CIBC World Markets v. R. – TCC: Section 150 election under the Excise Tax Act precludes claiming ITCs on exported services

CIBC World Markets v. R. – TCC:  Section 150 election under the Excise Tax Act precludes claiming ITCs on exported services

CIBC World Markets Inc. v. The Queen (May 29, 2018 – 2018 TCC 103, Bocock J.).

Précis:   This is a somewhat unusual case in which the taxpayer seems to have been hoist with its own petard:

[1]  The Appellant, CIBC World Markets Inc. (“WMI” or the “Appellant”) is a resident Canadian financial services corporation wholly owned by Canadian Imperial Bank of Commerce (“CIBC”). CIBC is a Canadian chartered bank. In addition to its Canadian operations, CIBC also operates branches outside of Canada (“non-resident branches”). WMI provides administrative services to CIBC. Certain services are provided by WMI to CIBC in connection with CIBC’s activities carried on at its non-resident branches.

[2]  Within reporting periods ending in 2008 through 2013, WMI claimed input tax credits (“ITCs”) on expenses allocable to services (the “exported services”) supplied by WMI to CIBC relating to activities carried on at CIBC’s non-resident branches. WMI asserts ITCs may be claimed because such exported services were made to a non-resident. As such, they are zero-rated supplies.

[3]  There is a complicating factor. WMI and CIBC executed and have a subsisting election under subsection 150(1) (the “s.150 election”) of the Excise Tax Act, RSC 1985, c. E-15, as amended (the “ETA”). The specifics of section 150 are analyzed herein, but generally, the section allows closely related entities, comprising collectively a financial institution, to elect to deem every supply of property and services between them as financial services. Administratively, the election obviates the need for these closely related entities to file returns, pay tax and then claim ITCs on their “inter-group” (otherwise) taxable supplies.

[4]  Relying upon the s.150 election, the Minister of National Revenue (the “Minister”) disallowed the claimed ITCs allocable to the exported services solely on the basis that section 150 deems every supply made to be a financial service and that referable section 2, Part VII of Schedule V deems financial services to be exclusively exempt supplies. ITCs may not be claimed on exempt supplies.

Despite extensive and clever arguments to circumvent the section 150 election the Court held that the taxpayer was bound by it and dismissed the appeal with costs.

Decision:   In essence the Court found it had no jurisdiction to relieve against the taxpayer’s decision to execute the section 150 election:

[56]  The Court acknowledges that the present result is not uniformly balanced and symmetrical. While specific inconsistency, absurdity and confusion are not created, contextual versus purposive conflict exists. Firstly, exported services, including exported financial services, remain free from GST under the ETA save for exported deemed financial services. The fundamental purpose and goal of the ETA to tax only supplies made and consumed in Canada are not universally preserved. Secondly, the s.150 election, contemplated legislatively and purposively to add administrative simplicity to exempting inter-entity domestic supplies within listed financial institutions, has levied unrecoverable GST on supplies of services exported and consumed externally; an otherwise domestic consumption tax now renders a “sub-species” of exported financial services less competitive. Thirdly, the federal treasury receives a windfall of GST on exported services never to be consumed in Canada. It was not generally intended to have such revenue by virtue of a fundamental and purposive principle of a critically important taxing statute. Exported supplies, in the form of financial services, were never intended to be irrevocably taxed under the ETA. However, given the clear, analogous and directive jurisprudence of the Federal Court of Appeal in National Bank Life on specific contextual interpretation within the ETA, this Court cannot stretch that fundamental principle as far as would be necessary to grant this appeal, even in the name of uniform, general purposive consistency.

Thus the appeal was dismissed with costs.