The province of Nova Scotia has struck down a ruling on revenue-streaming introduced by the federal government in the 2015 budget and that landed Loblaw financial with a €7.5m (£6.5m) bill, Nova Scotia claims.
Loblaw Financial Corporation, a subsidiary of Canada’s biggest grocer, Loblaw Cos. Ltd., was ordered to pay a penalty of at least 30% of the combined capital and earnings of the Barbados-based subsidiary from 2003 to 2012.
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The province of Nova Scotia says it is pleased the Supreme Court of Canada has struck down the Revenue Agency’s interpretation of the Revenue Canada tax code, ruling against tax credits for payments made to offshore subsidiaries.
The court sided with the subsidiary of Loblaw, BFI Bancorp Limited, citing that regulations regulating debt-servicing obligations did not apply to income earned on guaranteed income deposits, or GIBs, said Nova Scotia Revenue Minister Karen Casey.
“The commercial demand for such investments has declined and the agency has significantly watered down its interpretation of the regulation, leaving us with a C$7.5m penalty for tax code violations,” Casey said in a statement.
Barbados acknowledged the success of the Nova Scotia argument, according to Casey.
In 2011, Loblaw merged its Guaranteed Income Trust subsidiary with BFI, changing the tax structure.
According to documents filed by BFI, qualifying debt obligations can include GIBs, with bonds, asset-backed securities, loan participations and certificates as potential qualifying obligations.