Brookfield Renewable Power Inc. (Corporation Énergie éolienne Brookfield inc.) v. Agence du revenu du Québec, 2025 QCCA 234

Two loss consolidation transaction between a “Lossco” in the Brookfield group (“BRPI”) and two “Profitcos” (“BEMI”) resulted, for instance, in the case of one such transaction, in BRPI holding $2.275 billion of loans in its Profitco subsidiary, and the Profitco holding $2.275 billion of preferred shares of its parent. The ARQ assessed on the basis that interest in excess of 6% was unreasonable.

Lareau JCQ reviewed inter alia the Gervais Auto decision, and also referred to the evidence of the two ARQ experts indicating that BRPI had been borrowing from arm’s length lenders at around that time at rates ranging between 6.00% and 8.75%; and to a written concession of counsel for the ARQ that an interest rate as high as 8.75% could be justified as reasonable. He then referred the appeal back to the ARQ for reassessment on the basis of allowing the interest deduction at an 8.75% rate.

In finding that no reversible error had been made, the Court of Appeal stated (at para. 13, TaxInterpretations translation):

In short, in accepting the expert reports produced by the respondent, the judge did not limit himself to applying an arm’s length test to the detriment of that of reasonableness. Instead, he favoured an approach based on the correct criterion, taking into account the particular nature of the transactions carried out by the Brookfield group in the context of the consolidation of losses at the base of the case and retaining, as an objective element relevant in light of these circumstances, the financing costs incurred by the parent company and BRPI at the relevant time. This approach, which does not depart from the teachings of Gervais Auto, is not tainted by any error of law.

Loss consolidation transactions between a “Lossco” in the Brookfield group (“BRPI”) and “Profitcos” resulted, for instance, in BRPI holding $2.3 billion of loans in its Profitco subsidiary, and the Profitco holding $2.3 billion of preferred shares of its parent until this reciprocal arrangement was reversed five months’ later. The ARQ assessed to deny the deduction of the interest in excess of 6%.

The Court of Appeal found no reversible errors by the Court of Quebec, which referred to the Gervais Auto decision, and evidence of the two ARQ experts indicating that BRPI had been borrowing from arm’s length lenders at around that time at rates ranging between 6.00% and 8.75%; and referred the appeal back to the ARQ for reassessment on the basis of allowing the interest deduction at an 8.75% rate.