Executive Summary: Key Legal and Evidentiary Issues

• C&W Offshore failed to withhold and remit 10% non-resident withholding tax on approximately $8,900,000 in rental payments made to InterMoor UK, a United Kingdom resident, for the lease of heavy subsea mooring chains used offshore Newfoundland.

• The central dispute was whether InterMoor UK or its Norwegian affiliate, InterMoor Norway, was the "beneficial owner" of the rental payments under the Prévost Car test, which examines possession, use, risk, and control.

• Application of the Canada-United Kingdom Convention (Article 12) reduced the statutory 25% withholding rate to 10%, as InterMoor UK was found to be the beneficial owner and a UK resident without a permanent establishment in Canada.

• No agency relationship was established between InterMoor UK and InterMoor Norway under the Kinguk test, as there was no consent, authority, or control indicative of such a relationship.

• C&W Offshore's due diligence defence against the 10% penalty under paragraph 227(8)(a) of the ITA failed because its president took no steps whatsoever to investigate withholding tax obligations.

• Total reassessments of $991,378.12 in withholding tax and penalties for the 2014 and 2015 taxation years were upheld, and the appeal was dismissed with costs.

Background and the emergency chain rental

In December 2013, Seadrill Canada Ltd. urgently contacted C&W Offshore Ltd., a Canadian corporation specializing in the fabrication of carbon steel products for Newfoundland and Labrador's offshore oil and gas industry, to procure two lengths of heavy subsea mooring chains. The request arose after Seadrill experienced a failure on one of the eight mooring chains anchoring the West Aquarius drilling rig to the ocean floor, creating a critical safety situation and the potential financial impact of a production shutdown that could result in losses of approximately US$500,000 per day. Although C&W Offshore was not ordinarily engaged in the rental of large industrial equipment such as heavy mooring chains, its employee Sean Conway, a former DNV mooring expert, identified a potential supplier and the company decided to proceed, considering the apparent low risk of the transaction and the potential commercial benefit.

Sourcing the chains through InterMoor UK and InterMoor Norway

Mr. Conway contacted Alan Duncan, the Managing Director of InterMoor UK (InterMoor Ltd.), a supplier of offshore mooring systems and equipment based in Aberdeen, Scotland, and a corporation resident in the United Kingdom. InterMoor UK was part of the Acteon Group, which comprised 23 affiliated companies worldwide. InterMoor UK did not have the required 84 mm chains in its inventory, so Mr. Duncan sourced 2,200 metres of 84 mm DNV-certified chain from InterMoor Norway (InterMoor AS), a Norwegian affiliate that held the chains at its facilities in Mongstad, Norway. Certification documents identified InterMoor Norway as the owner of the chains. To rent the chains to C&W Offshore, InterMoor UK itself first had to rent the chains from InterMoor Norway. Within days of the initial request, Seadrill Canada contacted C&W Offshore to request an additional six lengths of 84 mm DNV-certified chain with the same specifications, bringing the total to eight lengths (collectively, the "Chains"). C&W Offshore was required to take delivery of the chains from InterMoor Norway in Mongstad and arrange transportation to Canada, retaining Pentagon Freight Services PLC for logistics and P.F. Collins, a customs broker located in St. John's, Newfoundland, for the importation of the Chains.

The rental agreement structure and payment flow

Mr. Duncan testified that InterMoor UK effectively subleased the Chains from InterMoor Norway to C&W Offshore. InterMoor UK supplied C&W Offshore with its own terms and conditions with respect to the sublease. InterMoor UK invoiced C&W Offshore monthly in British pounds on 60-day payment terms, while InterMoor Norway invoiced InterMoor UK on 30-day payment terms. The rental payments were deposited into a bank account exclusively operated and controlled by InterMoor UK. InterMoor UK recorded the payments as income in its books and records, financial statements and tax returns, earning a profit margin of approximately 20% on the rental. There was no written agency agreement between InterMoor UK and InterMoor Norway. In the 2014 taxation year, the Rental Payments made to InterMoor UK by C&W Offshore totalled $6,931,445.22. In the 2015 taxation year, the Rental Payments to InterMoor UK totalled $2,081,355.89. Internal sales documentation, including InterMoor Norway's invoices to InterMoor UK and the related purchase orders, were never shared with C&W Offshore.

The withholding tax dispute and the beneficial ownership analysis

The Minister of National Revenue reassessed C&W Offshore for failing to withhold non-resident tax on the Rental Payments. Under paragraph 212(1)(d) of the Income Tax Act, rental payments by a Canadian resident to a non-resident are subject to a 25% withholding tax, which may be reduced by an applicable tax treaty. Both parties agreed that the Rental Payments constituted a "rent, royalty or similar payment" under paragraph 212(1)(d)(i) of the ITA and that they constituted "Royalties" under paragraph 4 of Article 12 of the United Kingdom Convention, which reduces the withholding rate to 10% if the UK recipient is the beneficial owner of the royalties.

