Wednesday, March 13, 2013
Glen Loutzenhiser (University of Oxford, Faculty of Law) presents Trompe-l’oeil: The Sham Doctrine in the Canadian Tax Courts, in Sham Transactions (Oxford University Press, 2013) at Toronto today as part of its James Hausman Tax Law and Policy Workshop Series hosted by Ben Alarie:
In Part II of this chapter, I review the leading Canadian tax cases on sham. As will be evident, for the most part sham has proven to be quite ineffective for the Canadian tax authorities in their fight against tax avoidance. Fortunately for the Canada Revenue Agency (CRA) they have a number of other anti-avoidance weapons at their disposal, including since 1988 a statutory general anti-avoidance rule (GAAR). Although one might expect that in a tax system with a GAAR the sham doctrine would have an even smaller role to play—perhaps relegated to the sidelines completely—interestingly, this has not proved to be the experience in Canada. In fact a renewed judicial interest in sham is clearly evident in two relatively recent decisions of the Federal Court of Appeal that involved taxpayers from the predominantly French-speaking province of Quebec. These two decisions—Faraggi v R4 in 2009 and Antle v R5 in 2010—are examined in Part III.
Canadian cases typically are reported in both official languages—English and French. In the French version of the reported Canadian tax cases the expression sometimes used for sham is ‘trompe-l’oeil’—literally meaning to deceive or trick the eye. This phrase is more commonly associated with visual illusion in art, as in painted detail meant to convey the illusion of a three-dimensional object. Unlike in the art world, the deception involved in tax law is not meant to amuse, impress, thought-provoke or entertain, but is undertaken in an attempt to minimise or escape tax. It is this deception element of sham, and in particular the level of deception necessary to give rise to a sham, that has been at issue in the recent cases. In addition to demonstrating a renewed interest in sham, these cases also may signal a more lasting expansion of the traditional boundaries of the sham doctrine as it applies in Canadian tax law.