Executive Summary: Key Legal and Evidentiary Issues

• Transfer pricing dispute centers on whether cross-border intercompany loan transactions should be recharacterized as equity investments under s. 247(2)(b) and (d) of the Income Tax Act

• Crown's proposed amendment claiming a 0% arm's length interest rate was rejected as commercially untenable and incapable of proof

• Pleading deficiencies identified where factual conclusions lacked sufficient underlying particulars to support the repricing argument

• Repricing under s. 247(2)(a) and (c) and recharacterization under s. 247(2)(b) and (d) may be pled in the alternative without mutual exclusivity concerns

• Appellant's motion for stay of proceedings was denied due to insufficient nexus between the Tax Court appeal and the Federal Court judicial review

• No order as to costs was made given the mixed success of both parties

Background and parties involved

Ingredion Canada Corporation, the Appellant, is a Canadian-resident corporation. Its owner is Corn Products Development, Inc., a United States-based, wholly owned subsidiary of Ingredion Incorporated (formerly Corn Products International Inc.). The dispute arose from assessments by the Canada Revenue Agency concerning intercompany loan transactions between Ingredion Canada and Corn Products Development, Inc., which the Crown characterized as "Hybrid Instruments." The assessments denied deductions of amounts described as interest, followed by Part XIII Assessments and transfer pricing penalties.

The underlying transactions and assessments

The subject transactions occurred on October 28, 2010, involving a cross-border intercompany loan. The Canada Revenue Agency generated retrospective valuation reports "as of" October 28, 2010, which opined on the reasonableness of the interest rate on intercompany debt between the Appellant and Corn Products Development, Inc. The assessments were based on the argument that the subject cross-border intercompany loan was part of a Series of Transactions that, on the whole, should be recharacterized as an equity investment in the Appellant.

The Crown's motion to amend

The Respondent sought leave to file Amended Amended Replies in the 2012 Appeal (Court file 2021-994(IT)G) and 2013 Appeal (Court file 2021-2721(IT)G), proposing to add a new factual conclusion, issue, and alternative argument based on the repricing rule in s. 247(2)(a) and (c) of the Income Tax Act. The proposed amendment asserted that, in the alternative, the arm's length interest rate for the money Casco borrowed from CPD as part of the Series of Transactions was 0%.

The Court's rejection of the 0% interest rate pleading

Justice Sorensen concluded that the repricing factual conclusion and argument cannot succeed. The Court found that arm's length parties act in their own interests and the sine qua non of a business is pursuit of profit. Zero percent financing may be a retail marketing lure for consumer items or payday loans, may be an employment incentive, or may be offered through government assistance or charities to help individuals. However, in an environment in which annual inflation is greater than zero and Treasury Bills offer even negligible yields, the idea of handing $300M to an arm's length party in a business-to-business transaction with nil interest is untenable. Even if the intercompany debt were zero risk, that would still not result in a zero percent interest rate, as even the most secure debt, such as sovereign debt, is not entirely risk-free.

Requirements for future amendments

The Court provided guidance that in any future proposed amendments, the Respondent should set out, for all of the terms and conditions of each agreement that relate directly or indirectly to the Respondent's repricing argument: the terms and conditions that differ from arm's length terms and conditions; what the Respondent submits are arm's length terms and conditions; and each of the risks that were eliminated, and the pricing adjustments for each alleged risk, to support an alleged "risk free" interest rate on the intercompany debt.

Repricing and recharacterization as alternative arguments

The Court addressed the Appellant's argument that s. 247(2)(a) and (c) and s. 247(2)(b) and (d) are mutually exclusive. Justice Sorensen concluded that the Respondent's main position is recharacterization under paragraphs (b) and (d): no arm's-length parties would have entered into the transaction or series on any terms and conditions. However, the Respondent also seeks to plead in the alternative that, if arm's-length parties would have entered into the series on different terms and conditions, then repricing under paragraphs (a) and (c) may apply. It is uncontroversial that parties can plead in the alternative, even if the arguments involve inconsistent allegations under Rule 51(2).

The stay of proceedings motion

The Appellant moved to stay the 2014/15 Appeal (Court file 2025-1787(IT)G) pending a judicial review in Federal Court under matter T-1973-25. On January 22, 2024, the Minister agreed to hold in abeyance the notices of objection against the assessments now contested by the 2014/15 Appeal. The Federal Court struck the Judicial Review by order dated November 19, 2025, finding the "proverbial horse has already left the barn" as the abeyance agreement arose at the objections stage and, now that a Tax Court appeal has been filed, there is no point to reinstating the abeyance. The Court found that while there are some similarities between the 2014/15 Appeal and the appeal of the Judicial Review, the matters do not concern common questions of fact and law.

Ruling and outcome

The Respondent's motion to amend the Amended Replies in the 2012 Appeal and 2013 Appeal was dismissed without prejudice to file an amended motion with revised proposed amendments. Paragraphs 14, 15(b) and 18 were struck from the Reply in the 2014/15 Appeal, with leave to amend. The Appellant's motion to stay proceedings in the 2014/15 Appeal was dismissed. The Appellant may file and serve an Answer in the 2014/15 Appeal on or before February 9, 2026. By order of the Chief Justice dated December 15, 2025, a case management judge was appointed to referee going forward. There was no order as to costs, with the Court noting there was mixed success, and the conduct of these matters by the parties was professional.