Canada vs Owens Corning Canada Holdings ULC, March 2026, Tax Court, Case No. 2026 TCC 60
Table of Contents
Case Information
Court: Tax Court of Canada
Case number: 2023-1111(IT)G
Citation: 2026 TCC 60
Applicant: Owens Corning Canada Holdings ULC
Respondent: His Majesty The King
Jurisdiction: Canada (Federal)
Judgment date: March 25, 2026
Judgment Summary
The Appellant, Owens Corning Canada Holdings ULC, appealed reassessments for its taxation years ended December 31, 2017 and 2018. The reassessments denied deductions of over $3,000,000 per year that the Appellant had claimed in calculating its foreign accrual property income (FAPI) from a controlled foreign affiliate. [4]
The Respondent brought a motion to quash the appeals on the ground that the Tax Court of Canada has no jurisdiction to order a downward transfer pricing adjustment, which is the relief the Appellant effectively sought. [1]
Justice Graham granted the motion, quashed both appeals, and awarded costs to the Respondent. [18], [20]
Background
OC NL Invest Cooperatief UA ("Coop2") is a controlled foreign affiliate of the Appellant. Coop2 licenced certain intellectual property from a non-arm's length non-resident, Owens Corning Holdings 5 CV ("IP Holder"), and sub-licenced that intellectual property to entities within the Owens Corning group and to various third parties, earning passive income in the process. [2]
The agreement between Coop2 and IP Holder provided for the royalty to be calculated on an arm's length basis, but no payments were actually made or accrued. [3]
When the Appellant filed its tax returns for the years in question, it calculated its FAPI from Coop2 and deducted over $3,000,000 per year in royalty payments. The Minister of National Revenue reassessed the Appellant to deny those deductions, and the Appellant appealed to the Tax Court of Canada. [4]
Core Dispute
The central question was whether the Tax Court of Canada has jurisdiction to grant the relief the Appellant sought, namely a downward transfer pricing adjustment in the computation of its FAPI from Coop2. [1]
The Appellant relied on the transfer pricing rules in subsection 247(2) of the Income Tax Act. It argued that it was not seeking a downward transfer pricing adjustment as such, but was simply computing its FAPI correctly. It also argued that paragraph 95(2)(f), which deems a foreign affiliate to be resident in Canada for the purpose of computing certain income, excluded the application of subsection 247(10) by virtue of the phrase "except to the extent that the context otherwise requires." [7], [8], [9]
The Appellant further argued that, because no formal process exists for obtaining the Minister's opinion under subsection 247(10) in a FAPI context, that opinion should not be required. [15]
Court Findings
Justice Graham rejected the Appellant's attempt to recharacterise the relief sought. He held that the Appellant was plainly seeking a downward transfer pricing adjustment and that subsection 247(10) of the Income Tax Act clearly states that such an adjustment is available only with the Minister's approval. [5], [7]
The court confirmed that the Supreme Court of Canada's decision in Dow Chemical Canada ULC v. The King (2024 SCC 23) and the Federal Court of Appeal's decision in Meglobal Canada ULC v. The King (2026 FCA 24) establish that downward transfer pricing adjustments are a discretionary decision of the Minister, and that the Tax Court therefore has no jurisdiction to order them. [6]
On the paragraph 95(2)(f) argument, the court held that the obligation to obtain the Minister's permission under subsection 247(10) fell on the Appellant as the Canadian resident taxpayer computing its own income, not on Coop2 or IP Holder. The FAPI provisions tax the Canadian resident shareholder on the foreign affiliate's income; they do not impose obligations on the foreign affiliate itself. [11], [12], [13], [14]
The court declined to decide whether the context of subsections 247(3), (4), (12), (13) and (14) requires that a foreign affiliate not be deemed resident for the purposes of those subsections, as that question was not necessary to resolve the motion. [14, footnote 3]
On the argument that the absence of a formal process for obtaining the Minister's opinion in a FAPI context removes the requirement for that opinion, the court disagreed. It held that the obligation rested on the Appellant, not on Coop2, and that the absence of a mechanism established by the Minister cannot confer jurisdiction on the Tax Court. [15], [16], [17]
The court noted that the Appellant had not yet asked the Minister to exercise his discretion and that, if the Appellant does so and the Minister refuses, the appropriate recourse is to the Federal Court, not the Tax Court. [19]
Outcome
The Respondent's motion to quash the appeals pursuant to section 53(3)(a) of the Tax Court of Canada Rules (General Procedure) was granted. The appeals for the Appellant's taxation years ended December 31, 2017 and 2018 were quashed. Costs in the appeals were awarded to the Respondent. [1], [18], [20]
Major Issues / Areas of Contention
- Whether the Tax Court of Canada has jurisdiction to order a downward transfer pricing adjustment under subsection 247(2) of the Income Tax Act in the context of a FAPI calculation.
- Whether the Appellant's claim could be recharacterised as a proper FAPI calculation rather than a downward transfer pricing adjustment, so as to avoid the jurisdictional bar.
- Whether the phrase 'except to the extent that the context otherwise requires' in paragraph 95(2)(f) of the Income Tax Act excludes the application of subsection 247(10) when computing a foreign affiliate's income for FAPI purposes.
- Whether the obligation to obtain the Minister's approval under subsection 247(10) falls on the Canadian resident taxpayer (the Appellant) or on the foreign affiliate (Coop2).
- Whether the absence of a formal ministerial process for seeking approval under subsection 247(10) in a FAPI context removes the requirement for that approval and thereby confers jurisdiction on the Tax Court.