C&W Offshore argued that InterMoor Norway, not InterMoor UK, was the true beneficial owner of the Rental Payments, because InterMoor Norway owned the Chains, retained authority over their deployment including final approval for the West Aquarius Rig as the destination, and controlled key financial decisions such as pricing and discounts. C&W Offshore further argued that InterMoor UK acted merely as a conduit or agent, and that the Norway Convention should apply, under which equipment rental payments to a Norwegian resident without a Canadian permanent establishment would be exempt from Canadian tax as "business profits" under Article 7, since the definition of "royalties" in the Norway Convention does not include payments for the rental of movable property.

The Crown (HMTK) countered that C&W Offshore leased the Chains directly from InterMoor UK, a company resident in the United Kingdom, and not from InterMoor Norway. HMTK submitted that InterMoor UK was the legal and beneficial owner of the Rental Payments and was not acting as an agent, conduit, or nominee for InterMoor Norway.

The Court's ruling on beneficial ownership

The Court applied the Prévost Car test, examining the four elements of beneficial ownership: possession, use, risk, and control. On possession, C&W Offshore paid all invoices directly to a UK bank account that was under InterMoor UK's exclusive control, and Mr. Duncan testified that the funds were held without any obligation to separate them from other funds InterMoor UK received. On control, the payments were deposited into InterMoor UK's exclusive bank account, granting InterMoor UK unrestricted control over the funds. On use, when C&W Offshore remitted payment promptly upon invoicing, it was InterMoor UK, and no one else, that could employ those funds during the 30-day period before its obligation to pay InterMoor Norway became due; InterMoor UK also recorded the full amount of the payments as revenue in its corporate books. On risk, InterMoor UK invoiced C&W Offshore on 60-day terms while its separate lease agreement with InterMoor Norway required InterMoor UK to remit payment within 30 days, demonstrating that InterMoor UK was liable to InterMoor Norway even if C&W Offshore failed to pay; Mr. Duncan also testified that InterMoor UK was responsible for any damage to the Chains and obtained insurance to cover this risk. The Court concluded that InterMoor UK was the beneficial owner of the Rental Payments, noting that InterMoor Norway's ownership of the Chains does not confer beneficial ownership of the Rental Payments, as asset ownership and payment entitlement are distinct.

The agency question

The Court also rejected C&W Offshore's argument that InterMoor UK acted as an agent for InterMoor Norway. Applying the Kinguk test, the Court found no evidence of consent to an agency relationship — Mr. Duncan testified that there was no written agency agreement, and there was no evidence that either InterMoor UK or InterMoor Norway consented to such agreement either verbally or implicitly. There was no evidence that InterMoor Norway authorized InterMoor UK to affect its legal position. There was no evidence that InterMoor Norway controlled InterMoor UK's actions. With respect to the "administration fees" and "processing fees" charged by InterMoor UK, Mr. Duncan testified on cross-examination that although he used those terms during his testimony, the fees were in fact InterMoor UK's markup, that is, its profit margin on the rental of the Chains to C&W Offshore. The B-3 customs form listing InterMoor Norway as the "vendor" was found unpersuasive, as Mr. Malone testified that the term "vendor" on the form refers to the exporter for customs purposes, not the beneficial owner of payments.

The penalty and due diligence defence

C&W Offshore also challenged the 10% penalty imposed under paragraph 227(8)(a) of the ITA for failing to withhold tax. The company invoked a due diligence defence, arguing it had acted as a reasonably prudent business. However, the Court found that C&W Offshore did not take any reasonable precautions to avoid the failure to withhold tax on the Rental Payments. Mr. Crane testified that he did not do anything with respect to the possible tax implications for C&W Offshore of the rental of the Chains or the Rental Payments, and that he did not make any inquiries concerning such obligations with anyone. There was no evidence that C&W Offshore hired external tax professionals to provide advice or deal with possible taxation issues with respect to the Rental Payments. The Court distinguished the case from Home Depot, where the taxpayer avoided penalties by outsourcing compliance to Deloitte Tax, which, despite a clerical error, had sophisticated processes, including manuals, checklists, and an experienced team. On the question of reasonable mistake of fact, the Court found that Mr. Crane was not misled by any person or circumstance; the omission resulted solely from his own assumption that InterMoor UK, as part of an international corporate group, would pay the income tax owed on its income, including on the Rental Payments, if required. As a result, the subjective element of the due diligence test was not met.

The outcome

The Tax Court of Canada dismissed C&W Offshore's appeal with costs. The Minister's reassessments were upheld in their entirety: withholding tax of $693,114.52 and a penalty of $69,314.45 for the 2014 taxation year, and withholding tax of $208,135.59 and a penalty of $20,813.56 for the 2015 taxation year, for a combined total of $991,378.12. The decision was signed by Justice Sylvain Ouimet on March 4, 2026.