Tax Court Rules Feasibility Study Costs Are Deductible

OUTCOME: Allowed

Docket: 2017-5069(IT)G BETWEEN: [COMPANY_2], Appellant, and HIS [NAME_5], Respondent . Appeal heard on April 7, 8, 9, 10, 11, 14, 15 and 16, May 26, 27, 28, and 29, and June 2, 3, 4, 5, 6, 9, 10 and 11, 2025 at Calgary, Alberta, and July 3 and 4, 2025 at Montreal, Quebec; supplemental written submissions filed by the Respondent on July 11 and September 5, 2025, and by the Appellant on July 17 and September 5, 2025 Before: The [NAME_6] : Counsel for the Appellant: [redacted] [NAME_340] Counsel for the Respondent: [redacted] [NAME_21] [NAME_24]

JUDGMENT In accordance with the terms of the attached Consent to Judgment filed on April 7, 2025, the appeal of the reassessment made under the Income Tax Act (the “Act” ) for the taxation year ended November 30, 2001 (the “2001 Taxation Year” ), to the extent that the appeal relates to the issues of the deductibility of Canadian Merger Costs and whether the Hibernia [NAME_27] should be reclassified as Non-[NAME_27], is allowed, without costs, and the matters are referred back to the Minister of [NAME_28] (the “Minister” ) for reconsideration and reassessment, in accordance with the terms of said Consent to Judgment. In accordance with the attached Reasons for Judgment: (i) The Appellant’s request for a summary judgment and non-suit relief is denied; (ii) The Minister was allowed to raise the reassessment dated October 9, 2009, under subparagraph 152(4)(b)(iii) of the Act for the Appellant’s 2001 Taxation Year; (iii) The appeal of the reassessment made under the Act for the Appellant’s 2001 Taxation Year, notice of which is dated October 5, 2017, is allowed, and the matter is referred back to the Minister for reconsideration and reassessment on the following basis: The deduction in the amount of $36,207,810 that the Appellant claimed (the “Feasibility Study Costs” ) in respect of a feasibility study (the “Feasibility Study” ) undertaken under the [NAME_29] Agreement between [NAME_30] (Alaska) Inc., [COMPANY_31] and [COMPANY_34]. effective December 5, 2000 were expenditures made or incurred by the Appellant for the purpose of gaining or producing income from a business and are deductible in computing the Appellant’s business income under the Act, as the Appellant had a source of business income relating to the Feasibility Study and the limitation in paragraph 18(1)(a) of the Act does not apply to limit the deduction; Subsection 247(2) of the Act does not apply to limit or deny the deduction of the Feasibility Study Costs; (iv) The appeal of the Part XIII tax assessment in the amount of $1,810,391 which the Minister assessed under Part XIII of the Act is allowed and the Part XIII tax assessment is vacated. The parties shall have 30 days from the date of this Judgment to agree on costs. If the parties do not come to an agreement on costs, they shall file written submissions, not exceeding 10 pages, on or before April 10, 2026. If the parties do not advise the Court that they have reached an agreement and no submissions are received by this date, then one set of costs shall be awarded to the Appellant in accordance with Tariff B. Signed this 6 th day of March 2026. “[NAME_6]” [NAME_8] J. Citation: 2026 [NAME_35] 42 Date: 20260306 Docket: 2017-5069(IT)G BETWEEN: [COMPANY_2], Appellant, and HIS [NAME_5], Respondent.

REASONS FOR

JUDGMENT [NAME_8] J. A. OVERVIEW [ 1 ] The Appellant raised three issues in its Notice of Appeal for the taxation year ended November 30, 2001 ( the “2001 Taxation Year” ), namely: (i) the deductibility of Alaskan Gas Pipeline Study Costs ( the “Alaskan Gas Pipeline Study Costs Issue ” ), (ii) the deductibility of Canadian Merger Costs ( the “Canadian Merger Costs Issue” ) and (iii) whether the Hibernia [NAME_27] should be reclassified as Non-[NAME_27] ( the “OLS Issue” ). [ 2 ] At the beginning of the trial, the parties filed with the Court a Consent to Judgment dated January 9, 2025 (attached as Appendix A to these Reasons for Judgment ) allowing the Appeal, without costs, with respect to the Canadian Merger Costs Issue and the OLS Issue. [ 3 ] Accordingly, in these Reasons for Judgment, the Court will not deal with the Canadian Merger Costs Issue and the OLS Issue, but only with the Alaskan Gas Pipeline Study Costs Issue. [ 4 ] In computing its income for the 2001 Taxation Year, the Appellant claimed a deduction of $36,207,810 ( the “Feasibility Study Costs” ) on account of expenditures incurred in respect of a feasibility study to evaluate and progress a pipeline [NAME_29] from Prudhoe Bay on the North Slope of Alaska (the “ANS” ) through [NAME_36] and into the lower 48 states in the United States of America ( “USA” ), namely the states south of the Canadian border (the “Lower-48” ). The feasibility study was undertaken under the [NAME_29] Agreement (the “[NAME_29] Agreement” ) between [COMPANY_31] ( “[NAME_37]” ), [NAME_30] (Alaska) Inc. ( “[NAME_38]” ) and [COMPANY_34]. ( “[NAME_32]” ) effective December 5, 2000 ([NAME_39], Joint Book of Documents, tab 2, attached as Appendix B to these Reasons for Judgment). In these Reasons for Judgment, I will refer to the work carried out under [NAME_40] Agreement as the “Feasibility Study”. [ 5 ] The feasibility study costs incurred under [NAME_40] Agreement approximately totalled 125 million USD. The Feasibility Study Costs totalling $36,207,810 represent the Appellant’s proportionate share of the aggregate feasibility study costs incurred under [NAME_40] Agreement, as allocated to the Appellant in accordance with a Partial Assignment and Cost Allocation Agreement ( the “[NAME_41] ” ) dated June 15, 2001 but effective December 5, 2000 ([NAME_39], Joint Book of Documents, tab 3, attached as Appendix C to these Reasons for Judgment). Under the [NAME_41], [NAME_37] assigned 68% of its one-third Participating Interest in [NAME_40] Agreement to the Appellant, and the Appellant agreed to pay its proportionate share of the feasibility study costs incurred under [NAME_40] Agreement. [ 6 ] The Minister of [NAME_28] (the “Minister” ) disallowed the deduction of the Feasibility Study Costs on the basis that they were not expenditures made or incurred by the Appellant for the purpose of gaining or producing income from a business or property under paragraph 18(1)(a) of the Income Tax Act (R.S.C. 1985, c. 1 (5th Supp.) (the “Act” ). However, at the hearing, the Respondent argued that the Appellant had no source of income from which to deduct the Feasibility Study Costs, relying on sections 3 and 9 of the Act, as well as paragraph 18(1)(a). [ 7 ] In the alternative, the Minister is of the view that if the Court finds the Feasibility Study Costs were properly deducted under the rules found in sections 3 and 9 and paragraph 18(1)(a) of the Act, then paragraphs 247(2)(a) and 247(2)(c) of the Act, or, in the further alternative, paragraphs 247(2)(b) and 247(2)(d) of the Act, apply so that no amount in respect of the Feasibility Study Costs can be deducted in computing the Appellant’s income under the Act. [ 8 ] However, at the hearing, the Respondent argued that paragraphs 247(2)(b) and 247(2)(d) of the Act apply in the first alternative, and, in the further alternative, paragraphs 247(2)(a) and 247(2)(c) of the Act apply, so that no amount in respect of the Feasibility Study Costs can be deducted in computing the Appellant’s income under the Act. [ 9 ] The Minister also assessed the Appellant for an amount of $1,810,391 under Part XIII of the Act (the “Part XIII Tax Assessment” ), on the basis that the Feasibility Study Costs incurred by the Appellant were a benefit in the same amount that the Appellant conferred on its ultimate US parent, [NAME_42] ( “[NAME_43].” ). [ 10 ] The hearing took place over 22 days, where nine (9) witnesses, including four (4) expert witnesses, testified. The Respondent called only one witness to testify, who was qualified as an expert witness in transfer pricing. [ 11 ] The parties filed a Partial Agreed Statement of Facts (Exhibit AR-2, attached as Appendix D to these Reasons for Judgment). [ 12 ] The parties also filed a Joint Book of Documents ([NAME_39] in 8 volumes). In that respect, the parties agreed to the authenticity of the documents, but not to the truth of their content. [ 13 ] In addition to written submissions filed by the parties, at my request the parties filed supplemental written submissions after the end of the trial. [ 14 ] Unless otherwise indicated, any statutory provision referred to in these Reasons is a provision of the Act. Similarly, unless otherwise indicated, any dollar amounts mentioned in these Reasons refer to legal tender in Canada. B. ISSUES [ 15 ] In the case at bar, the Court must determine the following issues: (i) Regarding the Appellant’s 2001 Taxation Year, can the Minister rely on subparagraph 152(4)(b)(iii) to extend the normal reassessment period, or was the Minister statute-barred from disallowing the deduction of the Feasibility Study Costs under the 2009 Reassessment (as defined below)? (ii) Regarding the Appellant’s 2001 Taxation Year, whether the Feasibility Study Costs were deductible in computing the Appellant’s business income under the rules found in sections 3 and 9 and not restricted by paragraph 18(1)(a); (iii) Regarding the Appellant’s 2001 Taxation Year, if the Court finds that the Feasibility Study Costs were deductible in computing the Appellant’s business income under the rules found in sections 3 and 9, and not restricted by paragraph 18(1)(a): Whether paragraphs 247(2)(b) and 247(d) apply to deny the deduction of the Feasibility Study Costs; In the further alternative, whether paragraphs 247(2)(a) and 247(c) apply to adjust the deduction of the Feasibility Study Costs to zero; (iv) Whether the Minister erred in assessing Part XIII tax under the Part XIII Tax Assessment in respect of a purported benefit the Appellant conferred on [NAME_43]. by paying the Feasibility Study Costs. [ 16 ] [ADDRESS] must also determine whether the motion brought by the Appellant for summary judgment and non-suit relief should be granted. C. DISPOSITION [ 17 ] In accordance with these Reasons for Judgment: (i) The Appellant’s request for a summary judgment and non-suit relief is denied; (ii) The Minister was allowed to raise the 2009 Reassessment under subparagraph 152(4)(b)(iii) for the Appellant’s 2001 Taxation Year; (iii) The appeal of the reassessment made under the Act for the Appellant’s 2001 Taxation Year, notice of which is dated October 5, 2017, is allowed, and the matter is referred back to the Minister for reconsideration and reassessment on the following basis: The Feasibility Study Costs were expenditures made or incurred by the Appellant for the purpose of gaining or producing income from a business and are deductible in computing the Appellant’s business income under the Act, as the Appellant had a source of business income relating to the Feasibility Study and the limitation in paragraph 18(1)(a) does not apply to limit the deduction; Subsection 247(2) does not apply to limit or deny the deduction of the Feasibility Study Costs; (iv) The appeal of the Part XIII Tax Assessment is allowed and the Part XIII Tax Assessment is vacated. [ 18 ] The parties shall have 30 days from the date of this Judgment to agree on costs. If the parties do not come to an agreement on costs, they shall file written submissions, not exceeding 10 pages, on or before April 10, 2026. If the parties do not advise the Court that they have reached an agreement and no submissions are received by this date, then one set of costs shall be awarded to the Appellant in accordance with Tariff B. D. OVERVIEW OF THE AGREED FACTS AND TESTIMONIES [ 19 ] The most relevant facts agreed upon by the parties are outlined below, followed by an overview of the testimonies of the lay witnesses, and [NAME_44]’ expert testimony. Expert testimonies of transfer pricing experts will be reviewed in the transfer pricing section of these Reasons.

I. The structure of [COMPANY_48] [ 20 ] On November 30, 1999, [NAME_49] ( “[NAME_51]” ) became a wholly owned subsidiary of [NAME_52], a corporation resident in the USA ( the “Merger” ). [ 21 ] [NAME_52] changed its name to [NAME_42], that is [NAME_43]. [ 22 ] [NAME_43]. is a non-resident of Canada. [ 23 ] [NAME_37] operates as a division of [NAME_43]. As an active division of [NAME_43]., [NAME_37] and [NAME_43]. are the same corporation. In these reasons, I may refer to either [NAME_43]. or [NAME_37], referring to the same corporate entity. [ 24 ] As a result of the Merger, [NAME_43]. became the direct or indirect owner of all [NAME_51]’s subsidiaries, including [COMPANY_54]. [ 25 ] On January 15, 2001, [COMPANY_54]. changed its name to [COMPANY_55] ( “[NAME_56]” ) . Further, in December 2003, [NAME_56] changed its name to [COMPANY_2] ( “EMCRC” ) , the Appellant. Consequent to the corporate name changes, the Appellant was formerly known as [COMPANY_54]. and [NAME_56]. [ 26 ] [COMPANY_57] ( “EM Canada” ), formerly [COMPANY_58]. ( “[NAME_59]” ) , is the parent company of the [NAME_60]. [NAME_43]. indirectly owns all the shares of the capital of EM Canada and of the Appellant. [ 27 ] [COMPANY_62] ( “[NAME_63]” ) is a Canadian corporation owned at 69.6% by [NAME_43]. and 30.4% widely held by the public. [ 28 ] The Appellant is related to a number of other companies, including [NAME_63], EM Canada and [NAME_43]. The Appellant does not deal at arm’s length with [NAME_43]. [ 29 ] Prior to the Merger, [COMPANY_54]. was a majority partner in a partnership responsible for Canadian western operations (the [NAME_64] ( “EMCE” ) Partnership ), and a minority partner in a partnership responsible for Canadian eastern operations (the [COMPANY_65] ( “EMCP” ) Partnership ). [ 30 ] At the times relevant to this appeal, the [NAME_1] entities owned interests in a variety of pipelines across Canada, including the [NAME_66], the Rainbow Pipeline and the [NAME_68]. [ 31 ] As of December 1999, the Appellant owned an interest in [COMPANY_69]. [ 32 ] At all relevant times, (i) [NAME_70] was a manager with [NAME_37], and did not hold a position with the Appellant; (ii) [NAME_73] was Vice President North America of [NAME_37], and did not hold a position with the Appellant; and (iii) [NAME_77] was an executive Vice President of [NAME_43]., and did not hold a position with the Appellant.

II. History of the [NAME_79] [ 33 ] In 1968, large natural gas reserves associated with oil reserves were discovered in Prudhoe Bay on the ANS which represented approximately 10% of the known oil and gas reserves in the USA. [ 34 ] In 1969, the three largest leaseholders of rights to the oil pool in Prudhoe Bay ([NAME_53], [NAME_80]) sought to build an oil pipeline called the Trans-Alaska Pipeline System from Prudhoe Bay to the Gulf of Alaska. In addition to natural gas reserve discovered at Prudhoe Bay, additional reserves of natural gas were discovered in Canada, in the [NAME_82]. [ 35 ] In 1969, groups began researching the feasibility of the construction and operation of a natural gas pipeline from Prudhoe Bay to Midwestern USA through the Yukon, Northwest Territories and Alberta, but became inactive shortly thereafter due to lack of funding. [ 36 ] After this, in the early 1970s, various groups began to focus on bringing the Alaskan gas to market. [ 37 ] Between 1974 and 1976, separate [NAME_29] groups applied to the predecessor of the Federal Energy Regulatory Commission ( “[NAME_84]” ) for US certification to transport Alaskan gas. [ 38 ] [COMPANY_85] and [COMPANY_86] formed a US group that applied to pursue a natural gas pipeline route ( the “[NAME_29]” ) that followed the [ADDRESS] to the Alaska-Yukon border and then proceeded to British Columbia and Alberta . [ 39 ] At the same time, Canadian companies, including [COMPANY_87] (“[NAME_88]”) separately applied to the National Energy Board ( “[NAME_89]” ) seeking Canadian certification for the Canadian portion of the [NAME_29], from the Yukon border to Fort Nelson (British Columbia) and Zama Lake (Alberta), to connect with existing systems to bring Alaskan natural gas to consumers in the USA ( the “[NAME_88] [NAME_29]” ). [ 40 ] In 1976, the US Congress passed the Alaska Natural Gas Transportation Act ( “ANGTA” ) . [ 41 ] Also in 1976, the [NAME_89] concluded that the [NAME_88] [NAME_29] was the preferred route for transportation of Alaskan natural gas. As a result, the [NAME_88] [NAME_29] applied for rights-of-way in the Yukon to advance the Canadian portion of the [NAME_29]. [ 42 ] In 1977, US President Carter selected the [NAME_29] to become the [NAME_79] ( “[NAME_90]” ). [ 43 ] In 1978, the Northern Pipeline Act ( “NPA” ) in Canada was enacted, establishing the Northern Pipeline Agency to oversee the construction of the [NAME_88] [NAME_29]. Also in 1978, Certificates of Public Convenience and Necessity were issued to [NAME_88] (the “[NAME_91]” ). [ 44 ] Over time, portions of a pipeline from Alberta to the Lower-48 were completed, but none of the Alaska to Alberta portion was ever built. [ 45 ] In 1981, a joint resolution was passed by US Congress approving US President Ronald Reagan’s recommendation to allow [NAME_92] to participate in ownership of the Alaskan gas pipeline. [ 46 ] By early 1982, construction of the Alaska portion of the [NAME_29] was suspended indefinitely by the [NAME_84]. [ 47 ] In 1998, the Stranded Gas Development Act was enacted by the Alaska State Legislature, authorizing Alaska State Authorities to negotiate fiscal terms with producers for pipeline projects through contracts to be approved by the Alaska State Legislature. [ 48 ] In 1999, [NAME_88] reaffirmed its commitment to the [NAME_29]/[NAME_88] [NAME_29] and asserted that its proposed route was the most advantageous for moving Alaskan gas to market. III. [NAME_29] 1. [NAME_40] Agreement [ 49 ] On October 19, 2000, [NAME_37], [NAME_38] and [NAME_32] met to consider [NAME_40] (as defined below), including work scope and schedule, as well as cost estimates for 2001. The schedule was directly influenced by the objective of seeking to file route approvals with the [NAME_84] and the [NAME_89] in 2001 (Exhibit AR‑1, Joint Book of Documents, tab 9). [ 50 ] On December 5, 2000, [NAME_37], [NAME_38] and [NAME_32] entered into [NAME_40] Agreement. [ 51 ] According to [NAME_40] Agreement, each of the parties wanted, among other things “to evaluate and progress a pipeline [NAME_29] to transport its natural gas from the Alaska North Slope into the [NAME_36] and the US market hubs” , which is defined as the “[NAME_29]” in [NAME_40] Agreement. [ 52 ] The target objective of [NAME_40] Agreement was to pursue filing of regulatory applications with the [NAME_84] and the [NAME_89], in the second half of the 2001 calendar year. [ 53 ] Pursuant to the section 3.1 of [NAME_40] Agreement, each of the parties owned and bore a one-third interest (a “Participating Interest” ) in the rights, duties, benefits, obligations, costs, rewards, risks and liabilities arising in connection with the performance of [NAME_40] Agreement. [ 54 ] Work carried out under [NAME_40] Agreement, namely the Feasibility Study, was governed by an Executive Committee (section 4.1), a Steering Committee (section 4.2) and a [NAME_93] (section 4.3). Each committee consisted of a single representative from each party, whose appointment was memorialized in article 4 of [NAME_40] Agreement. [ 55 ] A group team referred to as the “North American Natural Gas Pipeline Group” and later as the “Alaska Gas Producers Pipeline Team” ( the “[NAME_29]” ) was formed to carry out the Feasibility Study . [NAME_40] was comprised of seven program teams, each dealing with certain aspect of the Feasibility Study, and the manager of each program reported to the [NAME_93] ([NAME_39], Joint Book of Documents, tab 4): - the Alaska-to-Alberta Program Team (Northern Sector): with [NAME_94] as the Northern Sector Program Manager; - the Alberta-to-Market (Lower-48) Program Team (Southern Sector): with [NAME_97] as the Southern Sector Program Manager; - the [NAME_100]: with [NAME_101] as the NGL Program Manager; - the Commercial Team: with [NAME_104] [NAME_105] as the Commercial Manager; - the Environmental, Regulatory and Land Program Team: with [NAME_45] as the Environmental and Regulatory Manager; - [NAME_40]: with [NAME_106] as [NAME_40] Manager; and - the External Affairs Team: with [NAME_109] as the External Affairs Manager. [ 56 ] The Feasibility Study consisted of a series of specific feasibility studies which focused on, among other things, the commercial, environmental, regulatory, external affairs and technical aspects of [NAME_40], and involved consultation with various third parties. [ 57 ] By agreement of the parties, KMPG was retained to provide third-party services, including acting as agent for work carried out under [NAME_40] Agreement in executing contracts and purchase orders with third parties, assisting in establishing a funding process that would fund the work carried out under [NAME_40] Agreement, and performing accounting functions for the work carried out under [NAME_40] Agreement (as a Business Coordinator, under Article 6 of [NAME_40] Agreement; and see [NAME_39], Joint Book of Documents, tab 15, for the Letter from [NAME_111] dated January 3, 2001 describing the business process outsourcing services to be provided).

