A Canadian private equity firm operated through a centralized Canadian management company overseeing domestic and offshore fund vehicles.
The Canadian manager directed:
Foreign fund entities held portfolio assets. Strategic authority and financing control resided in Canada.
Management fees, advisory income, and intercompany financing returns flowed from offshore fund vehicles to the Canadian manager.
As the platform expanded cross-border, those amounts increased in absolute terms.
The Canada Revenue Agency reassessed multiple taxation years concurrently and challenged the allocation of income between the Canadian manager and offshore fund entities.
The Agency did not dispute that services were performed or that capital was deployed. It asserted that:
Key value-driving functions were exercised in Canada
Foreign entities lacked sufficient independent authority
A portion of the return reported offshore reflected profit allocation rather than arm’s length compensation
The reassessment adopted a defined view of where profit belonged within the structure.
The dispute did not turn on contracts.
It turned on:
The CRA's reassessment treated centralized authority as evidence that profit should reside in Canada.
The group treated centralized authority as consistent with arm’s length allocation across the structure.
The reassessment became the Agency’s formal position on the structure.
Before filing the notice of objection, the record was organized around functional control and risk allocation rather than benchmark comparison.
The Agency’s broader profit reallocation did not proceed. The matter remained confined to defined allocation adjustments. The reassessment was reduced.