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In examining the Tax Court of Canada's recent decision in favor of Alberta Printed Circuits, the author asserts that while one may disagree with some elements of the court's reasoning, the decision illustrates propositions that courts are likely to insist on in applications of the comparable uncontrolled price method.
If there are two lessons to be learned from the Tax Court of Canada decision in Alberta Printed Circuits Ltd. v. The Queen,1 they are, first, that taxpayers are the masters of their facts, and second, that the Tax Court of Canada wants to see the comparable uncontrolled price method applied if at all possible.
The Facts
While the Canada Revenue Agency can perform an audit and assume and rely upon certain facts for the purposes of issuing a reassessment, and while taxpayers then have the burden of proof in dislodging the reassessment, taxpayers have the upper hand in introducing evidence in court because only they can truly and thoroughly know their businesses and underlying facts and circumstances. Even reading the pleadings to this case a few years ago, one could hardly have guessed that the taxpayer would be able to demonstrate the facts as they were described and accepted by the court in Alberta Printed Circuits . The facts of this case are fairly straightforward.
Alberta Printed Circuits Ltd. was in the business of manufacturing custom prototype circuit boards. The company initially was owned, directly or indirectly, starting in 1984 by Wayne and Geraldine Bamber. Its success was based on its ability to produce and sell in small numbers (minimum order of two) prototype circuit boards to designers. This allowed designers to ensure, for a low price, that their circuit boards were sound before moving to mass production.
Eventually, a third person-Daniel McMuldroch, who had been an employee of Alberta Printed Circuits-was brought in as a 25 percent shareholder of the company. McMuldroch was responsible for software and web design as well as setup function (the pre-manufacturing stage of the process). This meant that one of his responsibilities was developing the software applications that allowed the setup to be automated-an important improvement as this setup used to be performed manually.
In 1996, APCI Inc. was incorporated as an international business corporation under the...