Agences Kyoto ltée v. Agence du revenu du Québec, 2023 QCCQ 2921

The ARQ denied the deduction of the full amount of the management fees paid by the taxpayer (AK) to its wholly-owning parent (GAK) on the basis inter alia that there was no contract for management services between AK and GAK and that GAK in fact did not render any management services to AK. In allowing the deductions in full and after referring to TA s. 128 (similar to ITA s. 18(1)(a)), Richard JCQ stated (at paras. 21-22, Tax Interpretations translation):

Mr. William Vialle [a director] explained in detail the interaction between AK and its parent company, GAK, both of which are managed by the same directors.

[22] Despite the absence of a written contract, resolution or other documentation, Mr. William Vialle convinced the Court that numerous acts of management were performed by GAK for the benefit of AK, notably in the negotiation of financing, acquisition opportunities, the determination of rents and the payment of life insurance policies for its directors, of which GAK is the beneficiary.

The ARQ denied the deduction of the full amount of the management fees paid by the taxpayer (AK) to its wholly-owning parent (GAK) on the basis inter alia that there was no contract for management services between AK and GAK and that GAK in fact did not render any management services to AK. In allowing the deductions in full, Richard JCQ stated (at para. 21, Tax Interpretations translation):

Despite the absence of a written contract, resolution or other documentation, [an AK/GAK director] convinced the Court that numerous acts of management were performed by GAK for the benefit of AK, notably in the negotiation of financing, acquisition opportunities, the determination of rents and the payment of life insurance policies for its directors, of which GAK is the beneficiary.