I’ll likely be writing more about this but I have reviewed an odd and interesting decision from Justice Robert J. Hogan of the Tax Court in the Alta Energy Luxembourg S.A.R.L. v. The Queen case. Part of what is unusual in this Tax Treaty case is the Court’s interpretive stance, which derives heavily from a shadowily-described “Position Paper” without any reference, and authorship of which is ascribed simply to “a government official” without even a ministry provided to guide the reader.
The case itself concerns the interpretation of a provision of the Canada-Luxembourg Tax Treaty, and in particular concerns whether oil shale rights held by the Taxpayer are “property… in which the business of the company… was carried on”.
In order to answer this question, the Taxpayer put very heavy emphasis (according to the Court) on this Position Paper, dating from 1991, which does not appear to have been about this treaty provision specifically, but about a family of such provisions common in the capital gains sections of many tax treaties. The position paper said:
Oil and gas reserves, mines and royalty interests are Excluded Property if the owner is actively engaged in the exploitation of natural resources and if such assets are actively exploited or kept for future exploitation by such owner…
And Justice Hogan held that this was the correct interpretation, and that the Crown’s current position–that the business must be physically carried on in the immovable property to be excluded–was not correct.
But the means by which that view is reasoned are unusual indeed. No caselaw is cited at all in those reasons, save the highly general quotation from Crown Forest that “a tax treaty or convention must be given a liberal interpretation with a view to implementing the true intention of the parties” which he then goes on to turn into an extraordinary principle: that
the Treaty negotiators intended for a resource property to qualify as Excluded Property when such property is developed in accordance with the industry’s best practises
This is a interpretive principle of massively broad potential application for which literally no evidence is marshalled by the Court at all. The first and only time discussion of “best practices” as a principle appears in the judgment is in this section where the principle is declared.
Equally strangely, the Court excoriates the Crown for its apparent change of position from the 1991 Position Paper (a paper of general application, written by a ghost, that predated the Canada-Luxembourg Treaty), although the Crown considered the positions to be reconcilable in its submissions.
But Position Papers do not establish interpretive principles, not even for Treaties, and in any case the Capital Gains articles of treaties have benefited from an enormously deep and broad interpretive jurisprudence on a global scale. None of this (no other foreign or domestic caselaw, no OECD Model Commentaries, no international tax jurists) is ever called upon. We have only the “Position Paper” and we lack even the support the Paper marshals for its position, as it is only briefly quoted. And it is well understood that little if any estoppel can be made against the Crown for its own interpretations of a general character.
The curious use of an unidentified Position Paper to entirely undergird a treaty interpretation analysis is a significant departure from the usual process of tax treaty interpretation in the Tax Court. Wild surmise such as
Since the purpose of the carve-out is to attract foreign direct investments, it is reasonable to assume that the treaty negotiators wanted the exception to be granted in accordance with industry practices.
imports “industry best practice” to the very heart of our methods of tax treaty interpretation. It is without precedent; this may prove to be a bold new principle being born.