The Bowman Moot Problem 2020

Canada v. Rio Tinto Alcan Inc., 2018 FCA 124

  1. The reasons and judgment of the Federal Court of Appeal in Canada v. Rio Tinto Alcan Inc., 2018 FCA 124 are appealed to the Bowman Supreme Moot Court for Tax Appeals.
  2. The questions in issue on appeal are:
    • Whether the investment bankers’ fees, referred to by the Tax Court judge as “Oversight Expenses”, incurred by Alcan Inc. in the context of the acquisition of Pechiney S.A. and in the context of the spin-off of Novelis Inc., are deductible as current expenses under subsection 9(1) of the Income Tax Act (Canada)?
    • Whether such investment bankers’ fees are also deductible under paragraph 20(1)(bb) of the Income Tax Act (Canada)?
  3. All other issues raised before the Tax Court of Canada and the Federal Court of Appeal are not appealed from.
  4. The Moot is intended to promote advocacy pertaining to substantive tax law issues, not to questions relating to administrative law or the standard of review. Participants are expected to make very short written submissions and refer the judges to their factum when they state orally the applicable standard of review. We have done our best to inform the judges that the standard of review is not at issue and have advised them to refrain from asking any questions pertaining to it.
  5. The moot problem is an actual case, and therefore the parties’ factums are to be original works, as opposed to any copy or mere imitation of existing filed court materials.

Moot Problem Clarifications

1. With respect to the second moot question (application of paragraph 20(1)(bb)), are the investment banking fees for both the Pechiney and Novelis transaction in issue or only with respect to the Novelis transaction (the appeal on this issue to the FCA was limited to the Novelis transaction)?

The investment banking fees for both the Pechiney and the Novelis transactions are in issue. Paragraph 81 of the FCA decision meant to say that in the case of the Novelis transaction, only the fees paid to Lazard Frères are in issue (since the fees of approximately $200,000 paid to Morgan Stanley, in the case of the Novelis transaction, were considered by the Tax Court judge to be Execution Costs under 9(1) rather than Oversight Expenses. So, the Morgan Stanley fees for the Novelis transaction were not appealed by the Crown).

2. If the disputed amounts table from the decision, the engagement letter on page 59 of the TCC decision, a schedule of expense amounts, and a schedule of the amounts previously allowed as deductible are set out in an appendix to the Factums will these appendix pages count against the maximum length of the Factums?

Pursuant to rule 6.5 of the Bowman National Tax Moot Rules, the appendix is not included in the 20-page limit for the factum. We would strongly suggest, in order to be as concise as possible, to set out in any “schedules of expense amounts” only the fees that are part of the present appeal.

3. In addition to the facts set out in the published TCC and FCA decisions, is it permissible to bring in facts set out in the advance ruling issued by the Agency? Facts set out in public annual reports for Alcan?

Yes, these are permitted since these documents were filed as evidence before the Tax Court.

4. Are the parties allowed to argue eligible capital expenditure treatment in the alternative?

No, the parties should not make any arguments of this nature.

5. We are looking for clarification regarding the attached Respondent factum [filed in the Federal Court of Appeal]: are the underlines in the factum by a judge or were they submitted to the judge with everything already underlined?

They were submitted to the judges with everything already underlined.

6. In the Rio Tinto Alcan Inc. c. R., 2016 TCC 172 case it discusses the Pechiney acquisition at paragraphs 10-20. The case refers to Alcan obtaining 97.92% of the share capital and 97.92% of the voting rights of Pechiney by December 23, 2003. It goes on to state that Alcan, in February 6, 2014, acquired all of the Pechiney securities that were tendered during the reopening period. Does the February 6, 2014 acquisition of securities during the reopening period mean that Alcan ended up with 100% of the share capital and 100% of the voting rights of Pechiney?

No. Alcan acquired the shares tendered during the offering period on December 15, 2003. Alcan then acquired the securities that had been tendered during the reopening period on February 6, 2004. In the end, Alcan ended up with a total of 97.95% of the share capital and 97.92% of the voting rights of Pechiney.

Follow up request for clarification to Question 6

I believe there was a compulsory acquisition by Alcan of all of the remaining shares of Pechiney that Alcan did not already own on February 6, 2004 such that as of February 6, 2004 Alcan owned all of the issued and outstanding shares of Pechiney. I think paragraph 19 of the trial decision is just poorly worded.

I attach a summary of summary of the Pechiney transaction and the Novelis transaction from Alcan’s Form 10-K for the year ended Dec 31, 2004 (the complete Form 10-K and the relevant page separated out).

I think this distinction is relevant to whether it can be argued that paragraph 20(1)(bb) does not apply on the basis that paragraph 20(1)(bb) does not apply where all of the shares of a corporation are acquired. This argument was made at trial and at the FCA. Based on the response to question 6, my thoughts are that this argument would be eliminated.

Alcan paid the investment bankers for advice as to the advisability of purchasing all the shares of Pechiney. In 2003, 97.95% of the share capital and 97.92% of the voting rights of Pechiney had been accepted during the offering period and re-opening period. As of February 6, 2004, Alcan acquired all remaining Pechiney securities it did not already own.