2. Description of [NAME_40] [ 58 ] According to [NAME_40] Agreement, [NAME_40] was expected to contain the following elements: - a gas treating plant on the ANS to remove carbon dioxide and prepare the gas for shipment via pipeline (section 1.1.1); and - a pipeline from the ANS to a terminal point in Alberta, Canada (section 1.1.2) (also referred to as the “A to B pipeline” ). [ 59 ] Furthermore, according to [NAME_40] Agreement, [NAME_40] may also contain the following elements: - a pipeline, or pipelines, from Alberta, Canada to a terminal point, or points, in Canada and/or the continental USA (section 1.2.1.) (also referred to as the “B to C pipeline” ); and - facilities to extract natural gas liquids (NGLs) (section 1.2.2). [ 60 ] The parties also outlined specific plans associated with [NAME_40], including a restart plan for [NAME_40] (for example, see [NAME_39], Joint Book of Documents, tab 81 for an excerpt of the A to B Pipeline Restart Manual dated March 14, 2002). [ 61 ] In advancing the Feasibility Study, the parties held meetings with various pipelines companies to discuss potential competitive options related to portions of the proposed pipeline. [ 62 ] In early 2002, the parties delivered the following messages related to [NAME_40]: - [NAME_40] was not commercially viable at that time, with any mandate being pursued for further development in 2002 only hurting the economics of [NAME_40]; - the governments play a vital role in progressing [NAME_40]; - there should be an expectation of continued dialogue with pipeline companies, governments and other interested parties.

IV. Partial assignment to the Appellant [ 63 ] On June 15, 2001, [NAME_37] and the Appellant entered into the [NAME_41], with an effective date of December 5, 2000. [ 64 ] To assign part of its interest to the Appellant, [NAME_37] relied on section 10.4 of [NAME_40] Agreement which permitted [NAME_37] to assign all or part of its interest in [NAME_40] Agreement to one or more of its affiliates, providing the voting interests and decision-making authority of [NAME_37] and its affiliates would be aggregated and treated as one vote under [NAME_40] Agreement. [ 65 ] Under the [NAME_41], [NAME_37] assigned 68% of its one-third Participating Interest in and to the rights, duties, benefits, obligations, costs, rewards, risks and liabilities arising in connection with the performance of [NAME_40] Agreement to the Appellant (Paragraph 2). [ 66 ] As a result of the partial assignment, and in accordance with Paragraph 2 of the [NAME_41], [NAME_37] held 32% of one-third Participating Interest in [NAME_40] Agreement (or 10.67% of the [NAME_112] in [NAME_40] Agreement) and the Appellant held 68% of one-third Participating Interest in [NAME_40] Agreement (or 22.67% of the [NAME_112] in [NAME_40] Agreement). [ 67 ] According to Paragraph 4 of the [NAME_41], the parties agreed that the Appellant shall bear all joint venture costs arising in Canada under [NAME_40] Agreement, plus any joint venture costs necessary to bring the Appellant’s total cost burden to 68% of the total costs for which [NAME_37] and the Appellant were, in the aggregate, responsible for under [NAME_40] Agreement. However, the Appellant’s costs burden was never to exceed 68% of the total costs for which [NAME_37] and the Appellant were, in the aggregate, responsible for under [NAME_40] Agreement.

V. Events following the termination of [NAME_40] Agreement [ 68 ] On April 1, 2002, [NAME_37], [NAME_38] and [NAME_32] entered into the Alaska Gas Pipeline Study Agreement ( the “2002 AGP Agreement” ) (Exhibit AR‑1, Joint Book of Documents, tab 145). [NAME_37] did not assign its interest in the 2002 AGP Agreement to the Appellant. [ 69 ] Effective June 17, 2003, the Appellant entered into an agreement to license certain confidential and proprietary data from the Feasibility Study to parties to the [NAME_113] ( “ [NAME_113]” ) ([NAME_39], Joint Book of Documents, tab 99). The Appellant reported licensing income in the amount of $1,031,022 in its taxation year ended November 30, 2004. [ 70 ] During the 2002 to 2006 period, the parties to [NAME_40] Agreement and the Alaska Authorities attempted to negotiate fiscal terms under the Stranded Gas Development Act , but the Alaska State Legislature ultimately rejected the fiscal terms as not being in Alaska’s best interest. [ 71 ] In 2004, the [NAME_84] advised that the [NAME_90] would not bar the [NAME_84] from considering applicants other than those referenced under the [NAME_90]. Further, in 2004, the Federal Alaska Natural Gas Pipeline Act (the “Federal Pipeline Act” ) was enacted which stated that notwithstanding the [NAME_90], the [NAME_84] may “consider and act on an application for the issuance of a certificate of public convenience and necessity authorizing the construction and operation of an Alaska natural gas transportation [NAME_29] other than the [[NAME_90]]” ([NAME_39], Joint Book of Documents, tab G). [ 72 ] In 2007, the Alaska Gasline Inducement Act was enacted by the Alaska State Legislature (to replace the Alaska Stranded Gas Development Act ) due to the belief by Alaskan officials that the [NAME_29] was economical, but a producer owned pipeline would lead to high tariffs and limited access. [NAME_84] testified before the Alaska State Legislature that the Federal Pipeline Act ensured reasonable tariffs and that a pipeline owner could not discriminate against non owners ([NAME_39], Joint Book of Documents, tab 131). [ 73 ] In late 2008, [COMPANY_114] ( “[NAME_115]” ) , through [NAME_88], received a license under the Alaska Gasline Inducement Act , resulting in [NAME_115] (and certain of its affiliates) entering into a joint venture with [NAME_43]. (and certain of its affiliates) in 2009 to form the [NAME_29] ( “APP” ) along the Southern Route, which I will refer to in these Reasons for Judgment as the [NAME_116] ([NAME_39], Joint Book of Documents, tabs 112 and 113). [ 74 ] In May 2012, the [NAME_118] granted [NAME_115] a two-year postponement in respect of the APP, to give [NAME_115] producers more time to explore the best market for Alaskan natural gas. [ 75 ] In 2014, [NAME_115] and the Alaska government cancelled the APP license granted to [NAME_115] under the Alaska Gasline Inducement Act .

VI. LAY WITNESSES AND [NAME_119]’ EXPERT TESTIMONY [ 76 ] At the hearing, six (6) lay witnesses testified on behalf of the Appellant. [NAME_119] testified as a lay witness and as an expert witness. All these witnesses were very credible, and I found that they each gave credible and reliable evidence, although the events took place more than 20 years ago. Their credibility was not challenged in cross-examination. Furthermore, their testimonies were consistent with contemporaneous documentation, which added to their credibility. 1. [NAME_120] [ 77 ] [NAME_121]., has a Bachelor of Science in mechanical engineering from Houston University. He joined the [COMPANY_123] in the USA in June 1982 and retired in May 2020. In 1999, he was a planning/commercial advisor for [COMPANY_124]. [ 78 ] During the period from 2000 to 2002, [NAME_120] was employed by [NAME_37].

1) On [NAME_40]: [ 79 ] In December 2000, [NAME_120] was involved in [NAME_40] as the Commercial Manager of [NAME_40]. It was the second time he became involved in the commercialization of the [NAME_125]. [ 80 ] [NAME_120] testified that although [NAME_40] was demobilized in April 2002, activities were carried out by the various programs of [NAME_40] up to the end of December 2002, to duly wrap up [NAME_40]. [ 81 ] According to [NAME_120], [NAME_40] was a feasibility study for a pipeline [NAME_29], as described in [NAME_40] Agreement. The Feasibility Study carried out under [NAME_40] Agreement was to evaluate and progress a pipeline from the ANS to Canada (central Alberta) and from Canada (central Alberta) to the Lower-48, using either the Southern Route or the [NAME_126]. [ 82 ] Within the ANS to Alberta portion of the pipeline, two potential routes were identified as options. One potential route was the Southern Route. The other potential route was the [NAME_126], which used a subsea pipeline following the northern coast of Alaska and Yukon before emerging in the Northwest Territories and then finally heading south following the [NAME_81] into Alberta. The [NAME_126] would allow the pipeline to pick up natural gas from the [NAME_82] deposits, allowing the [COMPANY_48] to commercialize their rights from both gas deposits, increasing economies of scale. [ 83 ] Within the Northern and Southern Routes, four potential scenarios were identified for running the pipeline, namely two potential scenarios for each route ([NAME_39], Joint Book of Documents, tab 111). For each route, one scenario would result in the pipeline ending up in Chicago, and the other scenario would result in the pipeline ending up in Alberta. [ 84 ] [NAME_40] comprised of a gas treating plant on the ANS to remove impurities and a pipeline that would go from the ANS to Alberta, either by the Southern Route or the [NAME_126]. Further, [NAME_40] could include an NGL plant, either in Alberta or in Chicago, and a pipeline from Alberta to the Chicago area. [NAME_40] considered both the Southern Route and the [NAME_126], so an informed decision could be made by the participants under the Feasibility Study. [ 85 ] However, [NAME_120] testified that it would not have been under [NAME_40] Agreement that the projected pipeline would be built. [NAME_40] was a very large capital [NAME_29] qualifying as a megaproject, where a [NAME_29] is divided into various phases. At the end of each phase, a participant receives a package of information to determine whether it will go forward to the next phase. [ 86 ] According to [NAME_120], in a [NAME_29] of this size, it is very important to fully document each phase, so that when [NAME_40] is brought to the next level, there is a good foundation for the new team to start with. [ 87 ] At the end of 2002, [NAME_40] was at the end of the conceptual engineering phase, which phase brought details to design [NAME_40]. More particularly, [NAME_40] included the development of a [NAME_29] design, a [NAME_29] execution plan, a schedule, a cost estimate, the preparation for filing the regulatory applications with the [NAME_89] and [NAME_84], and the preparation for an open season. In the present case, the parties did not move to the next phase of the megaproject. [ 88 ] [NAME_120] testified that [NAME_40] did not include a program for gas production because it was outside the scope of [NAME_40]. [ 89 ] The Feasibility Study culminated in the compilation of numerous job books, final reports, memoranda, executive summaries and an [NAME_127], which were distributed to the five participants under [NAME_40], including the Appellant ([NAME_39], Joint Book of Documents, tab 87 for a list of job books; and tabs 21, 27, 42, 43, 45, 46, 47, 49, 51, 53, 54, 57, 58, 59, 61, 62, 64, 65, 66, 67, 68, 71, 72, 73, 74, 75, 76, 77, 79, 80, 81, 82, 83, 84, 85 and 161 for various job books).

2) On the Commercial Program: [ 90 ] The key activities for the Commercial program of [NAME_40] were to build an [NAME_127] and to supervise the commercial and business development with third parties on some parts of [NAME_40]. [ 91 ] As the Commercial Manager on [NAME_40], [NAME_120] was supporting other teams, particularly the Northern Sector (including the Gas Treating Plant and the Pipeline from the ANS to Alberta, including the Southern Route and the [NAME_126]), the Southern Sector (pipeline from Alberta to Lower-48) and the NGL.

3) On the structure of [COMPANY_48]: [ 92 ] After the Merger, [NAME_120] testified that EM Canada did not merge financially with [NAME_63] and continued to own assets, including midstream and upstream assets. The idea was for [NAME_63] to operate these assets. [NAME_120] did not recall that the predecessor to the Appellant ([COMPANY_54].) transitioned its activities to [NAME_63]. However, after the Merger, management and corporate functions were transferred to [NAME_63].

4) On the oil & gas industry and natural gas: [ 93 ] [NAME_120] testified that since the deregulation of the oil and gas industry, pipeline owners (also referred to as pipeline companies) no longer served a merchant function, as they are now only the carriers of the natural gas. Pipeline owners only take custody of the natural gas, but not title to it. [ 94 ] Customers of pipeline owners, broadly called the shippers, are producers of natural gas (who own the gas) and gas marketers (who do not produce gas and do not own pipelines). Producers book pipelines to transport their natural gas. On the other hand, gas marketers buy gas from the producers and then ship it on the pipelines to sell the gas to markets. [ 95 ] Deregulation served to provide a more competitive market for natural gas. Owners of natural gas resources (the producers) can no longer be owners or operators of pipelines, but they could be shippers on the pipelines. Pipeline owners are regulated by regulatory bodies both in the USA (by the [NAME_84]) and in Canada (by the [NAME_89]). [ 96 ] [NAME_120] stated that an open season is held by pipeline owners, before construction of the pipeline, to indicate to the market what will be the tolls and rates charged by pipeline owners to ship the natural gas on their pipelines. If they agree with tolls and rates, shippers will secure capacity to transport the natural gas. When open season is closed, then a pipeline owner makes a final investment, obtains financing and builds the pipeline.

5) On the [NAME_127]: [ 97 ] As indicated above, the [NAME_127], a key deliverable under [NAME_40] for the Commercial program, was finalized in March 2002 ([NAME_39], Joint Book of Documents, tab 63 – one illustration of the base case in the [NAME_127], and Exhibit R-2 – USB key containing the [NAME_127]). [ 98 ] The [NAME_127] provided the basis for the tolls and rates that would be offered to potential shippers in an open season, namely to either gas producers or gas marketers. [NAME_40], it was the foundation for regulatory filing applications with the [NAME_89] and [NAME_84], and the basis for the financial structure of the pipeline (acceptable costs for the pipelines). Further, the [NAME_127] evaluated the socioeconomic benefits of [NAME_40], such as the large number of workers needed and expenses in the affected communities. The [NAME_127] also included an evaluation of the direct benefits of a successful [NAME_29] for host governments. [ 99 ] The base case under the [NAME_127] was a pipeline using the Southern Route, a B to C pipeline from Alberta to Chicago, an NGL plant in Alberta and is illustrated at tab 63 ([NAME_39], Joint Book of Documents). The total capital expenditure was estimated at 26.2 billion USD. However, more than 100 simulations were run in the [NAME_127] ([NAME_39], Joint Book of Documents, tab 78: [NAME_29] on March 2002 by [NAME_40]). [ 100 ] [NAME_120] stated that the [NAME_127] included both the upstream activities, that is the production of natural gas in the ANS, and the downstream activities, that is the pipeline construction to allow natural gas to be shipped to the markets. I will come back to the Integrated Economic Moder below.

6) On the chronology of [NAME_40]: [ 101 ] According to [NAME_120], in September 2001 and October 2001, the participants in [NAME_40] were still looking at advancing the pipeline. [ 102 ] However, in January 2002, all participants in [NAME_40] concluded that [NAME_40] was not commercially viable, and they decided not to proceed to the next engineering phase, but the participants continued obtaining cost estimates to complete the conceptual engineering phase. [ 103 ] [NAME_120] testified on various presentations made to [NAME_128] and to [NAME_129] (CEO and president of [NAME_43]. respectively) dealing with the advancement of [NAME_40] ([NAME_39], Joint Book of Documents, tabs 20, 25, 29, 35, 44 and 69). [ 104 ] In October 2001, [NAME_120] was still working on the [NAME_127].

7) On the [NAME_41]: [ 105 ] [NAME_131] testified that he was aware that the [NAME_41] was negotiated around April 2001, and that the rationale was that [NAME_37] wanted the resources, expertise and knowledge of the [NAME_60], particularly in dealing with [NAME_89] applications. [ 106 ] According to [NAME_120], [NAME_111], [NAME_38] and [NAME_32] received notice that [NAME_37] had assigned part of its interest in [NAME_40] Agreement to the Appellant, and that the Appellant was hereafter a participant to [NAME_40] Agreement. [ 107 ] The allocation of the Participating Interest between [NAME_37] and the Appellant was derived from an average of the proportion of the [NAME_126] that would lie within the USA and Canada based on an estimated distance of each route, under four scenarios (Paragraph 3 of the [NAME_41]; [NAME_39], Joint Book of Documents, tab 111). The Appellant was assigned a proportionate share of the Participating Interest in [NAME_40] Agreement equal to the proportion of the average distance of the four scenarios that would lie within Canada. [ 108 ] Further, by assuming 68% of [NAME_37]’s one-third Participating Interest in [NAME_40], the Appellant would have the right to own the Canadian portion of [NAME_40], namely the Canadian portion of the pipeline from the ANS to Alberta, a Canadian NGL plant if built in Canada, and the Canadian portion of the pipeline from Alberta to Chicago. If no pipeline was built, the Appellant would still get the right to all information and data produced under the Feasibility Study. [ 109 ] [NAME_120] stated that the Appellant was a full participant in [NAME_40] and was not only a participant used to absorb costs. The Appellant received information, furnished personnel, managed [NAME_40] by working with [NAME_37]’s [NAME_93] member. [ 110 ] At the termination of [NAME_40], the Appellant received all job books containing all data and information on [NAME_40]. [ 111 ] [NAME_120] stated that he was not aware of any disagreement between [NAME_133], the president of the Appellant, and [NAME_135], who was the named representative of [NAME_1]’s interest on the [NAME_93] under [NAME_40]. 2. [NAME_136] [ 112 ] [NAME_138] worked for [NAME_53]/[COMPANY_48] for 37 years. She was a chemical engineer and worked in the USA, and later in Europe, Asia, and Africa. She spent most of her career in the commercial sector of [COMPANY_140] ([COMPANY_141]) ( “EMGM” ), a division of [NAME_43]. [ 113 ] EMGM’s business included all gas marketing activities across the globe from all affiliates, pipelines assets and gas processing facilities. [NAME_136]’s job at EMGM was also to help develop stranded gas resources around the world and transport gas to market, and to manage various commercial agreements entered by [NAME_43]. and related to gas resources. She later became the president of the Technology and Engineering Company of [NAME_43]. [ 114 ] After the Merger in 1999, and during the period from 1999 to 2002, she worked for EMGM as the “Joint Venture Coordinator/Analysis”. She represented [NAME_1]’s interests in various joint ventures (both gas marketing and pipelines) in North America. For example, [NAME_136] was responsible for the [NAME_66], a pipeline from Nova Scotia to Massachusetts. [ 115 ] According to [NAME_136], [NAME_43]. always owns interests in pipelines and operates pipelines through affiliates located in the country where pipelines are located. [NAME_43]. would never directly own interests in pipelines or be an operator of pipelines. [ 116 ] [NAME_136] stated that the reasons [NAME_43]. always uses affiliates to own interests in various ventures were to limit its exposure to liability. She testified about a situation in Australia (Longford Gas Plant) where after an explosion (before 2000), [NAME_43]. was ordered by a court to pay damages caused by a third-party joint venture partner unable to meet its financial obligations, as well as in respect of the big spill in Valdez (Alaska) in 1989. [ 117 ] As a representative of [NAME_43]., [NAME_136] was involved in negotiating and drafting [NAME_40] Agreement. She testified as to the natural gas market at that time, which I will come back to later. She was also involved in various presentations made to the senior management of [NAME_43]. [ 118 ] On September 21, 2000 (before the execution of [NAME_40] Agreement), a presentation was made to [NAME_128] (Vice-President of upstream activities at [NAME_43].) ([NAME_39], Joint Book of Documents, tab 7). Given the unusual market (low oil price, and high natural gas price), [NAME_128] wanted to look at the opportunity to build a pipeline to bring the natural gas from Prudhoe Bay on the ANS and the [NAME_82] to markets. [ 119 ] [NAME_1]’s own economic model, various cost estimates were calculated for [NAME_40], either using the Southern Route (discounted cash flow return or “DCFR” of 10-12%) or the [NAME_126] (DCFR of 12-14%). The strategy was to bring both the [NAME_125] and the [NAME_82] gas to markets. However, neither [NAME_38] or [NAME_32] owned resources in [NAME_82] at that time and they preferred the [NAME_142]. still wanted to explore both routes and show to them that economies of scale can be achieved if the projected pipeline was built using the [NAME_126]. [ 120 ] [NAME_40] as contemplated would be a 5,000-mile pipeline, which [NAME_136] testified was unprecedented at that time. Further, the idea was to build the pipeline rapidly to take advantage of the unique market of oil and gas at that time. Given the length of the pipeline, the liability issue was very important. According to [NAME_136], in September 2000, [NAME_40] was going forward with the construction of a pipeline. [ 121 ] [NAME_136] testified on another presentation made to [NAME_128] on July 11, 2001 ([NAME_39], Joint Book of Documents, tab 35). [NAME_1]’s own economic model, they made an economic analysis of costs for the [NAME_126] and the Southern Route. The conclusion was that the [NAME_126] was the most economical, given economy of scale accessing both reservoirs in Prudhoe Bay and the [NAME_82]. There were also continued discussions on structuring and financing issues for the pipeline. [ 122 ] In July 2001, the parties continued with their plan to build a pipeline. However, there were misalignment on various issues including how the parties would structure [NAME_40], on how they would engage with the Alaskan government, and which route they would use to build the pipeline as [NAME_32] was particularly reticent with regards to the [NAME_126]. [ 123 ] On July 27, 2001, another presentation was made to [NAME_128] in preparation for a meeting with his counterparts with [NAME_38] and [NAME_32] ([NAME_39], Joint Book of Documents, tab 37). [NAME_43]. was not looking at terminating [NAME_40] at that time. [ 124 ] Around October 2001, various cost estimates were obtained by [NAME_40], and costs were higher than expected. According to [NAME_136], at that point, they were not sure that [NAME_40] was still financially supported by [NAME_43]. ([NAME_39], Joint Book of Documents, tab 44, presentation to [NAME_128] dated October 9, 2001). [ 125 ] On January 24, 2002, an economic costs analysis was prepared using the [NAME_127]. As shown in the analysis, [NAME_40] was less attractive as the price of natural gas went down, and because cost estimates as prepared by [NAME_40] using the [NAME_127] were more reliable, showing higher costs. [NAME_40] became less attractive economically ([NAME_39], Joint Book of Documents, tab 69, presentation to [NAME_128] dated January 24, 2002). [ 126 ] On April 19, 2002, results were delivered to [NAME_128] and [NAME_143] ([NAME_39], Joint Book of Documents, tab 88). Costs for the [NAME_126] increased a lot due to additional trenching, bigger barges needed and additional logistics in the Beaufort Sea. Although they concluded that costs were similar for both the Northern and Southern Routes, technology was non-existent in respect of the [NAME_126]. 3. [NAME_133] [ 127 ] [NAME_145] has a Bachelor of Science in engineering and a Master of Business Administration. Throughout his career, he has been an oil and gas engineer (except for the first 5 years of his career) and an executive. In 1982, he joined Superior Oil which was bought by [NAME_50]. He worked for the [COMPANY_147] in various countries for 22 years. [ 128 ] During the period from December 7, 2000 to July 21, 2004, he was the president of the Appellant. [NAME_133] reported to [NAME_74], who was the Vice President North America of [NAME_37] for upstream activities, who himself reported to [NAME_128]. [ 129 ] [NAME_133] oversaw the western Canadian operations, which include conventional oil and gas, various oil and gas fields from Fort Nelson (British Columbia) to southeast Saskatchewan, including the Frontier acreage in the Northwest Territories. The Appellant had also eastern operations. [NAME_133] testified on the Appellant’s operations, to which I will refer later. [ 130 ] According to [NAME_133], the key operating functions in Western and Northern Canada were kept with the Appellant. Further, according to [NAME_133], the drilling and well servicing was done by the Appellant while [NAME_133] was in charge and was not done by [NAME_63]. [ 131 ] [NAME_133] explained [NAME_43].’s business operations. [COMPANY_48] business operations are divided as follows: - Upstream activities: production of oil and gas, field or reservoir production, pump batteries and processing the raw oil and gas; - Midstream activities: transport, pipelines, small gathering systems; - Downstream activities: refineries and chemical. [ 132 ] [NAME_133] testified that he did not have a formal role in [NAME_40]. He understood [NAME_40] as being a feasibility study to assess the possibility of a pipeline from the ANS to the Lower-48, including routes selection, costs estimate on pipes, regulatory hurdles, environmental hurdles, engineering design (transportation and compressors), economic valuation, etc. [ 133 ] During the 2000 to 2002 period, the Appellant was also involved in the [NAME_113]. That [NAME_29] was also a feasibility study for a pipeline from the [NAME_82], going through the [NAME_81] to Edmonton. [ 134 ] Between December 5, 2000, and June 15, 2001, [NAME_133] had many discussions with [NAME_148] and [NAME_135] on the advantages and disadvantages of the assignment of [NAME_37]’s interest in [NAME_40] to the Appellant. [NAME_133] was of the view that an allocation based on the average estimated routes’ length was reasonable. They were all aware that an assignment agreement was being considered and drafted. [ 135 ] [NAME_133] testified on the endorsement process followed within the [COMPANY_48], which is quite a formal and lengthy process, which could take between 4 to 5 months. When inter-affiliate agreements like the [NAME_41] must be executed, various departments (tax, legal, commercial, treasury, risks, etc.) within the group must confirm acceptance of the agreement, both in Canada and in the USA in this particular case. [ 136 ] According to [NAME_133], [NAME_40] was terminated in either late 2001 or early 2002. By October 9, 2001, the Feasibility Study showed that [NAME_40] was not economically feasible ([NAME_39], Joint Book of Documents, tab 44). By January 24, 2002, conclusions were made to wind down [NAME_40]. [ 137 ] [NAME_133] testified that he really thought it was not the end of [NAME_40], and that some day it would be revived, given work done on the [NAME_82]. [ 138 ] Further, [NAME_133] testified that the Feasibility Study Costs spent by the Appellant on [NAME_40] was within his authority. 4. [NAME_119]

