The CRA has recently sought leave to appeal the Federal Court of Appeal decision in Cameco to the Supreme Court of Canada. Surprised? If you know basketball, this is the play we all knew we would see.
Many streetball players that move into the gym often like to take shots from low-percentage territory, sometimes far beyond the 3-point line. After all, there is a lot to brag about if one of these shots drops. Coaches know the probability of scoring from 3-point range is the same for everyone no matter their skill level: lower than the chance of sinking a layup or a 6-foot jump shot. Moving successfully from the tarmac to a wood court and a competitive game involves taking a coach’s advice, accepting that probability rules, and adjusting your game accordingly by taking more high-probability shots. The end result? Fewer 3-pointers attempted, more points scored per game, and more wins per season (all else being the same). If Cameco is the latest in a series of doubtful 3-point attempts, why are CRA transfer pricing auditors not more like basketball players? And when does a desperate loss record from a CRA team that attempts too many threes put the coach and the GM in the hot seat?
The legal questions and interpretation in the Cameco case are very complex, but it’s a deceptively simple matter in basketball terms.
CRA’s position is that at arm’s length the business activity of the transaction would have happened in one company rather than two, causing all the profit from that activity to be earned by one company rather than two, and that all the business activity happened in a Canadian company. The transactions between a Canadian company, Cameco, and its Swiss subsidiary should therefore not have happened at all at arm’s length. This is not to say that the price of what was traded should have been the same as the Swiss resale price, leaving the Swiss subsidiary with no profit. CRA’s contention is the transaction would be a nothing at arm’s length. This is much harder to prove than repricing the transaction at a higher unit rate to cause the profit of the Canadian company to rise, or showing that the Swiss company was in fact a sales agent that should have earned a lower profit than it did – the equivalents of a contested lay-up or a contested jump shot. The CRA decision to pursue the notion that the transaction should not have occurred at all is a transfer pricing 3-pointer.
If your team is down by two points with seconds left on the clock in the fourth quarter, the likely play is to inbound the ball to the team’s best three-point shooter and try for the win. CRA’s transfer pricing audit in Cameco was a regular game with four quarters with lots of time to try and make good, high-probability shots to put some points on the board. CRA opted instead to play aggressive defence, run down the clock and wait for the end of the fourth quarter to try and win it with one three-point shot. This is an unusual game plan, but you’ll recall seeing it played out before with the following general results:
| Game | Points/Rebounds/Assists | CRA Win/Loss |
| GE Capital Canada | No guarantee fee | Loss |
| Burlington Resources Finance Co. | No guarantee fee | Forfeit |
| Agracity | No transaction | Loss |
Should CRA never take a three-point shot again? Of course not! Every team knows you have to be able to score a three-pointer from time to time to keep the defence honest. Good coaches also know that if you never score a three-pointer but won’t quit trying, the defence will leave you alone and focus on rebounding and transitioning to offence. Fewer points on the board.
To those who know basketball, the application for leave to appeal to the Supreme Court is CRA hoping for a lucky bounce after spending years watching the basketball travel in the direction of the rim from behind the three-point line. The wait has to be nerve-wracking to watch for the player trusted to take the shot. After all, sometimes the shot’s just “not there.” The coach may be sweating it somewhat, second-guessing the three-point play call and the strategic advice she got from a government economist who invented the play. Back at head office, the owners are hoping to pull out a win after CRA’s GM got the salary cap expanded several years back. Perhaps most unfortunately, Cameco is left to hold its defensive position on the floor until the final buzzer sounds.
The way this game of transfer pricing basketball is being played, you’d think it had been invented in Canada. There’s a popular coaching manual with a blue cover that is kept updated by an international organization. CRA sends its head office staff to Paris to help revise it and write new sections. Perhaps it’s time for CRA to go back to the manual with the blue cover and focus on putting points on the board. Forget about how good the U.S. team is. There is still some salary cap room and some ability to trade players and coaches (nobody gets fired). Some promising pros have been drafted recently who might be able to contribute their experience once they get settled with the team. Most CRA transfer pricing auditors are not basketball players because they are accountants. Time to rebuild. Better luck next season.