Landbouwbedrijf Backx BV v R, 2018 TCC 142, considered the residence of corporation under the laws of the Netherlands whose director was resident in that country but whose only shareholders were resident in Canada.
In respect of Backx BV’s place of residence, the TCC noted that central management and control generally resides with a company’s board of directors. However, if significant management decisions are made by parties independently of the company’s directors, the jurisdiction of residence of those parties may determine the residence of the company.
In order to establish that persons other than the directors controlled the company, there must be cogent evidence demonstrating that management decisions were made independently by those other persons. In the case at hand, the TCC held that the shareholders had essentially been instructing the director on how to perform her duties, and that she was otherwise performing only administrative and clerical functions. Furthermore, the TCC found that the director had no experience in dairy farming, received little remuneration for her work, and had not even been copied on correspondence with accountants and tax advisers.
Daniel Shiff, “Treaty Benefits and Corporate Residence Determined by Location of Control” 8:4 Cdn Tax Focus (Nov 2018).