Dow Chemical Canada ULC v. The King: Tax Court Jurisdiction in Transfer Pricing Disputes


Case Information

  • Court: Supreme Court of Canada
  • Case No: 40276
  • Applicant: Dow Chemical Canada ULC
  • Defendant: His Majesty The King (Minister of National Revenue)
  • Judgment Date: June 28, 2024

Judgment Summary

The Supreme Court of Canada rendered a decision on June 28, 2024, regarding the appeal brought by Dow Chemical Canada ULC against His Majesty The King. The case focused on whether the Minister of National Revenue’s decision to deny a downward transfer pricing adjustment under section 247(10) of the Income Tax Act (ITA) falls within the exclusive jurisdiction of the Tax Court of Canada or the Federal Court of Canada.

The majority decision, authored by Justice Kasirer and concurred by Justices Martin, Jamal, and O’Bonsawin, held that the Minister’s discretionary decision under section 247(10) does not form part of the assessment and thus falls under the jurisdiction of the Federal Court for judicial review. The decision by the Minister was viewed as separate from the tax assessment, which the Tax Court exclusively reviews.

Key Points of the Judgment


Dow Chemical Canada ULC entered into a non-arm’s length loan agreement with Dow Europe GmbH in 2009, effective from 2004. This resulted in interest expenses for Dow Chemical Canada in 2006 and 2007. The Minister of National Revenue reassessed Dow Chemical Canada, denying a downward transfer pricing adjustment under section 247(10) of the Income Tax Act. Dow Chemical Canada challenged this decision, leading to a dispute over whether the Tax Court or Federal Court had jurisdiction to review the Minister’s discretionary decision.

Core Dispute

The central issue was whether the Tax Court of Canada has jurisdiction to review the Minister’s discretionary decision under section 247(10) of the Income Tax Act as part of an appeal of a tax assessment or if such decisions must be challenged through judicial review in the Federal Court.

Court Findings

The majority found that:

  1. The Minister’s discretionary decision under section 247(10) is not part of a tax assessment and falls outside the Tax Court’s jurisdiction over appeals of assessments.
  2. The settled meaning of “assessment” in tax law does not include discretionary decisions by the Minister.
  3. Challenges to the Minister’s discretionary decisions under section 247(10) must proceed through judicial review in the Federal Court.
  4. The Federal Court has the appropriate jurisdiction to apply the reasonableness standard of review and access to administrative law remedies for such decisions.
  5. Expanding the Tax Court’s jurisdiction to include review of these discretionary decisions would create legal uncertainty and jurisdictional issues.


The appeal was dismissed. The Minister’s discretionary decisions under section 247(10) are subject to judicial review by the Federal Court, not the Tax Court.

Major Issues or Areas of Contention:

  1. Definition and scope of “assessment” in tax law: The Court had to determine whether the Minister’s discretionary decision under section 247(10) could be considered part of an assessment and thus fall within the Tax Court’s jurisdiction.
  2. Interpretation of statutory provisions: The Court had to interpret various provisions of the Income Tax Act, Federal Courts Act, and Tax Court of Canada Act to determine the appropriate forum for challenging the Minister’s decision.
  3. Standard of review: The Court considered how the standard of review for discretionary decisions would be applied in different courts and how this impacts jurisdiction.
  4. Remedial powers: The Court examined the different remedial powers available to the Tax Court and Federal Court in addressing challenges to the Minister’s decisions.
  5. Access to justice and efficiency: The Court weighed arguments about which court would provide better access to justice and more efficient resolution of disputes.
  6. Potential expansion of Tax Court jurisdiction: The Court considered the implications of expanding the Tax Court’s jurisdiction to include review of discretionary decisions.

Expected or Controversial Decision:

The decision was somewhat controversial, as evidenced by the 4-3 split among the Supreme Court justices. The majority’s decision to maintain a strict separation between the Tax Court’s jurisdiction over assessments and the Federal Court’s jurisdiction over discretionary decisions aligns with existing jurisprudence and statutory interpretation. However, the dissenting opinion argued for a more expansive view of the Tax Court’s jurisdiction to promote efficiency and access to justice.