1) Lay testimony: [ 139 ] [NAME_45] has a Bachelor of Commerce from the University of Calgary. From 1978 to 2024, he worked in the energy industry, starting at TransAlta (Calgary Power) and then at [NAME_149]. [ 140 ] In 1995, he was the Vice-President of the assets group at the [NAME_117], a pipeline operator, and then became the Vice-President of [COMPANY_151], which partnership owns pipeline assets. During that time, he sat on the board of [NAME_88], a subsidiary of [NAME_115]. [ 141 ] Between 2000 and 2004, he worked for [NAME_30] Canada (part of British Petroleum). [ 142 ] In 2004, he joined [NAME_152] and remained there until 2017. At [NAME_152], [NAME_119] was the Vice-President of Upstream Development and President of Northern Gateway Pipeline, an oil pipeline from Edmonton to Kitimat (BC). [NAME_119] also sat on the board of many pipelines in Alberta. He was involved on regulatory matters for the [NAME_89]. [ 143 ] From 2018 to 2024, at SIDEV, he advised various federal government departments on energy, particularly on the Transmountain pipeline (from Edmonton to Burnaby). He also provided advice to the provincial government on liquefied natural gas ( “LNG” ) projects. [ 144 ] [NAME_119], as an employee of [NAME_30] Canada, started to work on [NAME_40] in 2000 as the Program Manager for the Environmental, Regulatory and Land ( “[NAME_153]” ) program , as part of [NAME_40], for both Canada and the USA. At this time, he was working from Calgary and Anchorage. [ 145 ] [NAME_119] reported to the [NAME_93], at [NAME_93] meetings which were held periodically, and not to [NAME_30] Canada. [ 146 ] According to [NAME_119], [NAME_40] was to be assessed and developed by the three partners, namely [NAME_38], [NAME_32] and [NAME_37], and their [NAME_154]. [NAME_119] asserted that the [NAME_155] chosen by [NAME_38] to be assigned interest in [NAME_40] was [COMPANY_156]. [ 147 ] [NAME_119] testified that [NAME_40] entailed the evaluation of the costs and benefits associated with a pipeline from the ANS to markets in [NAME_36] and the Lower-48. More specifically, [NAME_40] was created to study the potential of developing a natural gas pipeline including a gas treating plant, compressor stations, and an NGL plant from Prudhoe Bay, Alaska to Chicago, Illinois. [ 148 ] The responsibility of the [NAME_157] under [NAME_40] was to define the environmental, regulatory and land requirements, and begin the process of fulfilling those requirements in coordination with [NAME_40]’s commercial, legal and technical programs. On [NAME_40], [NAME_119]’ responsibilities and his team were to progress a pipeline, prepare the [NAME_89]/[NAME_84] applications, complete environmental studies, deal with land issues, First Nations, other communities and private landowners, complete environmental requirements for the [NAME_89]/[NAME_84], and deal with all regulatory matters for both Canada and the USA. [ 149 ] The [NAME_157] was composed of 20 full-time members and 350 contractors during the peak period of July and August 2001. According to [NAME_119], his team performed quite extensive work. They prepared a detailed document (included in the job books), which is a complete assessment of [NAME_40] made by the [NAME_153] team over the course of the Feasibility Study ([NAME_39], Joint Book of Documents, tab 74, document entitled “Environmental Regulatory Land Program, [NAME_29] and Schedule, Current Status and Plan” dated February 2002). [NAME_119] testified that the [NAME_153] components of costs for the initial study phase amounted to 38 million USD. [ 150 ] [NAME_119]’ team had prepared eight job books. [NAME_119] testified on various documents which were part of the job books ([NAME_39], Joint Book of Documents, tabs 21, 27, 57, 53, 62, 64, 71, 72, 75, 81, 82, 83 and 161). According to [NAME_119], all job books were issued to all parties to [NAME_40], including [NAME_154] ([NAME_39], Joint Book of Documents, tab 87). [ 151 ] [NAME_119] had significant interactions with other teams on [NAME_40] since very detailed technical and commercial information are needed for regulatory application process at the [NAME_89]/[NAME_84]. The [NAME_89] and [NAME_84] had extensive requirements for information: costs estimate, schedules of construction, safety, impact on communities, impact on environment, impact on First Nations, quality, financial capacity, etc. As indicated by [NAME_119], if a certificate is issued by the [NAME_89] and [NAME_84], this will cover not only the construction of the pipeline, but the operation of the pipeline for decades to come, as the [NAME_89] and [NAME_84] would regulate the pipeline throughout its lifespan. [ 152 ] [NAME_119] testified that although the objective under [NAME_40] was to file regulatory applications with the [NAME_89] and [NAME_84] by the second half of 2001, [NAME_40] was not able to meet that deadline because information was missing, such as the selected route, further discussion with First Nations, complete economic information for tolls and tariffs, whether an open season will be held, and more clarity from governments. However, the [NAME_157] continued to work on filing preliminary regulatory applications ([NAME_39], Joint Book of Documents, tab 40, Steering Committee meeting of September 12, 2001). [ 153 ] The target for [NAME_40] was to build the pipeline in 2 years. [NAME_40] also discussed using simultaneous construction of the projected pipeline in Canada and in the USA. [ 154 ] The Restart Manual for [NAME_40] dated March 14, 2002 ([NAME_39], Joint Book of Documents, tab 81) and [NAME_40] ([NAME_39], Joint Book of Documents, tab 75), which are part of the job books, are key documents to look at to restart the program. At that time, there was still a lot of interest in [NAME_125] and to bring it to markets.

2) Expert Testimony: [ 155 ] At the hearing, [NAME_119] also testified as an expert on pipeline [NAME_29] development and pipeline regulatory matters. [NAME_119]’ expert report dated January 7, 2025, was marked as Exhibit A-3 ( “ [NAME_47]” ) and [NAME_119]’ rebuttal report dated February 6, 2025, was marked as Exhibit A‑6 ( “[NAME_47]” ). Further, a document entitled “Reasons for Decision from the [NAME_89] on [COMPANY_158].” , RH-4-2001 of June 2002 was marked as Exhibit A-9. [ 156 ] [NAME_119]’ opinion on pipeline [NAME_29] development and pipeline regulatory matters was not undermined at trial, and I find his opinion was very convincing. I gave a lot of weight to his expert opinion, including his opinion on megaprojects, the gate decision process, and the [NAME_89]/[NAME_84] regulation process. [ 157 ] According to [NAME_119], back in 2000-2001 (and in the present), a [NAME_29] was considered a megaproject when it involved capital costs exceeding $1 billion. [NAME_40] qualifies as a megaproject, because the estimated capital costs exceeded 20 billion USD. Thus, the parties to [NAME_40] followed the megaproject gate decisions’ process. 5. [NAME_159]: [ 158 ] [NAME_94] obtained a Bachelor of Science in Mechanical Engineering degree in 1971. He first started working in nuclear energy and later in 1979, he moved to Alberta to work in the oil and gas industry where he joined the [COMPANY_147]. [NAME_159] retired in 2006. His professional experience mainly entails engineering feasibility studies ([NAME_29] engineering and design engineering). [ 159 ] In 1991, he moved to Fairfax (Virginia) to work at [NAME_50]’s head office. At the end of 2000, he joined [NAME_43]. in Houston (Texas), as an employee of EM Canada. He became the Program Manager for the Northern Sector for [NAME_40], which sector included the A to B pipeline (for both the Southern and Northern Routes), and a gas treating facility. [NAME_159] moved to Anchorage (Alaska) to perform his duties for [NAME_40]. [ 160 ] He reported to the [NAME_93] for his work under [NAME_40] Agreement. He also reported to [NAME_135] of [NAME_37] on an administrative basis. [NAME_159] attended some of the [NAME_93] meetings, but most of the reports and communication were done by email. He worked with [NAME_119]’ team more closely (the [NAME_153] program), because [NAME_89] regulatory applications have a lot of technical requirements, as well as details on land and environmental issues. [ 161 ] [NAME_159] testified on the extent of [NAME_40] and the numerous job books prepared or commissioned by his team. [NAME_159] also testified on the Restart Manual ([NAME_39], Joint Book of Documents, tab 81) which was commissioned by his team. [ 162 ] [NAME_159] testified that he knew in the first quarter of 2002 that [NAME_40] would not go ahead, for both economic and political reasons. [ 163 ] In September 2001, his team was halfway through the work under [NAME_40]. They had determined, inter alia , the size of the pipe and the location and number of compressor stations. However, detailed technical work had not been done. [ 164 ] [NAME_159] and his team on [NAME_40] were involved in making reports to [NAME_128] in respect of any updates for technical requirements. Moreover, [NAME_159] was involved in exchanging information with [NAME_63] for the [NAME_113] ([NAME_39], Joint Book of Documents, tab 50). [ 165 ] According to [NAME_159], for the [COMPANY_48], the [NAME_126] was preferable because of [NAME_63]’s and the Appellant’s interest in the [NAME_82]. However, [NAME_32] favoured the Southern Route because of political pressure, and [NAME_38] was neutral on route selection, preferring whichever route had the best economic data. [ 166 ] [NAME_159] left [NAME_40] at the end of March 2002 and went back to Calgary and was seconded to [NAME_37]. He was never seconded to [NAME_63]. [ 167 ] In 1998, before joining [NAME_40], [NAME_159] was involved in the [NAME_113]. That [NAME_29] was to bring natural gas down from the [NAME_82] through the [NAME_81] in the Northwest Territories and into Edmonton. This [NAME_29] was smaller than [NAME_40] in the case at bar, given the smaller resources of natural gas in the [NAME_82]. The [NAME_113] was still ongoing in 2002. 6. [NAME_160]: [ 168 ] [NAME_163] joined [NAME_59] in December 1976 as an invoice processing clerk and held many positions over a 13-year period. In 1983, he completed his CMA certification, which is now the Certified Public Accountant (CPA) certification. In 1990, he became the manager of Income Tax Compliance for [NAME_59]. He completed his CICA in-depth tax courses around that time. In 1997, he became the head of tax for [NAME_59] and was in this role until the Merger. After the Merger, he was an employee of [NAME_165] but never became an employee of [NAME_63]. However, he was seconded to [NAME_63], resulting in him working for both [NAME_63] and [NAME_3]. [ 169 ] In 2000, [NAME_160] was appointed Manager of tax for upstream operations (drilling and production operations, but not refineries, shipping or marketing) for EM Canada and [NAME_63]. In December 2001, [NAME_160] was promoted to Director of Corporate Tax for Canada for EM Canada, [NAME_63], and all upstream, downstream, and chemical operations. [NAME_160] was the head of tax for Canada until he retired in 2018. [ 170 ] After the Merger, he spent a lot of time determining the best way to handle the Canadian operations due to the following structures being in place: (i) [NAME_59] structure being wholly owned by [NAME_51] in the USA; and (ii) the [NAME_63] structure, which was owned at 69.6% by [NAME_52], and the balance by the public. According to [NAME_160], these two structures never merged and were kept separate up to this day. [ 171 ] [NAME_160] testified that at the time of the Merger, there was not a lot of trust between [COMPANY_166] and [NAME_63], who where previously competitors. [COMPANY_166] was not strong in [NAME_36], but was strong in the east, whereas [NAME_63] was strong in [NAME_36]. [ 172 ] In 2000-2002, [NAME_63] did not operate any pipelines owned by [COMPANY_166]. For example, the [NAME_66] was operated by the same group. [ 173 ] [NAME_160] testified that he did not have a formal role in [NAME_40]. However, because he was the head of tax in Canada for the [COMPANY_48], he provided tax services regarding all operations of [NAME_167]. [ 174 ] He asserts that discussions within the [COMPANY_48] started in January 2001 as to the best way to handle the Canadian segment of the pipeline. Referring to a former draft of the [NAME_41], [NAME_160] recommended that [COMPANY_168] be contracted by [NAME_37], and [COMPANY_169] by the Appellant ([NAME_39], Joint Book of Documents, tab 160). The purpose was for [NAME_37] to avoid having a permanent establishment in Canada and for the Appellant having a permanent establishment in the USA. [ 175 ] From the [COMPANY_48] perspective, there is a very rigorous mechanism put in place for endorsements when agreements like the [NAME_41] are concluded. All departments within the [COMPANY_48], including tax, controller, law, and treasurers must sign off on them. In respect of the [NAME_41], both Canada and the USA must approve before being executed by the management. E. PRELIMINARY MATTERS I. Upstream Services Agreement (Exhibit A-2): objection by the Respondent [ 176 ] The Respondent objected to the admissibility of an agreement entitled “Upstream Services Agreement” between [NAME_63] and [NAME_59] (after the Merger, EM Canada) (including their respective subsidiaries), with an effective date from November 15, 2000 to December 31, 2003, and to any testimony made in that regard. I will refer to this agreement as the “Original Services Agreement” . [ 177 ] Another agreement between [NAME_63] and EM Canada (including their respective subsidiaries) dealing with services of a similar nature as provided for under the Original Services Agreement is the “Amended and Restated Upstream Services Agreement” . This document is part of the Joint Book of Documents (Exhibit AR‑1, Joint Book of Documents, tab 12) and was adduced in evidence. This agreement has an effective date from November 15, 2000 to December 31, 2006, and was signed by the parties in April 2005. I will refer to this agreement as the “Amended Services Agreement” . [ 178 ] The Respondent argues that they were not provided with the Original Services Agreement at the discovery stage and consequently, it should not be admitted by the Court. [ 179 ] To support their position, the Respondent relied on section 98 of the Tax Court of Canada Rules (General Procedure) (the “Rules” ). [ 180 ] At the hearing, I took the objection under reserve. [ 181 ] For the following reasons, the Respondent’s objection is overruled. The Original Services Agreement filed under Exhibit A-2 shall be part of the record. Further, the testimony of [NAME_160] regarding the Original Services Agreement is admitted.

1. The Rules and Applicable Principles [ 182 ] Section 98 of the Rules states: 98(1) Where a party has been examined for discovery or a person has been examined for discovery on behalf or in place of, or in addition to the party, and the party subsequently discovers that the answer to a question on the examination, (a) was incorrect or incomplete when made, or (b) is no longer correct and complete, the party shall forthwith provide the information in writing to every other party. (2) Where a party provides information in writing under subsection (1), (a) the adverse party may require that the information be verified by affidavit of the party or be the subject of further examination for discovery, and (b) the writing may be treated at a hearing as if it formed part of the original examination of the person examined. (3) Where a party has failed to comply with subsection (1) or a requirement under paragraph (2)(a), and the information subsequently discovered is, (a) favourable to that party’s case, the party may not introduce the information at the hearing, except with leave of the judge, or (b) not favourable to that party’s case, the Court may give such direction as is just. 98(1) La [NAME_170] interrogée au préalable, ou la [NAME_171] qui l’est au nom, à la place ou en plus de cette [NAME_170], qui découvre ultérieurement qu’une réponse à une question de l’interrogatoire : a) était inexacte ou incomplète; b) n’est plus exacte et complète, doit fournir immédiatement ce renseignement par écrit à toutes les autres parties. (2) Si une [NAME_170] fournit un renseignement par écrit en application du paragraphe (1) : a) une [NAME_170] opposée peut exiger qu’il soit appuyé d’une déclaration sous serment ou qu’il fasse l’objet d’un nouvel interrogatoire préalable; b) ce renseignement peut être traité lors d’une audience comme s’il faisait [NAME_170] de l’interrogatoire initial de la [NAME_171] interrogée. (3) Si une [NAME_170] ne se conforme pas au paragraphe (1) ou à l’alinéa (2)a) et que le renseignement obtenu ultérieurement est : a) favorable à sa cause, elle ne peut le présenter en preuve à l’instance qu’avec l’autorisation du juge; b) défavorable à sa cause, la [NAME_172] peut rendre des directives appropriées. [ 183 ] The purpose of examination for discovery is to render the trial process more fair and more efficient by allowing each party to fully know before trial the positions of each party to define the issues between them ( Canada v. [COMPANY_173] , 2011 FCA 120 at para 30, citing Montana Band v. Canada (T.D.), [2000] 1 F.C. 267). Trial by ambush is no longer allowed in Canada. [ 184 ] Section 98 of the Rules was enacted to codify these obligations and specifically provides that these are continuous disclosure obligations. Upon becoming aware that an answer was incomplete, a party has an obligation to provide the information forthwith to every other party. As provided in paragraph 98(3)(a) of the Rules, where a party fails to follow the Rules, that party may not introduce the favourable information at the hearing, except with leave of the Court.

