Gortdrum shares was not "attributable" to such establishment. The decision to purchase and sell the shares was made by the management of the respondent in Ireland. No one resident in Canada was authorized to make that decision.

I would dismiss the appeal with costs.

Appeal dismissed with costs.

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____________

*In favour of assessee.

†CANADA - Canada/Ireland - Tax Treaty - Permanent establishment - Article 2 of DTAA between Canada and Ireland - Article 5 of OECD Model Tax Convention.