Rather, it is the actual implementation of an approved capital transaction that creates the enduring benefit. Oversight Expenses per se do not create enduring benefits for taxpayers. In this context, Oversight Expenses serve an income ‑ earning purpose. Ineffective oversight over the capital allocation process is a formula for disaster that often leads to a decline in earnings and cash flow and, as a result, the destruction of shareholder value. Proper management includes the judicious allocation or reallocation of capital for the purpose of maximizing the income earned by the corporation. Simply put, Oversight Expenses are current expenses because they relate to the management of a corporation’s income ‑ earning process. In a nutshell the Court concluded that expenses incurred prior to formally entering into the two transactions were Oversight Expenses: I designate fees for services that facilitate the execution of a capital transaction as “Execution Costs”. For the purposes of my Reasons for Judgment, I designate fees for services that assist the board in the decision-making process and in the fulfilment of its oversight function as “Oversight Expenses”. In particular, the Appellant contends that the investment banking fees that it seeks to deduct under subsection 9(1) of the Act are current expenses because they relate to costs for professional advice relied upon by the Appellant’s board of directors in deciding whether or not the Pechiney and Novelis transactions should be approved. In contrast, the Appellant argues that the Disputed Expenses were incurred as part of its ordinary business operations and not on capital account. The Court framed the issue largely on the basis of whether the disputed expenses were for Oversight or Execution: The disputed payments covered everything from legal advisors to printing costs but the largest amounts at issue were fees paid to investment bankers ($34.2 million in the Pechiney transaction and $16.3 in the Novelis transaction). The first transaction in 2003 (Pechiney - in dispute $77,374,669) involved a corporate acquisition of the Pechiney shares while the second transaction in 2004 (Novelis – in dispute $19,759,339) involved a divestiture of assets necessitated by the Pechiney transaction. It involved roughly $100 million in disputed expense claims in two inter-related transactions. Canada is a complex case by any standard. Costs are under reserve pending submissions from the parties.ĭecision: Rio Tinto Alcan Inc. The Tax Court held that the fees paid prior to the transactions having been the subject of a commitment to proceed were deductible as “Oversight Expenses” since the taxpayer was aggressively involved in the pursuit of increased shareholder value on a continuous basis. The claims involved many different types of expenses, but the bulk (roughly $50 million) represented fees paid to investment bankers. Précis: At issue in this appeal were roughly $100 million in expense claims in two related transactions: one acquisition transaction in 2003 and one disposition in 2004.
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