2. Evidence at the hearing [ 185 ] According to [NAME_133], the Amended Services Agreement was not the agreement in place when he was the president of the Appellant from 2000 to 2005. [ 186 ] [NAME_133] testified that after the Merger was announced, [NAME_174] looked at ways to combine operations in Canada, using [NAME_63] as [NAME_63] was owned by [NAME_53] (69.6%). However, after several months of examination, they decided to keep operations separated in Canada, both in the west and in the east of Canada and only merged the business support services (e.g. tax, legal, accounting, procurement, human resources, etc.) which became the “[COMPANY_175]” . [ 187 ] The [COMPANY_175] provided services to the [COMPANY_48] (including [NAME_63]) both in the west and in the east of Canada. According to [NAME_133], [NAME_63] was only providing [COMPANY_176] (e.g. tax, legal, accounting, procurement, human resources, etc.) to the [COMPANY_177] (including the Appellant). [ 188 ] More specifically, [NAME_133] testified that clause 3.1(C) of the Amended Services Agreement stating that [NAME_63] will provide production services to EM Canada (except [NAME_68] Co.) in [NAME_36] – including technical, engineering, geoscience and production operations – was not in place when he was the president of the Appellant. During that period, according to [NAME_133], the Appellant was in charge of all western operations, and it was only in 2004 or in 2005 that operations started to be merged with [NAME_63]. [ 189 ] [NAME_133] specifically stated that under the Original Services Agreement, the key operating functions for western and northern Canada were still the Appellant, except for the business support services. [ 190 ] [NAME_133] also specifically stated that when he was the president of the Appellant, the Appellant did the drilling and well servicing for [NAME_63], and not the other way around as stated in clause 3.1(D) of the Amended Services Agreement. [ 191 ] Furthermore, [NAME_133] testified that all services listed in clause 3.1(D) of the Amended Services Agreement were done by the Appellant, as the Appellant had its own safety health department, planning department, OBO services department, etc. [ 192 ] However, [NAME_133] did not testify about the Original Services Agreement at the hearing, as that document was found by the Appellant after [NAME_133]’s testimony was completed. [ 193 ] [NAME_160], who appeared later, testified about the Original Services Agreement. [ 194 ] According to [NAME_160], the Amended Services Agreement was not the agreement in place during the 2000 to 2002 period, as another agreement was in place between [NAME_63] and the [COMPANY_177] during that period. [ 195 ] However, [NAME_120], who was the nominee for the Appellant during discovery process, had indicated that the Amended Services Agreement was the agreement in place during the period from 2000 to 2002. Further, he had specifically indicated at discovery that [NAME_63] was the operating manager of various pipelines in Canada. [ 196 ] According to [NAME_120], after the Merger, there was a transition period to combine the operations of [NAME_63] and [NAME_59]. To achieve synergies, the upstream operations of both organizations were centralized in [NAME_63]. [NAME_120] attached the Amended Services Agreement to his answers at discovery. [NAME_120] also indicated in discovery that the Appellant was the corporate entity responsible for [NAME_59]’s western operations and was a fully integrated producer of oil and natural gas, and that transitioned to [NAME_63] as operations became centralized, as indicated before. [ 197 ] [NAME_133] did not however agree with the timing of [NAME_120]’s answers and indicated that the Amended Services Agreement was signed sometime around 2005. [NAME_120] did not testify about the Original Services Agreement as this agreement was brought up later during the trial.

3. Positions of the parties [ 198 ] According to the Respondent, it would be unfair to the Crown for the Court to allow the Appellant to adduce in evidence the Original Services Agreement because the Respondent had no opportunity to ask [NAME_120] to correct his evidence before the Court. Further, the Original Services Agreement was not on the Appellant’s list of documents and is unreliable as it seems to narrow services provided by [NAME_63] to the [COMPANY_177]. Moreover, the Court should consider that the Amended Services Agreement has an effective date from November 15, 2000. [ 199 ] The Respondent relied on the principles from [NAME_178] v. [NAME_5] , 2024 [NAME_35] 148 [ [NAME_178] ] on the application of section 98 of the Rules to support their position. [ 200 ] According to the Appellant, the present case can be distinguished from the circumstances in [NAME_178] , where the Court clearly found that the search efforts were not made until the eve of the trial, and that it was not a situation where the information came to light late in the game. [ 201 ] In 2019 and 2020, [NAME_120] was chosen to be the deponent for the Appellant, a corporate entity. He was chosen because he was the best person to represent the Appellant. When discoveries were made, they were looking to find a document that is more than 20 years old. [NAME_120] deponed that [NAME_63] was the operating manager for [NAME_36], but he also indicated that there was a transition phase after the Merger. [ 202 ] [NAME_120], who was the first witness heard by the Court, testified that the Amended Services Agreement was the agreement in place during the relevant period from 2000 to 2002. However, when [NAME_133] testified on April 15, 2025, as the third witness heard at trial, he stated that the Amended Services Agreement was not the agreement in place when he was the president of the Appellant. [ 203 ] After the first part of the hearing ended, the Appellant went looking for the document described by [NAME_133] in his testimony. On May 16, 2025, ten days before the trial resumed, Counsel for the Appellant notified the Respondent that they intended to adduce in evidence the Original Services Agreement and provided a copy of the agreement. [ 204 ] On May 27, 2025, [NAME_160] testified with respect to the Original Services Agreement. [ 205 ] According to Counsel for the Appellant, until [NAME_133] testified at the hearing on April 15, 2025, they were not aware of the existence of the Original Services Agreement. [ 206 ] Further, the Appellant submits that the Respondent could have called [NAME_120] to the stand to explain his testimony. There is no prejudice to the Respondent in this case.

4. Analysis [ 207 ] I agree with the Appellant, and the objection is overruled. [ 208 ] I find that the Appellant took the corrective measures required by subsection 98(1) of the Rules and provided updated information and complete information in writing as soon as the information came to light of the existence of the Original Services Agreement. The Appellant provided the updated information to the Respondent soon after [NAME_133] testified that the Amended Services Agreement was not the agreement in place during the period he was president of the Appellant, as the Appellant was involved in operations in [NAME_36], and not [NAME_63]. [ 209 ] In the case at bar, I find that this is a situation where the information came to light late in the game, which facts are different than in [NAME_178] . Further, the Appellant provided the information to the Respondent as soon as it was clear that the Amended Services Agreement was not the agreement in place during the relevant period, and as soon as the Original Services Agreement was finally retraced. The Appellant then took the proper corrective measures required by subsection 98(1) of the Rules. [ 210 ] I also considered the fact that this document is more than 20 years old. I do not find that this is a situation where the search efforts were not made until the eve of the trial, as it is likely that the Appellant’s deponent, [NAME_120], was not aware of the existence of the Original Services Agreement. [ 211 ] Moreover, I do not find that there is any unfairness or injustice by admitting the document as the Respondent could have asked for leave of the Court to either further examine [NAME_120], for [NAME_120] to testify in Court or for an affidavit from [NAME_120], which the Respondent did not. [ 212 ] Finally, I find that to admit the Original Services Agreement and the testimony of [NAME_160] on this agreement does not go against the interest of justice.

II. Non-Suit Motion by the Appellant [ 213 ] After the close of the Respondent’s evidence, the Appellant requested that the Court issue summary judgment (non-suit) relief, allowing the appeal of the reassessment at issue (and allowing the deductibility of the Feasibility Study Costs), and vacating the Part XIII Tax Assessment, with costs. [ 214 ] According to the Appellant, this request should be granted because the Appellant has demolished the Minister’s assumptions, the Appellant had established its case in full on a balance of probabilities (i.e., the prima facie case) and the Respondent had called no evidence to establish the correctness of the Minister’s assessing position as it relates to the issues raised in this Appeal. [ 215 ] However, the Respondent argues that the Rules do not provide for summary judgment. Therefore, it is not available to this Court to issue a summary judgment in the present case. [ADDRESS] could only issue summary judgment in the circumstances described in section 170.1 of the Rules, namely judgment in respect of matters of admissions or certain documentary evidence, which relief should be brought before trial ( Keenan v. R. , 2019 [NAME_35] 259, at para 8). [ 216 ] Further, according to the Respondent, the Appellant’s request for non-suit should be denied as the Appellant chose to present its case first and spent over four weeks adducing evidence from several lay and expert witnesses to meet its case. [ 217 ] For the following reasons, the Appellant’s request for a summary judgment and non-suit relief is denied. [ 218 ] In the present case, the onus (the persuasive burden) was on the Appellant to establish, on a balance of probabilities, the facts that would demolish the Minister’s assumptions. [ 219 ] As indicated by the Federal Court of Appeal in [COMPANY_179]. v. Canada ([NAME_28]) , 2020 FCA 219: [15] In order to demolish the Minister’s assumptions, the taxpayer must “ […] establish facts upon which it can be affirmatively asserted that the assessment was not authorized by the taxing statute, or which bring the matter into such a state of doubt that, on the principles alluded to, the liability of the appellant must be negatived” ( Hickman Motors Ltd. v. Canada , [1997] 2 S.C.R. 336). Thus, the onus is on the taxpayer to establish, on a balance of probabilities, the facts that demolish the Minister’s assumptions ( [NAME_180] v. Canada , 2017 FCA 131 at para. 46; [NAME_181] v. Canada , 2020 FCA 93 at paras. 24-52; [NAME_182] v. Canada , 2019 FCA 107 at para. 13; see also F.H. v. McDougall , 2008 SCC 53, [2008] 3 S.C.R. 41). [Emphasis added.] [ 220 ] However, this rule does not apply to facts that are exclusively or peculiarly within the knowledge of the Minister, because the Respondent will then have the onus to prove these facts, on a balance of probabilities ( R. v. [COMPANY_183]. , 2007 FCA 188, at para 36). [ 221 ] Where assumptions of facts are within the knowledge of the taxpayer, the Minister will not have any onus to meet, because either the evidence proves the facts, on a balance of probabilities, or it does not. However, the Minister may still decide to lead evidence. [ 222 ] As indicated by this Court in [NAME_184] v. The Queen , 2018 [NAME_35] 220 [ [NAME_184] ] (aff’d in [NAME_181] v. Canada , 2020 FCA 93): [110] …. If the taxpayer presents a strong case that on its face meets the persuasive burden, the Minister is faced with the tactical decision whether to lead evidence as part of the Minister’s case (i.e., lead evidence that is in addition to the evidence already on the record at the conclusion of the taxpayer’s case, which would include evidence obtained through cross-examination of the taxpayer’s witnesses). The burden on the Minister to tender evidence in this circumstance is a tactical burden only; the persuasive burden in respect of the correctness of the assessment of tax remains with the taxpayer. [ 223 ] In [NAME_185] v. [NAME_5] , 2025 [NAME_35] 101 [ [NAME_185] ], the Court thoroughly reviewed the applicable principles for non-suit motions, and indicated that: [107] The test on a non-suit is not whether the party bearing the onus has failed to prove its case on a balance of probability, but rather whether the party with that burden has led any evidence which supports that party’s case. A party who moves a non-suit is arguing that the opposing party has not met this evidential burden. [108] In response, the party bearing an evidential burden must be able to point to evidence of the existence or non-existence of a given fact or issue to allow that factual question to be considered by the trier of fact. [109] The evidential burden is not about weighing evidence or determining facts. The party with an evidential burden is not required to convince the trier of fact of anything, but only to point out evidence which suggests that certain facts existed. [ADDRESS] considers, as a legal question and not as a factual question, whether sufficient evidence exists to satisfy the evidential burden. In civil proceedings, such as negligence, (and I think by analogy, in tax cases too), the party alleging something must, “…adduce sufficient evidence of the defendant’s negligence to overcome a motion for non-suit”. Finally, and to be clear, “the discharge of an evidential burden proves nothing - it merely raises an issue”. [110] By contrast, the persuasive burden is the burden to prove one’s case beyond a reasonable doubt or on a balance of probabilities depending on the type of case. The persuasive burden raises a question of fact, not law. This requires weighing the evidence, drawing inferences and making findings of fact. [ 224 ] As indicated in [NAME_184] , there are only two burdens recognized under Canadian law, namely, the burden of proof (or persuasive burden), which is a question of fact, and the evidential burden (whether an issue should be left to the trier of fact), which is a matter of law ( [NAME_184] , at para 72). Further, the civil standard of proof is always on a balance of probabilities ( [NAME_184] , at para 74). [ 225 ] In [NAME_184] , the Court explained the difference between an evidential burden and a persuasive burden as follows: [73] A party with an evidential burden has the responsibility to ensure there is sufficient evidence of the existence or non-existence of a particular fact or issue to pass the threshold test for that particular fact or issue but is not required to actually prove anything. Whether an evidential burden is met is a question of law determined by the trial judge. Common examples of when an evidential burden must be met are by the plaintiff on a motion by the defendant for non-suit, by the Crown in a motion by the accused for a directed verdict and by the accused in order to place certain positive defences before the trier of fact. [74] A party with a persuasive burden must prove the facts material to the issue(s) in question to the civil or criminal standard of proof. …. [ 226 ] In its additional submissions filed at my request after the release of [NAME_185] , the Appellant asserted that the Respondent bears the evidential burden to rebut the prima facie case brought by the Appellant and bears the evidential burden to prove the assumptions of facts that are not within the Appellant’s knowledge. [ 227 ] I do not agree with the Appellant. In this case, the Respondent does not bear any burden, i.e. persuasive or evidential, but only a “tactical burden” , namely the decision on whether to lead evidence or not. [ 228 ] There were no assumptions of facts in the Reply for which the Respondent bears any evidential burden. Further, there were no assumptions entirely within the Minister’s knowledge for which the Respondent would bear the onus of proof (persuasive burden). [ 229 ] I find that the Appellant bears the persuasive burden, namely, the Appellant bears the onus to prove, on a balance of probabilities, the facts which would demolish the assumptions of facts relied upon by the Minister to assess or reassess the Appellant. [ 230 ] As indicated in [NAME_185] , a non-suit motion is not a request to weigh in the evidence, but an “assertion that the opposing party has failed to lead any evidence on one or more of the constituent elements of the case” (at para 111). [ 231 ] The Appellant’s position would first require me to find that the Appellant met this burden and demolished the Minister’s assumptions. It would next require a finding that the Respondent has not raised evidence rebutting the Appellant’s evidence. In other words, it would require me to weigh on the evidence, which is not the purpose of a non-suit motion. [ 232 ] Additionally, the Reply contains numerous assumptions which were disguised as assumptions of facts but were simply arguments raised by the Respondent. For arguments, although improperly framed as assumptions, I find that the Respondent does not bear any evidential burden. [ 233 ] Further, I find that for each of the issues under appeal, the Respondent presented sufficient evidence to the Court. The Respondent led evidence into the trial record through the introduction of the Partial Agreed Statement of Facts, the Joint Book of Documents (in eight volumes), expert witness reports and other documents. Further, the Respondent led evidence with the cross-examination of the Appellant’s witnesses. [ 234 ] In the case at bar, I find that both parties led sufficient evidence to allow the pleaded issues to be considered by me. [ 235 ] Moreover, as indicated by this Court in [NAME_185] , non-suit motions should rarely, if ever, be entertained in this Court ( [NAME_185] , at para 130). I agree with this conclusion. [ 236 ] I also find that a non-suit motion should not be entertained after the close of evidence of all parties. At that point, there is no time saved for the Court and no value brought by a non-suit motion. [ADDRESS] should then proceed to decide the case on its merit, and weigh in all evidence adduced at trial.

III. Read-ins [ 237 ] Pursuant to section 100 of the Rules, after the Appellant adduced all its other evidence in chief, the Appellant filed with the Court copies of the relevant excerpts from the transcripts of the examination for discovery of the Respondent’s nominee, subsequent answers to undertakings and follow-up questions, as well as three responses to requests to admit, which were marked as Exhibit A-21 (2 volumes). [ 238 ] The Respondent objected to several of the Appellant’s read-ins. Furthermore, the Respondent asked for leave to file contextual read-ins (Exhibit R‑24), which the Appellant did not oppose. [ 239 ] Analysis regarding the read-ins is in Appendix E attached to these Reasons for Judgment. F. ANALYSIS I. Subparagraph 152(4)(b)(iii): Statute-barred issue [ 240 ] In the case at bar, the Minister relied on subparagraph 152(4)(b)(iii) to raise the 2009 Reassessment (as defined below) by which the Minister denied the deductibility of the Feasibility Study Costs applying the limitations of paragraph 18(1)(a) (and, as an alternative, the transfer pricing provisions), on the basis that the reassessment was made as a consequence of a transaction involving the Appellant and a non-resident person with whom the Appellant was not dealing at arm’s length, that is [NAME_43].

1. The Law [ 241 ] The relevant provisions of the Act are paragraph 152(3.1)(a) as well as subparagraphs 152(4)(b)(iii) and 152(4.01)(b)(iii), as they read in 2001. 152(3.1) For the purposes of subsections (4), (4.01), (4.2), (4.3), (4.31), (5) and (9), the normal reassessment period for a taxpayer in respect of a taxation year is (a) if at the end of the year the taxpayer is a mutual fund trust or a corporation other than a [NAME_186], the period that ends 4 years after the earlier of the day of mailing of a notice of an original assessment under this Part in respect of the taxpayer for the year and the day of mailing of an original notification that no tax is payable by the taxpayer for the year; … … 152(4) The Minister may at any time make an assessment, reassessment or additional assessment of tax for a taxation year, … except that an assessment, reassessment or additional assessment may be made after the taxpayer’s normal reassessment period in respect of the year only if … (b) the assessment, reassessment or additional assessment is made before the day that is 3 years after the end of the normal reassessment period for the taxpayer in respect of the year and … (iii) is made as a consequence of a transaction involving the taxpayer and a non-resident person with whom the taxpayer was not dealing at arm’s length, … 152(4.01) Notwithstanding subsections (4) and (5), an assessment, reassessment or additional assessment to which any of paragraphs (4)(a) or 4(b) applies in respect of a taxpayer for a taxation year may be made after the taxpayer’s normal reassessment period in respect of the year to the extent that, but only to the extent that, it can reasonably be regarded as relating to, … (b) where paragraph (4)(b) applies to the assessment, reassessment or additional assessment, … (iii) the transaction referred to in subparagraph (4)(b)(iii)… 152(3.1) Pour l’application des paragraphes ( 4), (4.01), (4.2), (4.3), (4.31), (5) et (9), la période normale de nouvelle cotisation applicable à un [NAME_187] pour une année d’imposition s’étend sur les périodes suivantes: a) quatre ans suivant soit le jour de mise à la poste d’un avis de première cotisation en vertu de la présente [NAME_170] le concernant pour l’année, soit, s’il est antérieur, le jour de mise à la poste d’une première notification portant qu’aucun impôt n’est payable par lui pour l’année, si, à la fin de l’année, le [NAME_187] est une [NAME_188] ou une société autre qu’une société privée sous contrôle canadien; … … 152(4) [NAME_189] peut établir une cotisation, une nouvelle cotisation ou une cotisation supplémentaire concernant l’impôt pour une année d’imposition... Pareille cotisation ne peut être établie après l’expiration de la période normale de nouvelle cotisation applicable au [NAME_187] pour l’année que dans les cas suivants: … b) la cotisation est établie avant le jour qui suit de trois ans la fin de la période normale de nouvelle cotisation applicable au [NAME_187] pour l’année et, selon le cas: … (iii) est établie par suite de la conclusion d’une opération entre le [NAME_187] et une [NAME_171] non résidente avec laquelle il avait un lien de dépendance, … 152(4.01) Malgré les paragraphes (4) et (5), la cotisation, la nouvelle cotisation ou la cotisation supplémentaire à laquelle s’appliquent les alinéas (4)a) ou b) relativement à un [NAME_187] pour une année d’imposition ne peut être établie après l’expiration de la période normale de nouvelle cotisation applicable au [NAME_187] pour l’année que dans la mesure où il est raisonnable de considérer qu’elle se rapport à l’un des éléments suivants : … b) en cas d’application de l’alinéa (4)b), … (iii) l’opération visée au sous-alinéa (4)b)(iii)… [Emphasis added.]

2. The Agreed Facts [ 242 ] The following facts dealing with the assessing chronology are not contested by the parties: - The Minister initially assessed the Appellant for the 2001 Taxation Year on October 11, 2002. - On September 18, 2006, the Minister received a waiver in respect of the Appellant’s normal reassessment period. The waiver was in respect of the Minister’s proposal to reassess the 2001 Taxation Year of the Appellant to disallow the claimed deduction of $36,208,810 in respect of the Feasibility Study Costs and to assess Part XIII tax in respect of a deemed payment to a non-resident of an amount equal to the disallowed deduction. The waiver was revoked on September 29, 2006. - On October 2, 2006, the Minister reassessed the Appellant’s 2001 Taxation Year ( the “2006 Reassessment” ). The 2006 Reassessment did not include adjustments in respect of the Feasibility Study Costs deducted. - On October 9, 2009, the Minister reassessed the Appellant’s 2001 Taxation Year to disallow the deduction claimed in respect of the Feasibility Study Costs (the “2009 Reassessment” ), relying on the limitations found in paragraph 18(1)(a) and alternatively, on the transfer pricing provisions. - On December 8, 2009, the Appellant objected to the 2009 Reassessment. - On January 8, 2010, the Minister raised an additional assessment for Part XIII tax in the amount of $1,810,391, computed with reference to the disallowed Feasibility Study Costs deduction, which is the Part XIII Tax Assessment. - On February 11, 2010, the Appellant objected to the Part XIII Tax Assessment. - On October 5, 2017, the Minister reassessed the Appellant’s 2001 Taxation Year to confirm the disallowance of the deduction claimed in respect of the Feasibility Study Costs ( the “Final Reassessment” ). [ 243 ] Furthermore, the parties are not disputing the following conclusions: - [NAME_43]. is a corporation resident of the USA and a non-resident of Canada; - The Appellant is not a [NAME_186]; and - The Appellant and [NAME_43]. are related to each other, and they are not dealing with each other at arm’s length.

