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Loblaw owned Glenhuron Bank Ltd. in Barbados from the early 1990s, when it was set up to avoid some proposed tax changes in the Netherlands, until it was liquidated in 2013.

The crux of the case boils down to how Glenhuron should be taxed based on those complex provisions in the Income Tax Act; Loblaw argued that it should be exempt from the FAPI rules because it was a regulated foreign bank under the laws of Barbados.

This led to some difficult questions being tackled by the Court of Appeal judges, such as: what is a bank?

Referring to a Supreme Court decision on the topic, Woods said that “‘banking’ is an elusive concept, difficult to define, and its meaning should be based on a formal, institutional approach rather than a substantive approach, in the sense of the functions of banking.”

Canada Revenue Agency argued that because the Glenhuron bank in Barbados got most of its money from the parent company, it was not “arm’s length” and therefore effectively a subsidiary of Loblaw.

The company argued that because most of the bank’s transactions were done with arm’s length parties on the open market, the bank’s operations were effectively arm’s length from Loblaw’s business.

Government lawyers argued that if the court sided with Loblaw, it would basically nullify the whole point of the foreign accrual property income rules.

“Finally, the Crown submits that if Loblaw Financial’s position is accepted, the very target of the FAPI legislation, which is an investment portfolio held offshore, would be exempt. The concern is a valid one, but it does not enable a court to give the legislation a broader interpretation than it can reasonably bear,” Woods wrote.