Input Tax Credits: What Canada's Federal Court of Appeal Could Have Learned from the U.K. VAT
University of Michigan Law School
April 15, 2013
Tax Notes International, Volume 70, Number 3
Recently, in CIBC World Markets Inc. v. R. (“CIBC case”), the Chief Justice of the Tax Court of Canada (“TCC”) was faced with an issue that was novel to Canada’s consumption tax jurisprudence. Can a GST registrant retrospectively change its method for allocating input taxes between its commercial and non-commercial activities, for the purpose of calculating its Input Tax Credits (“ITCs”)? In his quest for an answer, Rip C.J. sought guidance from the UK’s VAT system, which has had the opportunity to address the same issue. The Federal Court of Appeal (“FCA”), however, rejected the trial judge’s attempt at legal cross-fertilization (or tax transplantation) on the basis that Canada’s GST system is “somewhat different from” the UK’s VAT system.
This paper critically analyzes whether Canada’s GST system is sufficiently similar to the UK’s VAT system, at least with respect to the treatment of ITCs, in order to allow for legal cross-fertilization. The paper also identifies what Canada’s GST system could have learned from the UK’s VAT system, had the FCA allowed the TCC’s attempt at legal cross-fertilization. This analysis will expose the importance of having courts exercise diligence when considering the law of foreign jurisdictions; otherwise they may miss the opportunity of reaping the benefits of judicial globalization, just as the FCA missed the opportunity of learning from the UK’s VAT system in the CIBC case.
Number of Pages in PDF File: 17
Keywords: Goods and Services Tax, Value Added Taxation, Litigation, Input Tax Credits
JEL Classification: K34, K33, K00
Date posted: April 14, 2013 ; Last revised: April 16, 2013