3. Positions of the Parties 1) The Appellant: [redacted] [ 245 ] The Appellant relies on an amendment to subparagraph 152(4)(b)(iii) enacted in 2021 to support this position.

2) The Respondent: [redacted] [ 247 ] According to the Respondent, the Appellant incurred the Feasibility Study Costs because of the [NAME_41], which is a transaction involving the Appellant and a non-resident person, [NAME_43]. (through [NAME_37]) with whom the Appellant does not deal at arm’s length. It is the Respondent’s position that the Feasibility Study Costs were not incurred by the Appellant under [NAME_40] Agreement. [ 248 ] Consequently, according to the Respondent, the reassessment period for the Appellant’s 2001 Taxation Year was properly extended for an additional three (3) years after the end of the normal reassessment period under subparagraph 152(4)(b)(iii).

4. Analysis [ 249 ] For the following reasons, I agree with the Respondent and I find that the 2009 Reassessment was validly made by the Minister pursuant to subparagraph 152(4)(b)(iii) because it was made as a consequence of a transaction, being the [NAME_41], involving the Appellant and a non-resident person with whom the Appellant was not dealing at arm’s length, being [NAME_43]., and the 2009 Reassessment reasonably relates to that transaction. [ 250 ] Further, I do not agree with the Appellant that the extended reassessment period provided by subparagraph 152(4)(b)(iii) only applies to transactions to which section 247 applies. The Minister was not statute-barred from raising the 2009 Reassessment relying on the limitations in paragraph 18(1)(a). [ 251 ] Subsection 152(4) provides the Minister with authority to reassess a corporation at any time within the normal reassessment period. Paragraph 152(3.1)(a) provides that the “normal reassessment period” for a corporation that is not a “Canadian controlled private corporation” is four (4) years after the day of mailing of a notice of an original assessment. The reassessment period is extended for a further three (3) years after the end of the normal reassessment period if one of the requirements listed under paragraph 152(4)(b) is met. As indicated above, the Minister relied on subparagraph 152(4)(b)(iii) to make the 2009 Reassessment. [ 252 ] In the case at bar, as the original notice of assessment for the 2001 Taxation Year was mailed on October 11, 2002, the normal reassessment period for the 2001 Taxation Year as provided in paragraph 152(3.1)(a) ended on October 11, 2006. As indicated above, the 2009 Reassessment was mailed on October 9, 2009, that is more than four years after the mailing of the notice of an original assessment for that year. [ 253 ] However, as I will explain below, the 2009 Reassessment was validly made by the Minister as the reassessment period was extended by an additional three (3) years after the end of the normal reassessment period under subparagraph 152(4)(b)(iii) to October 13, 2009 (due to the Thanksgiving holiday). The 2009 Reassessment was mailed four (4) days before the expiry of the extended reassessment period.

1) Amendments to subparagraph 152(4)(b)(iii) in the 2019 Federal Budget: [ 254 ] Regardless of the case law which has held that the term “transaction” as found in the applicable version of subparagraph 152(4)(b)(iii) is not limited to a transaction to which section 247 applies (e.g. [NAME_191] v. R., 2010 [NAME_35] 408, para 46, aff’d in [NAME_191] v. Canada , 2011 FCA 305), the Appellant argues that subsequent amendments to that subparagraph provide a clarification to the contrary. [ 255 ] Subparagraph 152(4)(b)(iii) was amended to provide that the term “transaction” must be read as that term is defined in subsection 247(1). Subparagraph 152(4)(b)(iii) currently reads as follows: 152(4) The Minister may at any time make an assessment, reassessment or additional assessment of tax for a taxation year … except that an assessment, reassessment or additional assessment may be made after the taxpayer’s normal reassessment period in respect of the year only if … (b) the assessment, reassessment or additional assessment is made before the day that is 3 years after the end of the normal reassessment period for the taxpayer in respect of the year and … (iii) is made (A) as a consequence of a transaction (as defined in subsection 247(1)) involving the taxpayer and a non-resident person with whom the taxpayer was not dealing at arm’s length, or (B) in respect of any income, loss or other amount in relation to a foreign affiliate of the taxpayer, 152(4) [NAME_189] peut établir une cotisation, une nouvelle cotisation ou une cotisation supplémentaire concernant l’impôt pour une année d’imposition, ainsi que les intérêts ou les pénalités, qui sont payables par un [NAME_187] en vertu de la présente [NAME_170] ou donner avis par écrit qu’aucun impôt n’est payable pour l’année à toute [NAME_171] qui a produit une déclaration de revenu pour une année d’imposition. Pareille cotisation ne peut être établie après l’expiration de la période normale de nouvelle cotisation applicable au [NAME_187] pour l’année que dans les cas suivants : … b) la cotisation est établie avant le jour qui suit de trois ans la fin de la période normale de nouvelle cotisation applicable au [NAME_187] pour l’année et, selon le cas : … (iii) est établie, selon le cas : (A) par suite de la conclusion d’une opération (au sens du paragraphe 247(1)) impliquant le [NAME_187] et une [NAME_171] non-résidente avec laquelle il avait un lien de dépendance, (B) relativement à un revenu, une perte ou un autre montant relatif à une société étrangère affiliée du [NAME_187], [Emphasis added.] [ 256 ] The amended version of clause 152(4)(b)(iii)(A) was introduced as part of the 2019 Federal Budget (Tax Measures, Supplementary Information). This amended version does not apply in this appeal, but only applies to taxation years of a taxpayer in respect of which the normal reassessment period ends after March 18, 2019 (Bill C-30, An Act to implement certain provisions of the budget tabled in Parliament on April 19, 2021, and other measures , 2nd sess., 43rd Parl., 2021, SC 2021, c. 23 (assented to June 29, 2021)). [ 257 ] The Appellant submits that statutory amendments will either clarify or change the law, as “there is a presumption that amendments to the wording of a legislative provision are made for some intelligible purpose, such as to clarify the meaning, to correct a mistake, or to change the law...” ( R. v. [COMPANY_192]. , 2001 SCC 56, at para 34). [ 258 ] Furthermore, the Appellant referred to the following excerpts of the 2019 Federal Budget to support its position that subparagraph 152(4)(b)(iii) applies only to transfer pricing adjustments: An extended three-year reassessment period exists in respect of a reassessment made as a consequence of a transaction involving a taxpayer and a non-resident with whom the taxpayer does not deal at arm’s length. This is intended to apply in the transfer pricing context. However, the expanded definition of “transaction” used in the transfer pricing rules does not apply for the purposes of the rule establishing this extended reassessment period. Budget 2019 proposes to amend the Income Tax Act to provide that the definition “transaction” used in the transfer pricing rules also be used for the purposes of the extended reassessment period relating to transactions involving a taxpayer and a non-resident with whom the taxpayer does not deal at arm’s length. [Emphasis added.] [ 259 ] I do not agree with the Appellant that subparagraph 152(4)(b)(iii) only applies to transfer pricing adjustments. On a plain reading, there is no requirement in either the amended or applicable version of subparagraph 152(4)(b)(iii) providing that section 247 must be applicable to a transaction for the extended reassessment period to apply. The provision was amended by the 2019 Federal Budget to clarify the meaning of the term “transaction” . The amendment simply adds the definition of the term “transaction” from subsection 247(1) for the purposes of clause 152(4)(b)(iii)(A). [ 260 ] Subsection 247(1) states that a “ transaction includes an arrangement or event.” Therefore, an arrangement or an event is now considered a “transaction” for the purposes of the extended reassessment period. [ADDRESS] had previously decided otherwise in [COMPANY_193]. v. R. , 2009 [NAME_35] 155 [ Blackburn Radio ] (at paras 30 and 34) when considering the previous version of subparagraph 152(4)(b)(iii). [ 261 ] In 2019, Parliament had the opportunity to introduce a restriction for clause 152(4)(b)(iii)(A) to apply only to transfer pricing adjustments, but it did not.

2) Transaction involving the Appellant and a non-resident person, and reassessment reasonably relating to that transaction: [ 262 ] As mentioned above, I find that the 2009 Reassessment was made as a consequence of a transaction, being the [NAME_41], involving the Appellant and a non-resident person with whom the Appellant was not dealing at arm’s length, being [NAME_43]., and that the 2009 Reassessment reasonably relates to that transaction. [ 263 ] Firstly, it is not contested by the parties that the Appellant and [NAME_43]. are deemed not to deal at arm’s length with each other. [ 264 ] Further, for the following reasons, I agree with the Respondent that the obligations for the Appellant to pay the Feasibility Study Costs arose as a consequence of the [NAME_41], a transaction between the Appellant and [NAME_43]. (through [NAME_37]), which I find is the transaction to be considered for purposes of subparagraph 152(4)(b)(iii). [ 265 ] The term “transaction” as found in subparagraph 152(4)(b)(iii) “must be interpreted to include a transaction that the taxpayer alleges forms the factual foundation for a deduction claimed in an income tax return” ( [COMPANY_194]. v. Canada , 2003 FCA 479 [ [COMPANY_195] ], at para 24). [ 266 ] In Blackburn Radio , the Court relied on the definition of the term “transaction” found in the Canadian Oxford Dictionary :

35. There is no general definition of the word “transaction” in section 248 of the Act but it is defined in the Canadian Oxford Dictionary as follows: 1 a. a piece of esp. commercial business done; a deal ( a profitable transaction ). … c. the management of business etc. [ 267 ] In [COMPANY_196] v. R. , 2009 [NAME_35] 538, the Court applied the definition of the word “transaction” as used in Blackburn Radio and found that the requirements of subparagraph 152(4)(b)(iii) were met. [ 268 ] Applying the above principles, I find that the [NAME_41] is the factual foundation for the deduction of the Feasibility Study Costs. The Appellant would not have incurred the Feasibility Study Costs if it had not entered the [NAME_41] with [NAME_43]. The Appellant agreed to pay its proportionate share of the feasibility study costs incurred under [NAME_40] Agreement, because it entered into the [NAME_41] with [NAME_43]. The consideration paid (or obligations incurred) by the Appellant under the [NAME_41] included the obligation to pay for its proportionate share of expenses under [NAME_40] Agreement, as invoiced from time to time by [NAME_111]. The payment of the Feasibility Study Costs is therefore the result of a “piece … of commercial business” or the “management of business” in which both the Appellant and [NAME_43]. were involved, that is the [NAME_41]. [ 269 ] Although I agree that the Feasibility Study Costs represent 22.67% of the total feasibility study costs incurred under [NAME_40] Agreement, the transaction which forms the factual foundation for the deduction of the Feasibility Study Costs are not the contracts with various third-party service providers under [NAME_40] Agreement, but the [NAME_41]. [ 270 ] Therefore, I find that the payment of the Feasibility Study Costs was part of a transaction involving [NAME_43]. (through [NAME_37]) and the Appellant under the [NAME_41] which formed the factual foundation for the deduction claimed by the Appellant. [ 271 ] Finally, according to subparagraph 152(4.01)(b)(iii), the reassessment can only be made to the extent that the reassessment may reasonably be regarded as relating to the transaction referred to in subparagraph 152(4)(b)(iii) ( [COMPANY_195] , at para 18). I find that the 2009 Reassessment, which denied the deductibility of the Feasibility Study Costs, may reasonably be regarded as relating to the [NAME_41], as the Feasibility Study Costs were incurred as part of the obligations of the Appellant under the [NAME_41]. [ 272 ] Accordingly, for these reasons, the 2009 Reassessment was validly made by the Minister.

II. Assignment [ 273 ] Before discussing the tax issues any further, I must determine the legal consequences resulting from the assignment as provided under the [NAME_41].

1. Positions of the Parties [ 274 ] According to the Appellant, the Appellant became a party to [NAME_40] Agreement when entering into the [NAME_41]. The Appellant states that, by virtue of sections 10.4 and 10.5 of [NAME_40] Agreement, there is privity of contract between the Appellant and all parties to [NAME_40] Agreement. Therefore, the Appellant’s position is that it benefited from all the rights of the original parties to [NAME_40] Agreement, including the right to withdraw from [NAME_40] (under section 9.2). [ 275 ] The Respondent is of the view that the Appellant did not become a party to [NAME_40] Agreement when it entered into the [NAME_41]. [NAME_40] Agreement and the [NAME_41] are governed by the laws of the [NAME_118]. According to the Respondent, because the Appellant failed to adduce any evidence on the application of the laws of the [NAME_118], the Court is unable to interpret the contracts and answer that question. Further, the Respondent is of the view that a person cannot assign liabilities. Moreover, according to the Respondent, the evidence adduced at the hearing did not show that the Appellant became a party to [NAME_40] Agreement.

2. Analysis [ 276 ] The Minister and the Respondent did not argue sham in this appeal. The Respondent specifically acknowledged that the [NAME_41] and [NAME_40] Agreement are valid agreements, and that the assignment contemplated by the [NAME_41] took place. Furthermore, the parties acknowledged that the [NAME_41] did not result in a novation of [NAME_40] Agreement, considering that [NAME_38] and [NAME_32] are not signatories to the [NAME_41]. [ 277 ] For the following reasons, I find that the Court must assume that the laws of the [NAME_118] are the same as the applicable Canadian laws. Therefore, the Court may answer the legal questions raised in this appeal. [ 278 ] Furthermore, for the following reasons, because [NAME_37] assigned 68% of its one-third Participating Interest in [NAME_40] Agreement to the Appellant under the [NAME_41], and because both agreements are valid agreements, I find that the Appellant stepped into the shoes of [NAME_37] with respect to [NAME_40] Agreement. Therefore, the Appellant had the ability to exercise [NAME_37]’s contractual rights under [NAME_40] Agreement as an assignee of [NAME_37]’s rights and benefits under [NAME_40] Agreement. I agree with the Appellant’s position that it benefited from all the rights of the original parties to [NAME_40] Agreement, including the right to withdraw from [NAME_40] (under section 9.2). [ 279 ] However, I do not agree with the Appellant that there was privity of contract between [NAME_38] and [NAME_32] on one hand, and the Appellant on the other hand, because no contract existed between [NAME_38], [NAME_32] and the Appellant. Privity of contract exists only between [NAME_37], [NAME_38] and [NAME_32]. It is not sufficient that [NAME_40] Agreement allows for an assignment to affiliates, in order to create privity of contract between such an affiliate and the original parties to [NAME_40] Agreement. [ 280 ] The Appellant was not a party to [NAME_40] Agreement, but it obtained all contractual rights that [NAME_37] had under [NAME_40] Agreement as an assignee of [NAME_37]’s rights and benefits under [NAME_40] Agreement. [ 281 ] In addition, as showed below, the evidence showed that the Appellant became a participant under [NAME_40].

1) Lex fori: [ 282 ] Because the laws of the [NAME_118] have not been pleaded or proven in this appeal, the Court must assume that the laws of the [NAME_118] are the same as the laws of the forum ( lex fori ), namely Canadian laws, and more particularly, the laws of Alberta. [ 283 ] This principle was applied in the decision of The Ship "Mercury Bell" v. Amosin , [1986] 3 F.C. 454 (F.C.A.), where the Federal Court of Appeal stated: If the parties, willfully or inadvertently, fail to bring expert evidence of the foreign law, the court will act as if the foreign law is the same as its own law, it will apply the lex fori. This rule is peculiar to English law. (p.460) [ 284 ] The Federal Court of Appeal applied that principle in [NAME_197] v. Canada , 1999 CanLII 9371 (FCA), [2000] 1 FC 555 (upheld by the Supreme Court in [NAME_197] v. Canada , 2001 SCC 10), to determine whether a partnership was created under the laws of the State of Texas. The Federal Court of Appeal concluded that that principle was also applicable when the issue raises the application of statutory laws of general application. In that case, in the absence of evidence proving the foreign law, the Federal Court of Appeal applied the law of the lex fori , and more particularly, the Alberta Partnership Act .

2) Assignment under the [NAME_41]: [ 285 ] Because the assignment under the [NAME_41] is a partial assignment of rights (only 68% of the interest was assigned), it is therefore not an absolute assignment under section 20 of Alberta’s Judicature Act (RSA 2000, c. J-2) and would not be a legal assignment under that statute (see [COMPANY_199] v. [COMPANY_201]. , 2001 ABQB 1104 at paras 61-66; and [NAME_204] v. [COMPANY_207]. , 1997 CanLII 12172 (ON SC)). Regardless of there being no legal assignment under the [NAME_41], it is possible that an assignment be recognized as an equitable assignment. I find that the assignment under the [NAME_41] is an equitable assignment, to which the following rules apply. [ 286 ] An assignee under an equitable assignment is “bound by any of the equities to which the assigned chose was subject” ( [NAME_208]’s The Law of Contract , 7th Edition, pp. 891-892). The assignee’s substantive right is to enforce the original contractual obligation owed to the assignor by the other party under the original contract. Essentially, the assignee steps into the shoes of the assignor and can therefore not obtain greater rights with respect to the assigned chose than what the assignor held prior to assignment ( [NAME_208]’s The Law of Contract , 7th Edition, p. 892). [ 287 ] Further, under common law, substantive legal rights in the assigned contract “vest” in the assignee pursuant to the assignment agreement which gives the assignee a genuine right to require the obligor’s performance. [ 288 ] The case law also indicates that an assignee is entitled to exercise rights (including the right to terminate) under the assigned contract. The Alberta decision [COMPANY_209]. v. [COMPANY_210]. , 2001 ABQB 777 (at paras 32-33) specifically addresses this point, although that case considered an assignment of the entire chose in action, and not a partial assignment. However, I find that the same principle applies to a partial assignment, like the assignment under the [NAME_41]. [ 289 ] Case law also indicates that assignment does not create a new contract between the party to the original contract and the assignee, unlike a novation ( [COMPANY_211]. v. [COMPANY_213]. , 2001 ABQB 803 (CanLII) [ [NAME_212] ], at paras 129-130). [ 290 ] Rather, as stated above, the assignment transfers the choses in action under the original contract, leaving privity of contract between the original parties. An assignee cannot claim more than the assignor could have claimed. If the original contract is terminated by the assignor, an assignee cannot insist that the original party continue performance under the original contract because there is no privity of contract between the assignee and the other party to the original contract. The assignee’s only recourse would appear to be against the assignor for derogating the assigned rights as they are the party they contracted with. [ 291 ] As stated by the Supreme Court in National Trust Co. v. Mead , (1990) CanLII 73 (SCC), [1990] 2 SCR 410 (at p. 426), a party to a contract may assign its rights, but not its liabilities, so as to relieve itself of contractual obligations under the original contract. According to [NAME_208], “the party obliged under a contract is always under that personal obligation to perform, and will be liable should performance not occur” ( [NAME_208]’s The Law of Contract , 5th Edition, at p. 694). [ 292 ] Moreover, the Supreme Court has stated in The Queen v. [NAME_214] , 1883 CanLII 40 (SCC), 10 SCR 1, at p. 55: That a party who enters into a contract for performance of work is not entitled by a mere assignment to another person to substitute the assignee for himself, so as to delegate to the assignee his own rights and liabilities under contract, without the consent of the other party to the agreement, is a proposition of law so well established that it requires scarcely any authority to support. In such a case there is no privity of contract - no contractual relation of any kind - between the assignee and the party for whom the work is to be performed. [ 293 ] Case law is also clear that, subject to at least two exceptions, “without a novation, the remaining original party … cannot enforce assigned obligations against the assignee alone” ( [NAME_212] , at para 130). The two exceptions referred to by the Court is the “conditional benefit principle” and the “pure principle of benefits and burdens” . [ 294 ] Although liabilities cannot be assigned in the correct and legal sense so as to relieve the assignor from liability for non-performance, the law permits allowing another party to perform the original debtor’s obligation in the original debtors name, so long as the performance by the third party makes no difference to the original contracting parties ( [NAME_208]’s The Law of Contract , 7th Edition, p. 904). [ 295 ] According to [NAME_208], this is what was intended to be conveyed in [COMPANY_215]. v. [COMPANY_216]. , 1994 CanLII 625 (BCSC) where Spencer J. stated: “The general rule is that burden of a contract cannot be assigned without the beneficiary’s consent unless the contact is of a class where the beneficiary did not rely upon the original contractor’s ability to perform it” ( [NAME_208]’s The Law of Contract , 7th Edition, p. 905). [ 296 ] However, in the case at bar, I do not have to determine whether [NAME_38] or [NAME_32] can claim against the Appellant, should the Appellant fail to pay its proportionate share of the feasibility study costs under [NAME_40] Agreement. The question I must answer is the extent of the benefits and rights which were conveyed to the Appellant under the [NAME_41], with respect to [NAME_40] Agreement. As indicated above, I find that the Appellant stepped into the shoes of [NAME_37] and obtained all contractual rights that [NAME_37] had under [NAME_40] Agreement as an assignee of [NAME_37]’s rights and benefits under [NAME_40] Agreement.