The controversy stems from the tension between maintaining clear jurisdictional boundaries and the desire for a more streamlined process for taxpayers to challenge all aspects of their tax liability in a single forum. The majority’s decision prioritizes legal certainty and adherence to established principles, while the dissent emphasizes practical considerations for taxpayers.

Significance for Multinationals and Revenue Services:

  1. Procedural clarity: The decision provides clear guidance on the appropriate forum for challenging different aspects of tax disputes, particularly those involving transfer pricing adjustments. Multinationals must be prepared to pursue challenges to discretionary decisions in the Federal Court, while assessment-related issues remain with the Tax Court.
  2. Potential for parallel proceedings: Multinationals may need to initiate proceedings in both the Tax Court and Federal Court when challenging both the assessment and the Minister’s discretionary decisions, potentially increasing complexity and costs.
  3. Importance of timing: The decision highlights the importance of timely action in challenging discretionary decisions, as limitations periods may differ between Tax Court appeals and Federal Court judicial reviews.
  4. Standard of review considerations: Multinationals must be aware that challenges to discretionary decisions in the Federal Court will be subject to a reasonableness standard of review, which may be more deferential to the Minister than the de novo review applied in Tax Court assessment appeals.
  5. Transfer pricing documentation: The case underscores the importance of maintaining robust transfer pricing documentation to support both the technical aspects of transfer pricing arrangements and any requests for discretionary adjustments under section 247(10).
  6. Resource allocation for tax authorities: Revenue services may need to allocate resources to defend challenges in both the Tax Court and Federal Court, potentially requiring different expertise and strategies for each forum.
  7. Policy considerations: The decision may influence how tax authorities approach the exercise of discretion under provisions like section 247(10), knowing that their decisions will be subject to judicial review in the Federal Court.
  8. International implications: While the decision is specific to Canadian law, it may inform how other jurisdictions approach the review of administrative discretion in transfer pricing matters, particularly in countries with similar legal systems.

Value of Transfer Pricing Expertise:

The Dow Chemical Canada case demonstrates the significant value of transfer pricing expertise in complex international tax matters:

  1. Technical knowledge: Transfer pricing experts possess the technical knowledge to navigate complex provisions like section 247 of the Income Tax Act, understanding both the mechanical application of transfer pricing rules and the discretionary elements involved.
  2. Strategic planning: Experts can help multinationals structure their intercompany transactions and develop transfer pricing policies that minimize the risk of adjustments and the need for discretionary relief under provisions like section 247(10).
  3. Documentation and support: Transfer pricing specialists can ensure that contemporaneous documentation is prepared to support both the arm’s length nature of transactions and any requests for discretionary adjustments, improving the chances of a favorable outcome in disputes.
  4. Dispute resolution: In cases like Dow Chemical Canada, transfer pricing experts can provide valuable insights into the strengths and weaknesses of the taxpayer’s position, informing litigation strategy and potential settlement negotiations.
  5. Multijurisdictional expertise: Transfer pricing experts often have knowledge of international best practices and OECD guidelines, allowing them to advise on the global implications of transfer pricing disputes and ensure consistency across jurisdictions.
  6. Quantification of adjustments: Experts can assist in quantifying potential transfer pricing adjustments and analyzing the financial impact of different scenarios, which is crucial for both planning and dispute resolution.
  7. Expert testimony: In court proceedings, transfer pricing experts can provide expert testimony to explain complex technical issues to judges who may not have specialized knowledge in this area.
  8. Regulatory insight: Transfer pricing specialists stay current with evolving regulations and administrative practices, helping multinationals anticipate and adapt to changes that may affect their transfer pricing positions.
  9. Risk assessment: Experts can help companies assess the likelihood of success in challenging discretionary decisions, informing decisions about whether to pursue litigation or seek alternative resolutions.
  10. Reputational management: By ensuring compliance with transfer pricing regulations and managing disputes effectively, transfer pricing experts help protect companies’ reputations with tax authorities and stakeholders.

