MEGlobal Canada ULC v. The King: When Split Jurisdiction Leaves a Gap in Relief

On March 26, 2025, the Tax Court of Canada (the “Tax Court”) held that it lacked jurisdiction to hear an appeal from MEGlobal Canada ULC (the “Taxpayer”).^[1] The Taxpayer sought to challenge the Minister of National Revenue’s (the “Minister”) refusal to grant a downward pricing adjustment under subsection 247(10) of the Income Tax Act (the “Act”).

This decision reinforces the split jurisdiction between the Tax Court (where taxpayers can challenge an assessment) and Federal Court (where taxpayers can review discretionary decisions by the Minister). The decision also reveals a potentially unfair outcome under the Act: even if a taxpayer is successful in its review of the Minister’s discretionary decision to decline a downward adjustment, the Minister may then be statute-barred from issuing the reassessment that would provide the taxpayer with the appropriate relief.

Background

The Minister reassessed the Taxpayer to reflect an upward transfer pricing adjustment under subsection 247(2) of the Act for the 2008, 2010, and 2011 taxation years. Around the same time as the reassessments, the Taxpayer’s parent company discovered that it overpaid for certain supplies. Accordingly, the Taxpayer objected to the notices of assessments and argued that there should instead be a downward adjustment.

The Minister vacated the upward adjustments but refused to grant the Taxpayer a downward adjustment pursuant to subsection 247(10) of the Act. The Taxpayer appealed the reassessments to the Tax Court and also brought a parallel application for judicial review to the Federal Court.

The Taxpayer and the Crown jointly requested that the appeal be held in abeyance pending the outcome of Dow Chemical Canada ULC v Canada.^[2] The parties agreed that if the Supreme Court of Canada (the “Supreme Court”) found that the Tax Court has jurisdiction to hear appeals of subsection 247(10) decisions, the Taxpayer would withdraw its Federal Court application. If it found that the Tax Court did not, it would withdraw the appeal with the Tax Court.

Guidance from Dow Chemical and Iris Technologies

On June 28, 2024, the Supreme Court of Canada rendered its companion decisions in Dow Chemical and Iris Technologies Inc. v Canada.^[3] The Supreme Court held in Dow Chemical that decisions made under subsection 247(10) are discretionary and therefore outside of the Tax Court’s jurisdiction. Only the Federal Court may review the reasonableness of such decisions through judicial review. In Iris Technologies, the Supreme Court held that challenges to the correctness of a tax assessment, where the dispute turns on a non-discretionary determination of liability, fall within the Tax Court’s jurisdiction. This confirmed that taxpayers must navigate a split jurisdiction between the Federal Court and Tax Court for their tax disputes against the Minister.

The Decision

Despite the decisions in Dow Chemical and Iris Technologies, the Taxpayer did not withdraw their appeal to the Tax Court. In response, the Crown brought a motion to quash the Taxpayer’s appeal pursuant to Rule 53(3)(a) of the Tax Court of Canada Rules (General Procedure). The Crown argued that the Tax Court did not have the jurisdiction to rule on the Minister’s exercise of discretionary decision-making.

The Tax Court agreed with the Crown, concluding that the decision in Dow Chemical is clear that when the Minister makes a decision to deny a downward transfer pricing adjustment, that decision is not an assessment or part of an assessment that can be appealed to the Tax Court. Instead, it is a discretionary decision by the Minister that can only be challenged by way of a judicial review in the Federal Court. It did not matter that the Minister, unlike in Dow Chemical, did not first find a specific amount of a downward adjustment under subsection 247(2) of the Act before refusing to exercise her discretion under subsection 247(10).

Since the Tax Court found that it did not have jurisdiction to hear the appeal, the Taxpayer sought leave to amend its notice of appeal so that it could ask the Court to at least decide on the correct transfer pricing methodology to be applied under subsection 247(2). If, in the absence of the application of subsection 247(10), the result would be a downward adjustment, the Taxpayer asked the Court to refer the matter back to the Minister for reconsideration. The Court denied this request, citing the language of subclause 171(1)(b)(iii) of the Act.  The Court held that it may only refer assessments back to the Minister if both a reconsideration and a reassessment will necessarily follow, and in the case of a 247(10) adjustment, reassessment would be in the discretion of the Minister. Accordingly, the Court allowed the Crown’s motion to quash the Taxpayer’s appeal, denied the Taxpayer’s request to amend the notice appeal, and awarded costs to the Crown.

Key Takeaways

MEGlobal Canada ULC reinforces that the appropriate jurisdiction to seek a legal remedy depends on whether the issue involves the correctness of an assessment (which goes to the Tax Court) or the reasonableness of a Minister’s decision (which goes to the Federal Court). The jurisdiction of the court depends not on how a dispute is framed by the taxpayer but by its essential character.

Further, taxpayers must be aware of timing issues when pursuing a review of the Minister’s discretion at Federal Court. The Minister cannot, absent a waiver, reassess a taxpayer outside of the normal reassessment period of three years (for individuals and Canadian-controlled private corporations) or four years (for other corporations and trusts). If the Federal Court judicial review process is lengthy enough (and the taxpayer fails to file a proactive waiver of the normal reassessment period), this can result in the taxpayer being precluded from obtaining relief through a reassessment even if their judicial review of the Minister’s decision is successful.

^[1] MEGlobal Canada ULC v. The King, 2025 TCC 50 [MEGLobal Canada ULC].  

^[2] 2024 SCC 23 [Dow Chemical].

^[3] 2024 SCC 24 [Iris Technologies].