3) Participant under [NAME_40]: [ 297 ] The Appellant further argues that the following facts showed that the Appellant became a party to [NAME_40] Agreement, namely: (i) the Appellant received the numerous job books prepared and commissioned by [NAME_40]; (ii) the Appellant licensed the data obtained through [NAME_40] to the [NAME_113] in 2003 and later contributed the data in 2009-2010 to the [NAME_116], as they were entitled to do under paragraph 8.2.1 of [NAME_40] Agreement; (iii) [NAME_111], as the business coordinator under [NAME_40], invoiced the Appellant directly in proportion to their share of the Participating Interest in [NAME_40] Agreement; (iv) [NAME_111], as well as [NAME_38] and [NAME_32] were notified of [NAME_37] assigning 68% of its one-third Participating Interest in [NAME_40] Agreement to the Appellant. [ 298 ] Although the evidence showed that the Appellant had an interest in [NAME_40] because of the foregoing facts, that does not make the Appellant a party to [NAME_40] Agreement. However, these facts showed that the Appellant became a participant under [NAME_40]. [ 299 ] Further, a review of [NAME_40] Agreement and the [NAME_41] shows that the Appellant did not become a party to [NAME_40] Agreement, although I find that the Appellant was a participant under [NAME_40], and obtained all rights and benefits [NAME_37] had under [NAME_40] Agreement as an assignee of [NAME_37]’s rights and benefits under [NAME_40] Agreement. [ 300 ] [NAME_40] Agreement, the term “Party” or “Parties” refers only to [NAME_37], [NAME_38] and [NAME_32]; section 10.4 provides that a party may assign all or part of its interest in [NAME_40] Agreement to one or more of its affiliates (section 10.4); the term “affiliate” with respect to a Party is defined as any corporation that directly or indirectly controls, is controlled or is under common control with that Party (paragraph 8.1.2); section 10.5 provides that [NAME_40] Agreement “shall extend to, be binding on and inure to the benefit of the Parties and their respective successors and permitted assigns” ; and section 10.1 provides that the rights, duties, obligations and liabilities of the Parties shall be several in proportion to their [NAME_112] and not joint or collective. [ 301 ] Under the [NAME_41], section 5 provides that: “[NAME_56] hereby ratifies, adopts, and confirms and agrees to be bound by all terms and provisions of [NAME_40] Agreement and all decisions of the Executive Committee, the Steering Committee and the [NAME_93]…” ; and section 7 provides that all rights, duties, obligations, and liabilities of [NAME_37] and [NAME_56] under the [NAME_41] and [NAME_40] Agreement shall be several in proportion to their interests, and not joint or collective. [ 302 ] For these reasons, I find that in accordance with paragraph 8.2.1 of [NAME_40] Agreement, the Appellant was allowed to license the data and used information from [NAME_40] (which it effectively did in 2003 and in 2009-2010), and further, in accordance with section 9.2 of [NAME_40] Agreement, the Appellant was allowed to withdraw from [NAME_40] Agreement.

III. Deductibility of the Feasibility Study Costs [ 303 ] I will now turn to the question of whether the Feasibility Study Costs are deductible in computing the Appellant’s business income under the Act for the 2001 Taxation Year.

1. Positions of the parties 1) The Appellant: [redacted] [ 305 ] The determination of whether an expense was incurred for the purpose of gaining or producing income is a low threshold. In the case at bar, the evidence showed that the Feasibility Study Costs were incurred by the Appellant, and the Feasibility Study Costs had a connection with the Appellant’s business. [ 306 ] Firstly, the Feasibility Study Costs were incurred by the Appellant as part of its legal obligations to pay the Feasibility Study Costs under the [NAME_41]. [ 307 ] Furthermore, the Feasibility Study Costs were incurred by the Appellant for the purpose of gaining or producing income from the Appellant’s business and to further advance the Appellant’s business, which business included various pipeline interests. A pipeline to transport gas was clearly within the scope of the Appellant’s business activities in the oil and gas industry. [ 308 ] The Appellant further submits that paragraph 18(1)(a) does not refer to an exclusive, primary or dominant purpose for an expense to be deductible, referring to comments on paragraph 18(1)(a) from the Supreme Court in Symes v. R. , (1993) 4 SCR 695, [ [NAME_217] ]: It is important to highlight the changes which were thus introduced. First, whereas the old provision required that an expense be incurred "wholly, exclusively and necessarily" for the stated purpose, the current provision does not relate the purpose requirement to any modifier. Second, whereas the old provision stated that a business expense was an expense incurred for the "purpose of earning the income", the current provision speaks of " gaining or producing " the income. (p. 34) [ 309 ] The Appellant also argues that the fact that there may be no resulting income from an activity does not prevent the deductibility of an expense under paragraph 18(1)(a) ( [COMPANY_218] v. Minister of [NAME_28] , [1957] CTC 32, 57 DTC 1055 (ex. Ct) at pp. 82-83). [ 310 ] The Appellant raised multiple factors that establish a sufficient business connection for incurring the Feasibility Study Costs to the Appellant’s business. In the Appellant’s view, these clearly show that the limitations in paragraph 18(1)(a) do not apply to disallow the deductibility of the Feasibility Study Costs. I will come back to these factors below in my analysis.

2) The Respondent: [redacted] [ 312 ] The Respondent asserts that the Appellant requires a source of business income to deduct the Feasibility Study Costs, which the Appellant does not have, because (i) there is no evidence that the Appellant carried out any activity in relation to the Feasibility Study, and (ii) the activities carried out under the Feasibility Study were in pursuit of the producers’ profits ([NAME_43]., [NAME_38] and [NAME_32]), and not in pursuit of the Appellant’s profit. [ 313 ] The Respondent asserts that the Appellant must pursue profit in carrying out an activity to have a source of income under the Act. In the Respondent’s view, the focus should not be on the nature of the activity underlying the expenses, but on the Appellant’s purported pursuit of the activity that gave rise to the expense. [ 314 ] In the case at bar, according to the Respondent, the evidence showed that the Feasibility Study Costs were incurred to develop the business of [NAME_43]. (and [NAME_38] and [NAME_32]) and not to develop any business of the Appellant, because the purpose of the Feasibility Study was to determine, on a very preliminary basis, whether it was profitable for the producers to commercialize their natural gas using a pipeline from the ANS to the Lower-48. Therefore, the Appellant cannot deduct the Feasibility Study Costs in the calculation of its business income. [ 315 ] Referring to Canada v. Paletta Estate (2022 FCA 86 [ [NAME_220] ] at paras 33-36), the Respondent argues that an activity is not a source of income for the purposes of paragraph 18(1)(a) merely because the activity appears to be inherently commercial. [ 316 ] Further, relying on [NAME_221] v. Canada , 2022 FCA 200 ([ [NAME_221] ] at paras 21 to 25), the Respondent argues that although the Feasibility Study did not have any personal or hobby element for the Appellant, the inquiry does not end there, as the Court should then examine whether the Appellant undertook the Feasibility Study in pursuit of its profit, to determine whether the Appellant had a source of business income from the Feasibility Study.

2. Analysis [ 317 ] For the following reasons, I find that the Feasibility Study Costs are properly deductible in computing the business income of the Appellant for the 2001 Taxation Year, in accordance with section 9, and the limitation in paragraph 18(1)(a) does not apply to limit the deduction. [ 318 ] I find that the Appellant had a source of business income relating to the Feasibility Study under section 3, which activities were undertaken for the purposes of evaluating and progressing a pipeline [NAME_29]. [ 319 ] Further, I find that the Feasibility Study Costs were incurred by the Appellant for the purposes of gaining or producing income from the Appellant’s business, which business included various pipeline interests and pipeline development. [ 320 ] In addition to the reasons detailed below, I also took into account the fact that the Appellant, being a corporation, exists to generate profits for its shareholders, with all of its operations and activities being directed to pursue profits. [ 321 ] I will first address the issue of whether the Appellant had a source of business income relating to the Feasibility Study and then determine whether the limitation found in paragraph 18(1)(a) is applicable in the case at bar.

