Following the long-standing and often cited precedent of the House of Lords in
De Beers Consolidated Mines Ltd. v. Howe,
5 Canadian courts have adopted and
developed a test that normally fixes the residency of a corporation in the jurisdiction
“where the central management and control abides.” Typically, central management
and control is found to rest with the corporation’s board of directors and, therefore,
the residence of the directors is a paramount consideration.
6 While the “mind and
management” test might, at first blush, appear to be a straightforward question of fact
that ought to give rise to consistent results, its application has historically given rise
to uncertainty. Much of this uncertainty relates to the emphasis that might be placed
by a court on either de jure or de facto control.
For instance, in Yamaska Steamship Co. Ltd. v. Minister of National Revenue,
7
the Tax Appeal Board held that a Canadian corporation was not resident in Canada
for tax purposes on the grounds that it was entirely controlled from England by its
sole beneficial shareholder who resided in London such that “[m]erely a de jure
control prevailed in Canada.” This finding was made despite the fact that the
corporation was incorporated in Canada and had a Canadian Board of Directors.
8
In contrast, the Exchequer Court of Canada in Bedford Overseas Freighters Ltd.
v. Minister of National Revenue,
9 took a different approach. While the Court
accepted the proposition that significant management decisions can be taken by
someone who is not a director such that the place where that person resides may be
determinative of the residence of a corporation, a de jure approach was preferred
over evidence of de facto control outside of Canada.
10
In Bedford Overseas, the corporation was incorporated in Canada where three of
its five directors resided. The corporation was beneficially-owned by non-resident
shareholders, two of whom were also directors. The principal beneficial owner of the
corporation was a Greek citizen who resided in Greece and New York and spent
considerable time in London and who had only been to Canada as a visitor for short
periods of time. The principal beneficial owner provided general instructions to his
Canadian counterparts to attend to the administration and management of the
corporation in so far as action was required in Canada by the corporation’s representatives and would from time to time instruct them and provide funds to the
corporation as required. The vessels owned by the corporation were managed from
London by a separate entity controlled by the principal beneficial shareholder.
On these facts, Kerr J. of the Exchequer Court accepted that it was the principal
beneficial shareholder who made major decisions regarding the handling of the
5 [1906] A.C. U.K. 455.
6 See Landbouwbedrijf Backx B.V. v. The Queen, 2018 TCC 142, paras. 32–35.
7 1961 CarswellNat 271, 28 Tax A.B.C. 187.
8 In this case, the corporation’s sole asset was the S.S. Yamaska, which carried freight primarily
between England and West Africa.
9 [1970] C.T.C. 69, 1970 CarswellNat 236.
10 See, for instance, Zehnder & Co. v. Minister of National Revenue, 1970 CarswellNat 237, 1970
CarswellNat 318, [1970] Ex. C.R. 390.
Taxation and Ship Management: A Canadian Case Study
459
De Beers Consolidated Mines Ltd. v. Howe,
5 Canadian courts have adopted and
developed a test that normally fixes the residency of a corporation in the jurisdiction
“where the central management and control abides.” Typically, central management
and control is found to rest with the corporation’s board of directors and, therefore,
the residence of the directors is a paramount consideration.
6 While the “mind and
management” test might, at first blush, appear to be a straightforward question of fact
that ought to give rise to consistent results, its application has historically given rise
to uncertainty. Much of this uncertainty relates to the emphasis that might be placed
by a court on either de jure or de facto control.
For instance, in Yamaska Steamship Co. Ltd. v. Minister of National Revenue,
7
the Tax Appeal Board held that a Canadian corporation was not resident in Canada
for tax purposes on the grounds that it was entirely controlled from England by its
sole beneficial shareholder who resided in London such that “[m]erely a de jure
control prevailed in Canada.” This finding was made despite the fact that the
corporation was incorporated in Canada and had a Canadian Board of Directors.
8
In contrast, the Exchequer Court of Canada in Bedford Overseas Freighters Ltd.
v. Minister of National Revenue,
9 took a different approach. While the Court
accepted the proposition that significant management decisions can be taken by
someone who is not a director such that the place where that person resides may be
determinative of the residence of a corporation, a de jure approach was preferred
over evidence of de facto control outside of Canada.
10
In Bedford Overseas, the corporation was incorporated in Canada where three of
its five directors resided. The corporation was beneficially-owned by non-resident
shareholders, two of whom were also directors. The principal beneficial owner of the
corporation was a Greek citizen who resided in Greece and New York and spent
considerable time in London and who had only been to Canada as a visitor for short
periods of time. The principal beneficial owner provided general instructions to his
Canadian counterparts to attend to the administration and management of the
corporation in so far as action was required in Canada by the corporation’s representatives and would from time to time instruct them and provide funds to the
corporation as required. The vessels owned by the corporation were managed from
London by a separate entity controlled by the principal beneficial shareholder.
On these facts, Kerr J. of the Exchequer Court accepted that it was the principal
beneficial shareholder who made major decisions regarding the handling of the
5 [1906] A.C. U.K. 455.
6 See Landbouwbedrijf Backx B.V. v. The Queen, 2018 TCC 142, paras. 32–35.
7 1961 CarswellNat 271, 28 Tax A.B.C. 187.
8 In this case, the corporation’s sole asset was the S.S. Yamaska, which carried freight primarily
between England and West Africa.
9 [1970] C.T.C. 69, 1970 CarswellNat 236.
10 See, for instance, Zehnder & Co. v. Minister of National Revenue, 1970 CarswellNat 237, 1970
CarswellNat 318, [1970] Ex. C.R. 390.
Taxation and Ship Management: A Canadian Case Study
459