Preventative Measures and Tax Risk Management:

The Dow Chemical Canada case highlights the importance of implementing proper tax risk management processes and establishing a tax steering committee to prevent or better manage transfer pricing disputes. Key preventative measures include:

  1. Comprehensive transfer pricing policy: Develop and implement a group-wide transfer pricing policy that aligns with the company’s business model and complies with relevant regulations in all jurisdictions.
  2. Regular risk assessments: Conduct periodic transfer pricing risk assessments to identify potential areas of vulnerability and proactively address issues before they escalate to disputes.
  3. Robust documentation: Maintain comprehensive contemporaneous documentation that supports the arm’s length nature of intercompany transactions and provides a clear rationale for any positions taken.
  4. Advance pricing agreements (APAs): Consider pursuing APAs with tax authorities to obtain certainty on transfer pricing methodologies and reduce the risk of future disputes.
  5. Internal controls: Implement strong internal controls to ensure consistent application of transfer pricing policies across the organization and timely identification of any deviations.
  6. Technology solutions: Utilize transfer pricing software and data analytics tools to monitor intercompany transactions, perform comparability analyses, and generate required documentation efficiently.
  7. Cross-functional collaboration: Foster collaboration between tax, finance, and operational teams to ensure transfer pricing considerations are integrated into business decision-making processes.
  8. Regular training: Provide ongoing training to relevant personnel on transfer pricing principles, policies, and documentation requirements to maintain organizational awareness and compliance.
  9. Monitoring of regulatory changes: Establish processes to monitor and assess the impact of changes in transfer pricing regulations and administrative practices across relevant jurisdictions.
  10. Dispute resolution strategy: Develop a clear strategy for managing transfer pricing disputes, including protocols for engaging with tax authorities and criteria for deciding when to litigate versus pursue alternative resolution methods.

Implementing a Tax Steering Committee:

Click here to download our exclusive (FREE) eBook: “The Essential Role of a Tax Steering Committee.”

A tax steering committee can be crucial in managing transfer pricing risks and preventing disputes like the one in the Dow Chemical Canada case. Key functions of such a committee include:

  1. Strategic oversight: Provide high-level guidance on the company’s transfer pricing strategy and ensure alignment with overall business objectives.
  2. Risk governance: Establish risk tolerance levels for transfer pricing matters and oversee the implementation of risk management processes.
  3. Policy approval: Review and approve transfer pricing policies and significant changes to ensure consistency and compliance across the organization.
  4. Dispute resolution: Make decisions on significant transfer pricing disputes, including whether to pursue litigation or seek alternative resolutions.
  5. Resource allocation: Ensure appropriate resources are allocated to transfer pricing compliance, documentation, and dispute management activities.
  6. Performance monitoring: Regularly review the effectiveness of transfer pricing policies and risk management processes, recommending improvements as needed.
  7. Stakeholder communication: Oversee communication with key stakeholders, including the board of directors, senior management, and external auditors, on transfer pricing matters.
  8. Cross-functional coordination: Facilitate coordination between different functions (e.g., tax, finance, legal, operations) to address transfer pricing issues holistically.
  9. Regulatory engagement: Guide the company’s approach to engaging with tax authorities on transfer pricing matters, including participation in cooperative compliance programs where available.
  10. Continuous improvement: Foster a culture of continuous improvement in transfer pricing practices, encouraging the adoption of best practices and innovative approaches to risk management.

In Summary

The Dow Chemical Canada case underscores the complex interplay between tax law, administrative discretion, and jurisdictional issues in transfer pricing disputes. While the Supreme Court’s decision provides clarity on the appropriate forum for challenging different aspects of transfer pricing adjustments, it also highlights the potential challenges taxpayers may face in navigating multiple proceedings. The case emphasizes the critical importance of transfer pricing expertise and proactive risk management in helping multinational companies navigate this complex landscape and minimize the risk of protracted disputes.

Related Articles