1) Source of income (sections 3 and 9) a) The applicable principles [ 322 ] The Act provides that the income of a taxpayer for a taxation year includes the taxpayer’s income for the year from a source in Canada or outside Canada, including the taxpayer’s income from each business of the taxpayer (paragraph 3(a)). [ 323 ] Subsection 9(1) provides that “a taxpayer’s income for a taxation year from a business ... is the taxpayer’s profit from that business ... for the year” . [ 324 ] The Act does not define “profit” and does not provide any specific rules for computing profit. The determination of profit is a question of law and must take into account any applicable provisions of the Act. When determining profit, a taxpayer must adopt a method of computation that is not inconsistent with the Act and established case law principles, that is consistent with well-accepted business principles, and that yields an accurate picture of the income for the year ( Canderel Ltd. v. Canada , [1998] 1 S.C.R. 147 at paras 29, 50 and 53). [ 325 ] The Supreme Court in [NAME_222] v. R. , 2002 SCC 46 ([ [NAME_222] ]) established a two-stage approach to determine whether endeavours of a taxpayer are a source of business or property income, as opposed to mere personal activities: 50 …As such, the following two-stage approach with respect to the source question can be employed: (i) Is the activity of the taxpayer undertaken in pursuit of profit , or is it a personal endeavour? (ii) If it is not a personal endeavour, is the source of the income a business or property? The first stage of the test assesses the general question of whether or not a source of income exists; the second stage categorizes the source as either business or property. [Emphasis added.] [ 326 ] As indicated in [NAME_222] , when the nature of the taxpayer’s activity contains elements that suggest it could be considered a hobby or a personal venture, but the venture is undertaken in a sufficiently commercial manner, then the activity will be considered a source of income under the Act ( [NAME_222] , para 52). In these circumstances, the Supreme Court rephrased the first part of the test as being: “‘Does the taxpayer intend to carry on an activity for profit and is there evidence to support that intention?’” ( [NAME_222] , at para 54). The taxpayer must establish that its “predominant intention is to make a profit from the activity and that the activity has been carried out in accordance with objective standards of businesslike behavior” ( [NAME_222] , at para 54). [ 327 ] To determine whether an activity is carried out in a sufficiently commercial manner, one must look at the subjective intention of the taxpayer to profit as supported by various objective factors. [ 328 ] Objective factors to support the subjective intent of a taxpayer to profit will include the reasonable expectation of profit, as well as other factors like the profit and loss experience in past years, the taxpayer’s training, the taxpayer’s intended course of action and the capability of the venture to show profit ( [NAME_222] , at para 55). [ 329 ] In [NAME_222] , the Supreme Court also made it clear that this “pursuit of profit” analysis is required only when there is a personal or hobby element to an activity: 53 We emphasize that this “pursuit of profit” source test will only require analysis in situations where there is some personal or hobby element to the activity in question. … Where the nature of an activity is clearly commercial, there is no need to analyze the taxpayer's business decisions. Such endeavours necessarily involve the pursuit of profit. As such, a source of income, by definition, exists, and there is no need to take the inquiry any further. [ 330 ] In [NAME_223] v. Canada , 2002 SCC 47 [ [NAME_223] ], this point was reiterated where the Supreme Court stated “that the first stage of this test will only be relevant when there is some personal or hobby element to the activity in question. Where an activity is clearly commercial, the taxpayer is necessarily engaged in the pursuit of profit, and therefore a source of income exists” ( [NAME_223] , at para 19). [ 331 ] The test as enacted by the Supreme Court in [NAME_222] presumes that a commercial activity is undertaken in pursuit of profit ( [NAME_224] v. R. , 2023 [NAME_35] 156 [ [NAME_224] [NAME_35] ], at para 103; aff’d in [NAME_224] v. Canada , 2025 FCA 175). [ 332 ] Indeed, the Supreme Court stated in [NAME_222] that: 51 Equating “source of income” with an activity undertaken “in pursuit of profit” accords with the traditional common law definition of “business”, i.e., “anything which occupies the time and attention and labour of a man for the purpose of profit” … As well, business income is generally distinguished from property income on the basis that a business requires an additional level of taxpayer activity: …. As such, it is logical to conclude that an activity undertaken in pursuit of profit, regardless of the level of taxpayer activity, will be either a business or property source of income. [Emphasis added.] [ 333 ] The Supreme Court summarized the analysis to be made to determine whether a taxpayer has a source of business or property income ( [NAME_222] , para 60): 60 In summary, the issue of whether or not a taxpayer has a source of income is to be determined by looking at the commerciality of the activity in question. Where the activity contains no personal element and is clearly commercial, no further inquiry is necessary. Where the activity could be classified as a personal pursuit, then it must be determined whether or not the activity is being carried on in a sufficiently commercial manner to constitute a source of income. However, to deny the deduction of losses on the simple ground that the losses signify that no business (or property) source exists is contrary to the words and scheme of the Act. Whether or not a business exists is a separate question from the deductibility of expenses. . . . [Emphasis added.] [ 334 ] Recently, in [NAME_220] , the Federal Court of Appeal seems to have extended the application of the “pursuit of profit” test to activities that appear to be commercial activities, but the evidence shows that the activities are not in fact conducted with a view to profit. [ 335 ] In [NAME_220] , the Federal Court of Appeal stated that even though an activity appears to be a commercial activity, if the evidence shows that the activity is not in fact conducted with a view to profit, there can be no source of business or property under the Act: [36] [NAME_222] teaches that, in the absence of a personal or hobby element, where courts are confronted with what appears to be a clearly commercial activity and the evidence is consistent with the view that the activity is conducted for profit, they need go no further to hold that a business or property source of income exists for purposes of the Act. However, where as is the case here, the evidence reveals that, despite the appearances of commerciality, the activity is not in fact conducted with a view to profit, a business or property source cannot be found to exist. [Emphasis added.] [ 336 ] Further, in [NAME_221] , the Federal Court of Appeal rephrased the test enacted in [NAME_222] by requiring a “pursuit of profit” analysis in situations where there is no personal or hobby element to an activity: [25] The approach to determine if a person has a source of income can therefore be rephrased as follows: ¨ Is there a personal or hobby element to the activity in question? · If there is a personal or hobby element to the activity in question, the next enquiry is whether “the activity is being carried out in a commercially sufficient manner to constitute a source of income” ( [NAME_222] , at para. 60). · If there is no personal or hobby element to the activity in question, the next enquiry is whether the activity is being undertaken in pursuit of profit. [Emphasis added.] [ 337 ] The Federal Court of Appeal in [NAME_221] further explained the requisite standards to meet the above test: [35] The presence of a personal element in the activity in question will trigger the inquiry into the predominant intention of the taxpayer. Absent a personal element in the activity, the question is whether the taxpayer is pursuing profit in undertaking the activity in question, not whether this was his predominant intention. If the evidence establishes that profit is not being pursued, then the taxpayer is not carrying on a business ( [NAME_219] , at paragraph 39). [Emphasis added.] [ 338 ] More recently, the Federal Court of Appeal applied the principles enunciated by the Supreme Court in [NAME_222] and stated that “a taxpayer’s pursuit of profit will be established where the activity in question comprises no personal or recreational element” ( [NAME_225] v. Canada , 2025 FCA 112, at para 47). In that decision, the Federal Court of Appeal did not refer to [NAME_220] or [NAME_221] in its analysis of the existence of a source of business income under the Act. [ 339 ] In the case at bar, even though the Respondent acknowledged that there was no personal element in the Feasibility Study, the Respondent argues that the Court should still examine whether the Feasibility Study was undertaken in pursuit of the Appellant’s profit to determine whether the Appellant had a source of business income under the Act. [ 340 ] In support of its position, the Respondent relied on the [NAME_222] test as extended by the Federal Court of Appeal in [NAME_220] and as rephrased by the Federal Court of Appeal in [NAME_221] . [ 341 ] [NAME_222] is clear that when there is no personal or hobby element then no further analysis is needed. However, [NAME_221] and [NAME_220] require that a pursuit of profit analysis be conducted regardless of the activities’ personal or commercial nature. [ 342 ] Therefore, the state of the law is such that it is unclear whether an analysis of the taxpayer’s pursuit of profit is required when an activity is conducted in an entirely commercial manner. The foundational Supreme Court decisions suggest that no enquiry is necessary, however, as discussed above, more recent jurisprudence from the Federal Court of Appeal suggests that a pursuit of profit analysis is required. [ 343 ] On that issue, I agree with this Court in [NAME_224] [NAME_35] that when an activity has no personal or hobby element, requiring an examination as to whether there was a pursuit of profit from that activity is adding to the test as found in [NAME_222] : [106] The second step suggested in [NAME_221] adds to the test in [NAME_222] a separate inquiry into whether a taxpayer pursues a commercial activity for profit. This approach would return the test to its state prior to the decision in [NAME_222] , where the “pursuit of profit” aspect of a business was the focus even for clearly commercial activities. As stated in [NAME_222] : . . . Where the activity contains no personal element and is clearly commercial, no further inquiry is necessary. [ 344 ] Given the present state of the case law, I will apply the principles enunciated in [NAME_222] . I will then apply the extended [NAME_222] principles described in [NAME_220] and [NAME_221] in a separate analysis. [ 345 ] In this appeal, under both analyses, I reach the same conclusion, namely that the Appellant had a source of business income related to the Feasibility Study. b) The [NAME_222] test [ 346 ] Applying the [NAME_222] test as enunciated by the Supreme Court, I find that the Appellant had a source of business income related to the Feasibility Study. [ 347 ] For the reasons below, I find that the purpose of [NAME_40] was to evaluate and progress a pipeline [NAME_29] from the ANS to [NAME_36] (or Alberta) and the Lower-48. I also find that the Appellant’s business includes various pipelines interests and pipeline development. [ 348 ] The evidence showed that feasibility studies are the norm in the industry and are to be done in megaproject developments, such as [NAME_40]. I accept [NAME_119]’ expert opinion which was credible and persuasive. [ 349 ] I further find that the Feasibility Study was clearly commercial activities and did not represent a personal endeavour for the Appellant. The Respondent acknowledged that the Feasibility Study did not represent a hobby or personal endeavour of the Appellant. [ 350 ] In addition, the evidence showed that the Feasibility Study was conducted by [NAME_40] in a commercial manner. [ 351 ] In such circumstances, there is no need for the Court to question the business decisions made by the Appellant at this stage of the analysis, as there was no personal or hobby element in the Feasibility Study ( [NAME_222] , at paras 53 and 60). i. Existing business of the Appellant [ 352 ] The evidence showed that the Appellant carried on in the business of exploring for, and producing and selling, crude oil and natural gas in Canada, and was involved in the oil and gas industry. The evidence also showed that the Appellant had experience in carrying out pipeline businesses and carried on the business of natural resources transportation through its ownership and operatorship of various pipelines. [ 353 ] [NAME_133] testified that the Appellant was the corporate entity responsible for [NAME_1]’s [NAME_36] operations. I accept the evidence that the Appellant’s Western and Eastern operations were kept separate from [NAME_63] after the Merger and during the relevant period. [ 354 ] [NAME_133] as well as [NAME_160] testified that after the Merger, [NAME_51] and [NAME_53] combined their operations around the world. However, in Canada, they tried to combine [NAME_59] and [NAME_63] operations, but it was determined after a certain period to keep operations separate in both [NAME_228], and to only merge the business support services (human resources, tax, treasury, legal, finance, accounting, etc.) for more efficiencies, which became the [COMPANY_176]. [ 355 ] I do not agree with the Respondent that [NAME_133]’s testimony was unreliable regarding the operations carried out by the Appellant in [NAME_36]. I accept the evidence that [NAME_133], as president of the Appellant, oversaw the Western operations, which included overseeing the operation of the [NAME_68] and the Rainbow Pipeline (although the pipelines located in [NAME_36] were owned by EM Canada, and operated by [NAME_63] after the Merger). [ 356 ] I also accept [NAME_133]’s testimony that in [NAME_36], the Appellant had a full complement of professionals, including engineers and managers, who reported to him. [ 357 ] Although the Appellant had no interest in gas deposits in the ANS, the Appellant owned various oil and gas fields from Fort Nielsen (British Columbia) to Southeast Saskatchewan, as well as an interest in the Frontier acreage in the Northwest Territories. [ 358 ] The jurisprudence has indicated that the partners, which compose the partnership, are the persons that carry on the business rather than the limited partnership itself ( The Queen v. [NAME_229] , docket A-567-93, Federal Court of Appeal, at para 16). [ 359 ] The Appellant owns a 40% interest in [NAME_165], the remaining 60% interest being owned by EM Canada. Through its ownership of an interest in [NAME_165], the Appellant owns an interest in natural gas resources in the [NAME_82]. Further, the activities of [NAME_165] included the exploration for, and production and sale of, crude oil and natural gas in [NAME_228]. [NAME_165] also owned various pipelines and resources interests in [NAME_228]. [ 360 ] I also accept [NAME_133]’s testimony that EM Canada was responsible for [NAME_228]’s operations, through its ownership of a majority interest in [NAME_165]. [ 361 ] The evidence also showed that the Appellant owned an interest in the [NAME_231] through its ownership of limited partnership units in the [COMPANY_69], which owns a pipeline transporting offshore [NAME_228] natural gas to the USA ([NAME_39], Joint Book of Documents, tabs 158-159). [ 362 ] Further, the Appellant owns a 59% interest in [NAME_232], where employment for [NAME_167] was centralized. The activities of [NAME_232] also included the exploration for, and production and sale of, crude oil and natural gas in [NAME_36] [ 363 ] Relying on the Amended Services Agreement, the Respondent argues that [NAME_63] and not any of the [NAME_1] subsidiaries was operating the pipelines and executing the upstream activities (e.g. drilling, well servicing, etc.). Hence, the Respondent argues that the Appellant does not own or operate any pipelines in [NAME_36]. [ 364 ] I do not accept the Respondent’s argument. I accept the testimony of [NAME_133] who stated that the Amended Services Agreement was not in place when he was president of the Appellant. [NAME_160] corroborated that fact and testified about the Original Services Agreement. The testimonies of both [NAME_133] and [NAME_160] showed that the Appellant was also involved in the pipeline business in [NAME_36]. [ 365 ] Under the Original Services Agreement, [NAME_63] and [NAME_59], along with their respective subsidiaries, agreed to provide various services between themselves. According to the Original Services Agreement, [NAME_63] was to provide [COMPANY_176] (e.g. legal, tax, human resources, medical, occupational health, treasurer’s, risk management, corporate secretarial, records management, public and government affairs, procurement of services and materials, real estate, office and operations) to [NAME_59]. Further, [NAME_63] would provide production technical services to [NAME_59] for [NAME_36] Canada, except for the [NAME_68] Co. Moreover, [NAME_63] would provide personnel to [NAME_59], including [COMPANY_233]. for [NAME_36] Canada. [ 366 ] The Original Services Agreement also stated that [NAME_59], along with their respective subsidiaries, would provide [NAME_63] with services in respect of execution of drilling and well servicing for [NAME_36] Canada, as well as upstream technical computing services. [ 367 ] Regarding the income tax return of the Appellant for the 2001 Taxation Year, [NAME_133] testified that the Appellant’s business was 100% in the oil and gas industry, which meant it was all the production of oil and gas, including pipelines from a wellhead to a transportation point, including pipelines, which represented 100,000 barrels a day business ([NAME_39], Joint Book of Documents, tab 156). As indicated in its income tax return for the 2001 Taxation Year, the Appellant’s net income was $462 million and net income after taxes and extraordinary items per financial statements was $612 million. [ 368 ] I accept [NAME_133]’s testimony that all operations of the Appellant were in Canada and that the Appellant was a fully integrated producer of oil and gas in Canada. ii. Purpose and objective of [NAME_40] (i) Circumstances under which [NAME_40] Agreement was executed [ 369 ] The Respondent argues that [NAME_43]. entered into [NAME_40] Agreement as a signal to the market to gain government and third-party support. [ 370 ] For the following reasons, I find that the Respondent’s conclusion is not supported by any evidence, as the evidence adduced at the hearing showed that that conclusion was the result of the Feasibility Study, and not the reasons why [NAME_40] Agreement was executed. [ 371 ] As indicated in the document entitled “Alaska Producer Pipeline Update – April 2002” ([NAME_39], Joint Book of Documents, tab 86), the Feasibility Study conducted by the participants brought them to conclude that the projected pipeline was not currently commercially viable and that governments would play a key role in reducing costs and risks, these risks including Alaska fiscal certainty, [NAME_89]/First Nations regulatory process clarity, and US Federal regulatory enabling legislation. [ 372 ] Further, I accept [NAME_119]’ testimony that one of the results of the Feasibility Study was to gain government support, but it was not the reason why [NAME_40] Agreement was executed. [ 373 ] The testimonies of both [NAME_120] and [NAME_136] were very relevant in explaining the circumstances under which [NAME_40] Agreement was executed. Both were involved with the [COMPANY_123] well before 2000 and throughout the duration of [NAME_40]. This was [NAME_120]’s second time being involved in the commercialization of [NAME_125] [NAME_234]. Further, [NAME_136] was responsible for negotiating [NAME_40] Agreement [NAME_234]. with both [NAME_38] and [NAME_32]. Moreover, during the 2000-2002 period, [NAME_136] was working for a division of [NAME_43]. in charge of gas marketing and was the joint venture coordinator representing [NAME_1]’s interests in various joint ventures in North America. [ 374 ] [NAME_120] testified that around 1999, the price of natural gas increased in Canada and in the Lower-48. [NAME_38], [NAME_32] and [NAME_53] had preliminary discussions to see if there was an interest in building a natural gas pipeline from the ANS through Canada to the Lower-48, and whether this was the next best opportunity to commercialize the [NAME_125]. [ 375 ] I accept [NAME_120]’s testimony that the expression “commercialization of the [NAME_125]” refers to an endeavour to find a way to take the natural gas on the ANS and find a way to bring it to market, and that it would involve both the production and the transportation of natural gas. [ 376 ] As indicated in a presentation made to [NAME_128] dated September 21, 2000, [NAME_1] was considering entering into an agreement with [NAME_38] and [NAME_32] on the commercialization of ANS gas and to evaluate a pipeline to the Lower-48 ([NAME_39], Joint Book of Documents, tab 7). That presentation showed that the primary objective of the joint work was to select the most desirable route for the pipeline and to develop a plan to achieve that route (reservoir planning, pipeline route evaluation, external affairs plans, permitting plans, plans for transporting gas from Alberta to Lower-48 via pipeline, fiscal strategy, structure/financing alternatives, benefits/timing of involving non-producers, plans for subsequent work program). [ 377 ] Further, according to [NAME_120], a [NAME_93] meeting regarding [NAME_40] was held on October 19, 2000 ([NAME_39], Joint Book of Documents, tab 9). The [NAME_93] proposed that joint teams be put in place to explore the following areas: commercial, environmental/regulatory, external affairs and technical, and consulting with third parties. The document described the key work planned to be done under [NAME_40] as well as the staffing of the various programs’ teams. The key work assumptions included to conduct comparable work for the Northern and Southern Routes to meet [NAME_84] and [NAME_89] filing requirements, evaluate a new build concept from the ANS to Alberta and from Alberta to Chicago, and evaluate alternatives to newly built systems from Alberta to Chicago. One minor issue raised in the document was the identity of the signatories to the proposed [NAME_29] Agreement, namely whether it would be executed by the parent companies or any of their subsidiaries. [ 378 ] The testimony of [NAME_136] is also very relevant in understanding the prevailing market at the time [NAME_40] Agreement was executed. Her testimony, which I find was very credible and reliable, corroborated [NAME_120]’s testimony. [ 379 ] According to [NAME_136], starting in the summer of 2000, she was involved with [NAME_40], but she was not seconded to [NAME_40]. She met with representatives of [NAME_38] and [NAME_32] to come to an agreement in respect of the [NAME_125], and to structure the agreement, including the structuring for the ownership of the projected pipeline. Further, the idea under [NAME_40] was to build the pipeline rapidly because of the unusual natural gas market. Moreover, given the length of the pipeline, the liability issue was also very important. [ 380 ] [NAME_136] was involved in negotiating and drafting [NAME_40] Agreement, as a representative of [NAME_43]. She stated that in the summer of 2000, the natural gas market was at an unusual place because of market deregulation. The price was at 2 USD/kcf, but at the end of the year, the price went up to 9 USD/kcf. However, the price of oil went down to 20-10 USD a barrel. Politicians got involved because their constituents were anxious that the price of natural gas was so high. At the end of 2000, natural gas was a very valuable resource. [ 381 ] Because the oil price was so low and the natural gas price was so high, [NAME_43]. wanted to join with [NAME_38] and [NAME_32] to see if there was an opportunity to bring the ANS stranded gas to market via a pipeline and realize economies of scale. According to [NAME_136], the purpose of [NAME_40] was to take the ANS stranded natural gas and bring it to market, through a pipeline from the ANS to Alberta, and from Alberta to the Lower-48 markets. [ 382 ] As indicated by [NAME_136], in September 2000, and more specifically on the date of the presentation made to [NAME_128] on September 21, 2000, [NAME_40] was going forward with the construction of a pipeline ([NAME_39], Joint Book of Documents, tab 7). (ii) [NAME_40]: A Feasibility Study for a [NAME_29] [ 383 ] The Respondent raised various arguments to suggest that the purpose of the Feasibility Study was to determine whether it would be profitable for the producers, namely [NAME_43]., [NAME_38] and [NAME_32], to bring their natural gas to market. [ 384 ] For the following reasons, I do not agree with that conclusion and with the Respondent’s various arguments. I find that [NAME_40]’s purpose and objective were to evaluate and progress a potential pipeline [NAME_29] for transporting natural gas from the ANS to [NAME_36] and the Lower-48 markets and were not to determine whether it would be profitable for the producers, namely [NAME_43]., [NAME_38] and [NAME_32], to bring their natural gas to market. The evidence showed that [NAME_40] was a feasibility study for a pipeline [NAME_29]. [ 385 ] Documentary evidence, as well as credible and reliable testimony of numerous witnesses at the hearing, established that the purpose of the Feasibility Study was to evaluate a pipeline [NAME_29] to transport natural gas from the ANS to [NAME_36] and the Lower-48 markets, and that [NAME_40] was a feasibility study for a projected pipeline. [ 386 ] I accept [NAME_120]’s testimony that [NAME_40] was a feasibility study for a pipeline [NAME_29], which was a very large capital [NAME_29] qualifying as a megaproject. Capital costs to build the pipeline was estimated to be more than $20 billion (including all steps in building the pipeline). [ 387 ] [NAME_119] also testified that [NAME_40] qualified as a megaproject. In proceeding under [NAME_40], and carrying out the Feasibility Study, the parties followed megaproject practices. I will come back to [NAME_119]’ expert testimony below. [ 388 ] According to [NAME_120], [NAME_40] was advancing downstream activities, namely a gas treating plant, NGLs, and a pipeline, but it was not advancing upstream activities, namely exploring, drilling, bringing to surface for natural gas. [NAME_120] referred to section 2.3 of [NAME_40] Agreement which specifically provides that the agreement does not provide for the shipment or the marketing of natural gas or NGLs, and that each party remains individually responsible for shipping and marketing. [ 389 ] In fact, the Feasibility Study was in relation to the purpose of evaluating and advancing a projected pipeline from the ANS to Alberta and the Lower-48 markets and did not include any study with respect to production of resources. [ 390 ] [NAME_120] further testified that [NAME_40] Agreement contained all the terms and conditions between the parties regarding [NAME_40], and all parties agreed with these terms. [ 391 ] The preamble to [NAME_40] Agreement clearly defines the objective of [NAME_40] as the parties wanting to “evaluate and progress a pipeline [NAME_29] to transport its natural gas from the Alaska North Slope into the [NAME_36] and U.S. market hubs” , which is defined as the “[NAME_29]” . [ 392 ] The preamble to [NAME_40] Agreement also indicates that the parties wanted to “further evaluate the costs and benefits associated with a pipeline route from the Alaska North Slope through Northern Canada following the [NAME_81] (‘[NAME_126]’) as well as a pipeline route that follows the [ADDRESS] (‘Southern Route’)” . [ 393 ] Article 1 of [NAME_40] Agreement describes [NAME_40] as containing a gas treating plant and a pipeline from the ANS to Alberta, and as may be containing a pipeline from Alberta to a terminal point in Canada, or continental USA, and NGLs facilities. [ 394 ] Further, in March 2002, in a document entitled “[NAME_29] Summary - March 2002” , [NAME_40] summarized the overview of [NAME_40] as follows, which summary clearly indicates the purpose of [NAME_40] being a feasibility study for a pipeline [NAME_29] ([NAME_39], Joint Book of Documents, tab 77, at p. 2): Developed feasibility cost estimates for a world class pipeline [NAME_29], Gas Treatment Plant and NGL facilities; $125M USD spent for this phase of [NAME_40]; 110 owner company representatives and 1,000,000 plus staff-hours (including contractors) with about 20% in the field; Performed multiple environmental field studies along 5,400 miles of right-of-way. [ 395 ] Further, according to [NAME_136]’s testimony, [NAME_40] was a Feasibility Study to progress and evaluate a pipeline. In addition to having been very credible, [NAME_136] would have had numerous discussions with [NAME_38] and [NAME_32] on the financing and structuring of the construction of a pipeline. [ 396 ] As indicated above, all costs incurred and activities undertaken under [NAME_40], as we can infer from the numerous job books prepared under [NAME_40] as well as from the [NAME_127], were in relation to the purpose of evaluating and advancing a pipeline from the ANS to [NAME_36] and to the Lower-48. [ 397 ] [NAME_119], who was the [NAME_153] program manager of [NAME_40], also testified on the purpose of [NAME_40]. His testimony, which was very credible and reliable, corroborated, inter alia , the testimonies of [NAME_136], [NAME_120] and [NAME_133] on that issue. [ 398 ] [NAME_119] testified that the managers of the various programs on [NAME_40] had a very detailed execution plan ([NAME_39], Joint Book of Documents, tab 74). [ 399 ] According to [NAME_119], [NAME_40] was created to study the potential of developing a natural gas pipeline including a gas treating plant, compressor stations, and NGL plant from Prudhoe Bay, Alaska to Chicago, Illinois; [NAME_40] entailed the evaluation of the costs and benefits associated with a pipeline from the ANS to markets in Canada and the Lower-48. The responsibility of the [NAME_153] team was to define the environmental, regulatory and land requirements and to begin the process of fulfilling those requirements in coordination with [NAME_40]’s commercial, legal and technical programs. [NAME_153] components of costs for the initial study phase amounted to 38 million USD. [ 400 ] Moreover, I find that [NAME_119]’ expert opinion on pipeline [NAME_29] development should be given a lot of weight. His credibility was not undermined at trial. According to [NAME_119], [NAME_40] qualifies as a megaproject, because its capital costs would have exceeded $1 billion, namely $20 billion. As such, the participants in [NAME_40] followed the megaproject gate decisions process. [ 401 ] According to [NAME_119], on megaprojects, objectives of the parties involved must be clear. He did not agree that the predominant purpose of the Feasibility Study was to determine whether it would be profitable for the producers to bring their natural gas to market. [ 402 ] Further, according to [NAME_119], the fundamental objective of [NAME_40] was to progress a pipeline from the ANS to the Lower-48 markets. [NAME_40], the objectives were clear and did not change. It would be inconceivable that [NAME_40], being a megaproject, would have an unstated objective overriding the documented objective agreed to by the parties to [NAME_40] Agreement. [NAME_40]’s objectives were clearly documented in [NAME_40] Agreement and consistently referenced and well communicated in the subsequent [NAME_29] materials. Further, as indicated above, [NAME_40] Agreement specifically excluded the shipping and marketing of natural gas and NGL (section 2.3 of [NAME_40] Agreement). [ 403 ] [NAME_159], who was the Program Manager for the Northern Sector on [NAME_40], also testified that [NAME_40] entailed a gas treating plant on the ANS, a pipeline from the ANS to Alberta by the Southern Route or the [NAME_126], a pipeline from Alberta to Lower-48, and a NGL plant either in Alberta or Chicago. I find that [NAME_159]’s testimony was credible. Further, his testimony corroborated all previous testimonies on the purpose of [NAME_40], being a feasibility study for a pipeline [NAME_29]. [ 404 ] According to [NAME_159], [NAME_40] was to do a feasibility study to determine whether it was feasible to build a pipeline and what would be the technical aspects of doing so. For [NAME_40], [NAME_159]’s team had to perform various analysis to determine whether a pipeline from Prudhoe Bay to a terminus around Edmonton was feasible, both using the Southern Route and the [NAME_126], and what would be the costs of constructing such a pipeline. [ 405 ] Further, [NAME_159]’s team had to determine whether it was feasible to process natural gas on the ANS, how to process it and the costs of doing so. The costs schedule and time element had been provided to the Commercial program of [NAME_40] to determine the economics. Many factors had to be considered in [NAME_40], some being whether it was possible to lay pipes in the Beaufort Sea, in the [NAME_81] for the [NAME_126] and the [ADDRESS] for the Southern Route given the permafrost and the mountain ranges. [ 406 ] Further, if it was deemed feasible to build a pipeline from the ANS to the Lower-48, then [NAME_40] would include preparing the materials for filing with the [NAME_84] and [NAME_89]. [NAME_159]’s team prepared many job books for [NAME_40] ([NAME_39], Joint Book of Documents, tabs 58, 59, 64) and had commissioned numerous third-party contractors job books ([NAME_39], Joint Book of Documents, tabs 71, 65, 66, 67, 72, 73, 80, 81 and 84). [NAME_159] also awarded the survey to be done on the Beaufort Sea for the [NAME_126], but it was never completed due to bad weather and a broken ship ([NAME_39], Joint Book of Documents, tab 82). [ 407 ] In addition, [NAME_159] referred to the document entitled “[NAME_29]” ([NAME_39], Joint Book of Documents, tab 64). That document was primarily prepared by [NAME_159]’s team and showed the scope of [NAME_40]: what it would look like, how it would get procured, how it would get engineered, the regulatory process, construction, logistics, how it would be commissioned and put in service. [ 408 ] As indicated by [NAME_159], the [NAME_29] was a dynamic document and would have been updated if [NAME_40] had proceeded further, up to when the pipeline would have been put in service in 2009-2010. [ 409 ] Section 2.1 of the [NAME_29] describes [NAME_40]’s scope as follows: The Alaska Gas Producers are planning to market associated gas related to oil and gas production on the North Slope of Alaska (ANS). A pipeline system is being proposed to transport this gas to Lower 48 Markets. The gas will be treated in a Gas Treatment Plant (GTP) located near Prudhoe Bay and transported via a pipeline to Alberta, Canada. At this point, the gas may be processed to remove Natural Gas Liquids at a NGL plant or will be transferred to existing gas “take-away” facilities or to a new take-away pipeline, or some combination of both. [ 410 ] Further, the [NAME_29] stated that [NAME_40] involved the design and construction of the following components: GTP, gas transmission pipeline from Alaska to a point in Alberta (near Edmonton), NGL, pipeline from Alberta to Lower 48 markets (either using existing capacity or building their own pipeline) ([NAME_39], Joint Book of Documents, tab 64, at p. 19). [ 411 ] The [NAME_29] also indicated that [NAME_40] commissioned conceptual engineering packages to engineering firms for the conceptualization of the four primary [NAME_29] components: (i) GTP at Prudhoe Bay: [NAME_235]; (ii) A to B pipeline (Alaska to Alberta): [NAME_236]; (iii) NGL Straddle Plant: [NAME_236]; and (iv) B to C Pipeline (Alberta to Chicago): [NAME_237]. This document clearly shows that a pipeline was projected to be built. [ 412 ] In addition, the minutes of the Steering Committee meeting of September 12, 2001, where the members discussed the pipeline design for the Alaska to Alberta pipeline, the subsea survey of the Beaufort Sea, gas treating plant and the NGL plants, clearly show that a pipeline was projected to be built ([NAME_39], Joint Book of Documents, tab 40). [ 413 ] In September 2001, [NAME_159]’s team was halfway through the work under [NAME_40]. They had determined, inter alia , the pipe size, as well as the number and locations of compressor stations. However, detailed technical work would not have been done. [ 414 ] [NAME_160]’s testimony also demonstrated that [NAME_40] was a feasibility study for a pipeline [NAME_29]. He testified on various email exchanges between the tax group of [NAME_43]. in the USA and himself regarding three possible alternatives to structure the Canadian portion of the pipeline ([NAME_39], Joint Book of Documents, tab 16). According to [NAME_160], a pipeline construction was considered under [NAME_40]. [ 415 ] Further, [NAME_160] testified that on June 22, 2001, they believed that the ANS pipeline will be built. In his testimony, he referred to a document dated June 22, 2001, showing that the [NAME_1] tax group contacted the Department of Finance in Canada to discuss and obtain a change in the rate of depreciation for pipelines in Canada (which was at 4% at the relevant time) ([NAME_39], Joint Book of Documents, tab 31). In that document, [NAME_160] indicated that “the [COMPANY_238] are currently considering a Limited Partnership to hold the Canadian portion of the line as it has the potential to optimize the overall EM tax position. The other portions of the Limited Partnership would be owned by [NAME_30] and [NAME_33]…” [ 416 ] Further, I find that the [NAME_127], a key deliverable for the Commercial program of [NAME_40], shows that [NAME_40] was not a producers’ study, but a feasibility study for a pipeline [NAME_29]. [ 417 ] I accept [NAME_120]’s testimony that the [NAME_127] was not developed to tell the producers how to run their economics, but it was developed for calculating the investors’ rate of return ( “IRR” ) for the construction of the pipelines, including the gas treating plant, the NGL plant, the A to B (ANS to Alberta) pipeline and the B to C (Alberta to Chicago) pipeline. There was no IRR calculation made for upstream activities. However, [NAME_120] calculated the net present value ( “NPV” ) for upstream activities, namely how much [NAME_27] the Prudhoe Bay unit, the Point Thompson unit, and new fields to be discovered would receive from the production of the resources if a pipeline was built. [ 418 ] According to [NAME_120], the IRR is dictated by the toll structure chosen, which was to be 12% return on equity, 7% debt and a debt/equity ratio of 70/30. The IRR for the downstream activities based on the base case was approximately 7%. If both the upstream and downstream activities are combined, the IRR was 10.9% (combining net cash flow from upstream and downstream activities). [ 419 ] I also understand that [NAME_120] built in the [NAME_127] the net back pricing from the producers’ or marketers’ perspective. To make that calculation, [NAME_120] collected forecasts of oil and natural gas production and built in the reduction of oil productivity if natural gas was taken out of the fields. Furthermore, one of the other key components of the [NAME_127] was the calculation of taxes and royalties payable to various governments if a pipeline was built. However, I do not find that these additional components to the [NAME_127] showed that the purpose of the Feasibility Study was whether it would be profitable for the producers, namely [NAME_43]., [NAME_38] and [NAME_32], to bring their natural gas to market. [ 420 ] Finally, in finding that [NAME_40] was a feasibility study for a pipeline [NAME_29], I also consider the fact that there was no program under [NAME_40] dealing with the production of natural gas resources per se. (iii) Other means of bringing [NAME_43].’s [NAME_125] to market [ 421 ] To support their position that [NAME_40] was a producers’ study and not a feasibility study for a pipeline [NAME_29], the Respondent argues that a pipeline was only one means [NAME_43]. was considering during that period to commercialize its [NAME_125] resources. According to the Respondent, [NAME_43]. was also looking at commercializing its [NAME_125] by building a gas-to-liquids ( “GTL” ) plant in the ANS, using existing pipeline to transport the natural gas to the coast of Alaska. Further, [NAME_43]. was also looking at an [NAME_29]. [ 422 ] Moreover, the Respondent argues that [NAME_88] had exclusivity under the [NAME_91] to build a pipeline from the ANS to Canada, and accordingly, [NAME_40] could not have been a feasibility study for a pipeline [NAME_29]. [ 423 ] For the following reasons, I do not agree with the Respondent. I find that the evidence showed that during the 2000 to 2002 period, [NAME_43]. did not look at means other than a projected pipeline to bring its [NAME_125] resources to markets. [ 424 ] The evidence shows that [NAME_53]’s [NAME_29] study ended in 1999. I accept [NAME_120] testimony that in 1999, [NAME_43]. decided not to pursue a [NAME_29], which is an expensive technology, and had determined to go ahead with [NAME_40] Agreement, given the market for the natural gas and oil resources at the time. [ 425 ] Further, documentary evidence adduced at the hearing showed that in September 2000, [NAME_43]. had determined to go ahead with [NAME_40] ([NAME_39], Joint Book of Documents, tab 7). [ 426 ] I also accept [NAME_136]’s testimony which corroborated [NAME_120]’s testimony. According to [NAME_136], [NAME_43]. was not looking at a GTL plant in or around December 2000. As indicated by [NAME_136], [NAME_40] of a GTL plant, which is a very complex [NAME_29], did not make sense at the time, as it needed a market where the oil price is high, and the natural gas price is low. In 2000, the situation was the opposite. [ 427 ] [NAME_120] also testified on the [NAME_29] and the [NAME_91], referring to the history of the [NAME_125], which testimony I accept as it was credible and was not contradicted. [ 428 ] The [NAME_125] was discovered in the 1960s. At that time, resources’ owners looked at building pipelines to the Lower-48 markets, or liquified the natural gas and shipped it on vessels to the far east for sale. [ 429 ] Prior to and around 1992, [NAME_88] and other pipelines’ owners were looking at advancing the [NAME_125] under the [NAME_90] [NAME_29]. Due to high cost of construction and low natural gas price, the [NAME_90] [NAME_29] did not proceed. Further, there were technical and commercial issues with the [NAME_90] [NAME_29], including a substantial outstanding financial liability carried out by [NAME_88] under the [NAME_91] due to an obligation to reimburse parties who withdraw from the [NAME_90] [NAME_29]. If the [NAME_90] [NAME_29] was put in place (e.g. a pipeline was built), withdrawn partners of [NAME_40] would have to be reimbursed in an amount of approximately 3.3 billion USD. In addition, Alberta producers who were assessed charges previously would also need to be compensated for an amount of approximately 90 million USD. In 2000-2001, the [NAME_91] were still valid, but [NAME_40] had still not been constructed in the ANS (Exhibit AR‑1, Joint Book of Documents, tab 20). [NAME_119]’ testimony corroborated [NAME_120]’s testimony on that issue. I will discuss the [NAME_91] more fully below. [ 430 ] Because of these financial challenges and technical issues with the [NAME_90] [NAME_29], [NAME_53], [NAME_38] and [NAME_80] looked at an [NAME_29] to advance the [NAME_125], which [NAME_29] was [NAME_120]’s first involvement with the commercialization of [NAME_125]. The study, which lasted from 1992 to 1995, was related to pipelines to bring the natural gas to the coast of Alaska, build an LNG plant to cool the gas and put it on LNG carriers to be sent to the far east. For that study, [NAME_120] was a supervisor of a group of professionals involved in putting forecast and analysing data from the two operators in ANS, namely [NAME_38] and [NAME_80]. Because the price of crude oil went down, the participants in the study concluded that [NAME_40] was not commercially viable, and [NAME_53] moved on to other projects to commercialize its [NAME_125]. (iv) Third-party meetings [ 431 ] The Respondent also asserts that the third-party meetings [NAME_120] attended showed that [NAME_40] was a producers’ study, as the purpose of these meetings was to determine if there could be some economic benefits for the producers to use other pipeline companies’ assets to ship their natural gas instead of constructing their own pipeline. [ 432 ] For the following reasons, I do not agree with the Respondent. [ 433 ] As mentioned above, [NAME_120], as Manager of the Commercial program on [NAME_40], met with third-party pipeline owners during the spring and summer of 2001 to see if they could bring value to [NAME_40], and to determine if they should be part of [NAME_40], mostly for the B to C (Alberta to Chicago) portion of the pipeline. [ 434 ] I accept [NAME_120]’s testimony that during the period from February to June 2001, the primary option considered by [NAME_40] was to build their own pipeline for the ANS to Alberta segment, and that [NAME_40] planned to meet with [NAME_115] to determine what was their position on the [NAME_91]. [ 435 ] I also accept [NAME_120]’s testimony that he specifically advised third-party pipelines owners that he was not representing potential shippers (namely producers or gas marketers), but pipeline owners ([NAME_39], Joint Book of Documents, tab 22: meeting with [NAME_239]; tab 23: meeting with [NAME_152]; tab 24: meeting with [NAME_115]; tab 33: meeting with [COMPANY_241].; tab 34: meeting with [NAME_242]; tab 30: meeting with [NAME_239]). [ 436 ] [NAME_119]’ testimony also corroborated [NAME_120]’s testimony. Referring to a Steering Committee Review of December 5, 2000, detailing [NAME_40] and to which the [NAME_153] program contributed information, [NAME_119] testified that one of the objectives was to evaluate a newly built concept from the ANS to Alberta and from Alberta to Chicago, and evaluate alternatives to a newly built system from Alberta to Chicago ([NAME_39], Joint Book of Documents, tab 14). Regarding the segment from Alberta to Chicago, [NAME_40] was very interested in meeting with other pipelines owners to see if synergies were possible, and more particularly to meet with [NAME_239] to obtain their data because the pipeline route under [NAME_40] would be parallel to the [NAME_239], which was built in May 2000. iii. Activities carried out under the Feasibility Study [ 437 ] The Respondent argues that the Appellant failed to carry out any activity related to the Feasibility Study, and therefore, the Appellant cannot be found to have a business and be pursuing profit. [ 438 ] According to the Respondent, the work carried out under [NAME_40] was carried out by [NAME_37], [NAME_63], and some third-party contractors, but none were carried out by the Appellant. Further, according to the Respondent, although the Appellant asserts that it contributed employees and office space to the Feasibility Study, the evidence adduced at trial showed that the Appellant did not make any such contribution. [ 439 ] Whether the Appellant, by itself, carried out any specific activities under the Feasibility Study is irrelevant to the issue as to whether the Appellant has a source of business income under the Act. A taxpayer can hire contractors and subcontractors to perform activities under its name, as agent or otherwise, and still be found to carry on the activities. [ 440 ] The activities performed under [NAME_40] consisted of multiple specific studies on various aspects of [NAME_40], namely route comparisons, tolls and tariffs methodology, financing plans, structure of ownership of the potential pipeline, matters for regulatory applications (socio-economic, financing, gas supply, etc.), environmental assessment, landowner and right of ways, governmental affairs, technical aspects of the pipeline’s design and cost estimates, preliminary [NAME_29] execution plans, issues and risks management. As indicated above, all activities were described in numerous job books prepared by [NAME_40] and various contractors and subcontractors. [ 441 ] [NAME_120] testified that 90 employees from [NAME_30], [NAME_33] and [NAME_1] were seconded to [NAME_40], and that hundreds of independent contractors and subcontractors were hired to perform the various activities under the Feasibility Study, including engineering firms and construction companies specialized in that kind of work. [NAME_120] also testified that the Appellant furnished personnel and managed [NAME_40] by working with [NAME_135], the named representative of [NAME_1]’s interest in [NAME_40] at the [NAME_93]. [ 442 ] Further, I accept [NAME_133]’s testimony that a couple of persons from the Appellant’s [NAME_243] were seconded to [NAME_40], including [NAME_159] and another individual from their environmental department. [NAME_40], they did not report to [NAME_133], but to the [NAME_93], which is a standard process in a multinational environment when specific projects are undertaken. [ 443 ] Moreover, the evidence showed that feasibility studies are the norm in the industry and are to be done in megaproject developments, such as [NAME_40]. [ 444 ] I accept [NAME_119]’ expert opinion dealing with the development of megaprojects using gate decision process that shows that the Feasibility Study undertaken under [NAME_40] is the norm for potential pipeline projects ([NAME_47], p. 13). For example, feasibility studies were completed at the outset of other proposed pipeline investments, such as the [NAME_239], [NAME_81]. [ 445 ] I also accept [NAME_119]’ opinion that a potential pipeline owner would undertake the type of activities performed by the parties under the Feasibility Study to advance a potential pipeline [NAME_29] to the regulatory authority application stage. [ 446 ] According to [NAME_119], pipeline projects qualifying as megaprojects are developed following a stage gate process which divides the major capital [NAME_29] investments into stages, with specific points for corporate executives and boards to make decisions before continuing to the next stages. Each gate assessment examines different issues and its own deliverables. Planning phases of megaprojects are referred to as front-end loading ( “FEL” ) process, and usually comprise three stages called FEL-1, FEL-2 and FEL-3. After each phase, parties will determine if they proceed further, which is called “decision-gate” . After the FEL-3 stage, decisions are made by the parties on whether or not to begin construction. If the parties decide to go ahead after the FEL-3 stage, the large financial commitments to commence construction are made. According to [NAME_119], megaprojects never skip the FEL phases, since these phases are critical in obtaining stakeholders’ interest. [ 447 ] As indicated by [NAME_119], [NAME_40] was pursued under the FEL-1 phase, including some FEL-2 phase work which was the preparation for the [NAME_89]/[NAME_84] filing applications. The actual filing applications with the [NAME_89]/[NAME_84] are done at the FEL-3 stage. The FEL-1 stage is a critical component of [NAME_29] development best practices. It is undertaken to confirm strategic alignment, assess risk exposure, determine economic feasibility and confirm return on investment, establish expected key performance measures, and evaluate alternative options and approaches. [ 448 ] Further, according to [NAME_119], the Appellant and all other parties to [NAME_40] Agreement performed activities under the Feasibility Study to achieve the parties’ objective, which was to evaluate and progress a pipeline [NAME_29] to transport natural gas from the ANS into the [NAME_36] and the Lower-48 market hubs, and the activities were consistent with [NAME_29] management best practices, typical of third-party feasibility studies. [ 449 ] Similarly, [NAME_120] testified that [NAME_40] was pursued under the conceptual phase (other similar terminology), which involved defining [NAME_40] and estimating costs. [ 450 ] [NAME_119] also testified that the activities performed under [NAME_40] also aligned with [NAME_89] requirements for new pipeline development. The role of the [NAME_89] at the time was to determine if the potential pipeline was in the public interest, by assessing economic, environmental and social interests. If a [NAME_29] qualified under the [NAME_89] regulations, the [NAME_89] issued a certificate of public convenience and necessity. [NAME_89] regulation also extended to the commercial aspects of pipeline construction and operations, including tolls and the terms and conditions of service for these pipelines. In reviewing applications, the [NAME_89] considered and reviewed many factors, such as [NAME_40] description, environmental and socio-economic assessment, public consultation processes, economic justification, safety and technical standards and any other relevant facts. [ 451 ] In the case at bar, it is sufficient to establish that the Appellant paid its share of the aggregate feasibility study costs incurred for the Feasibility Study. As a result of the [NAME_41], the Appellant agreed to pay, and did pay, a 22.67% share of the aggregate expenses borne by all participants under [NAME_40] Agreement. [ 452 ] Further, the evidence showed that [NAME_111], as well as [NAME_38] and [NAME_32], received notice of the assignment of [NAME_37]’s Participating Interest in [NAME_40] Agreement to the Appellant. [NAME_111] directly invoiced the Appellant based on its 22.67% Participating Interest in [NAME_40] Agreement. I accept [NAME_120]’s testimony in that respect. [ 453 ] For all these reasons, considering the nature of the Appellant’s business, the purpose and objective of [NAME_40] Agreement, the activities carried out under the Feasibility Study, and the absence of any personal or hobby element in the Feasibility Study to the Appellant, I find that the Appellant had a source of business income related to the Feasibility Study. c) The [NAME_222] test as rephrased by the Federal Court of Appeal [ 454 ] When I apply the [NAME_222] test as rephrased by the Federal Court of Appeal in [NAME_220] and [NAME_221] , I also find that the Appellant had a source of business income related to the Feasibility Study, because the Appellant was pursuing profit in undertaking the Feasibility Study. Numerous objective factors examined below show the Appellant’s intention to pursue profit in undertaking the Feasibility Study. [ 455 ] The evidence showed that the Appellant could reasonably expect to make profit if [NAME_40] progressed. In addition, as indicated in the previous section of these Reasons for Judgment, the Appellant had experience in carrying out pipeline businesses and was already involved in the oil and gas industry. [ 456 ] Further, the evidence showed that the Appellant intended to benefit from [NAME_40] Agreement to the extent that [NAME_40] leads to a pipeline [NAME_29] in Canada; a potential benefit would be pipeline ownership of a segment of the projected pipeline in Canada, if the pipeline was built and if the [COMPANY_48] owned an interest in the pipeline. [ 457 ] The Respondent’s position, namely that the Feasibility Study was undertaken in pursuit of the producers’ profit and not in pursuit of the Appellant’s profit because the Appellant was not a producer and did not own any natural gas deposits in the ANS, cannot stand in light of the evidence adduced at the hearing. [ 458 ] I acknowledge that according to [NAME_221] , it is not required to establish a predominant intention, but only that the Appellant pursued profit in undertaking the Feasibility Study ( [NAME_221] , at para 35). [ 459 ] As [NAME_119]’ expert testimony showed, pipeline owners get guaranteed returns from the tolls they charge to the shippers on the pipelines, as established by the [NAME_89] return on equity. [NAME_119]’ expert testimony showed that the Canadian owner of part of the projected pipeline would stand to profit if a pipeline was built. I accept [NAME_119]’ expert opinion on that issue, as his opinion was credible and uncontradicted. [ 460 ] As I will discuss below, the Appellant had the potential to gain profits from [NAME_89] tolling regulations and from the licensing of the proprietary information acquired under [NAME_40] Agreement. I find that the Appellant was aware of these potential [NAME_27] streams and entered into the [NAME_41] with the intention to pursue these profits through undertaking the Feasibility Study. [ 461 ] Further, for the following reasons, I find that [NAME_40] was not advancing under the [NAME_91], but advancing the Appellant’s business. i. Pipeline structuring/ownership: [ 462 ] To support its position, the Respondent argues that no commitment was made to the Appellant, or any other [NAME_1] entity, regarding any ownership or operation of a pipeline resulting from [NAME_40]. [ 463 ] For the following reasons, I do not agree with the Respondent’s arguments. (i) A Canadian affiliate of [NAME_43]. would be the owner of the Canadian segment of the projected pipeline, if constructed and if the [COMPANY_48] had an ownership interest in the pipeline [ 464 ] I find that a Canadian affiliate of [NAME_43]. was considered early in [NAME_40], and as early as September 2000, to be the owner of the Canadian segment of the projected pipeline, if a pipeline was built and if the [COMPANY_48] had an ownership interest in the pipeline. [ 465 ] I accept [NAME_136]’s testimony that [NAME_43]. always owns pipelines or operates pipelines through affiliates located in countries where the pipelines are situated, to limit [NAME_43].’s exposure to civil liability. [ 466 ] According to [NAME_136], as early as September 2000 there was consideration to include a [NAME_1] entity as part of the structuring of the projected pipeline. [ 467 ] Further, when negotiating the terms of [NAME_40] Agreement in 2000, [NAME_136] testified that the [NAME_41] was contemplated. As indicated above, [NAME_136] was involved particularly with the negotiation and drafting of articles 9 and 10 of [NAME_40] Agreement, explaining that in large multinational groups like [NAME_1], it was common to assign interests in various projects to affiliates (section 10.4 of [NAME_40] Agreement). However, restrictions as found in article 9 of [NAME_40] Agreement are put in place if a party wants to assign to third parties, because of liability issues. [ 468 ] As indicated by [NAME_136], because the projected pipeline would be located both in the USA and in Canada, a Canadian affiliate would own the Canadian portion of the pipeline, and a US affiliate would own the US portion of the pipeline. [NAME_136] raised additional reasons for that consideration, including differences in Canada and in the USA on issues regarding liabilities, regulatory matters, environmental matters and different partners in Canada and the USA as owners of the projected pipeline – e.g. First Nations in Canada and the [NAME_118] in the USA. [ 469 ] I also accept [NAME_120] and [NAME_136]’s testimonies that under [NAME_40], the parties thoroughly examined the structure to be used for the ownership of the projected pipeline, both in Canada and in the USA. However, the parties did not arrive at an agreement on the structure for the segment of the pipeline located in Canada. [ 470 ] After December 5, 2000, [NAME_136] testified that she had many discussions with [NAME_38] and [NAME_32] on the structuring and the financing of the pipeline. She indicated that [NAME_234]., the preferred structure in the USA was a Limited Liability Company, with [NAME_43]., [NAME_38] and [NAME_32] as shareholders. The US structure was all agreed upon by the parties, but the parties never agreed on the structure to be used on the Canadian side. They had very lengthy and contentious discussions on that matter. [ 471 ] In Canada, [NAME_43].’s preferred structure was a limited liability structure referred to as an “unincorporated joint venture” formed of limited partnerships, with Canadian affiliate entities of [NAME_38], [NAME_32] and [NAME_43]. as partners in their own limited partnership. [NAME_40] commissioned [NAME_244] for that task. [NAME_244] prepared a document dated October 30, 2001, on the proposed Canadian structure for the Canadian segment of the pipeline as an unincorporated joint venture ([NAME_39], Joint Book of Documents, tab 48). [ 472 ] [NAME_136] testified that because [NAME_32] did not have strong financial capacities at that time (prior to its merger with [NAME_245]), the structuring of [NAME_40] was more complicated, as [NAME_32] would need financing for the construction of the projected pipeline. However, both [NAME_43]. and [NAME_38] did not need any financing. Further, because pipelines operate for a very long period (decades), parties involved in such a [NAME_29] always started by discussing the structuring of the pipelines and the financing of [NAME_40]. [ 473 ] On July 11, 2001, referring to a presentation made to [NAME_128], [NAME_136] testified that, in addition to analyzing economic costs for the [NAME_126] and the Southern Route, and concluding that the [NAME_126] was most economical (given the economies of scale: using two reservoirs, namely [NAME_82]), they continued having discussions on structuring and financing issues for the pipeline ([NAME_39], Joint Book of Documents, tab 35). [ 474 ] At that time in July 2001, there was no change in the plan: the parties wanted to build a pipeline, and they needed to know how to structure [NAME_40]. However, according to [NAME_136], misalignment with [NAME_32] still existed on structuring in Canada, on how to engage the Alaska government and being reticent with the [NAME_126]. [ 475 ] In addition, I accept [NAME_160]’s testimony that in 2001, they were considering how to structure the pipeline ownership and discussing how the Canadian segment would be owned. [ 476 ] Further, I accept [NAME_119]’ expert testimony on the [NAME_89] regulatory requirements which indicated that a [NAME_155] would be used for owning the Canadian segment of the projected pipeline. [ 477 ] According to [NAME_119], under the [NAME_89] regulations, a [NAME_155] is required to own the [NAME_89] certificate (a CBCA corporation or an entity created under an act of Parliament). Further, according to [NAME_119], it was anticipated that a [NAME_155] would be used in [NAME_40] because only development costs incurred in Canada, including feasibility study costs, would be included in the cost of service used to calculate tolls and tariffs for the projected pipeline under [NAME_89] regulations. [ 478 ] Furthermore, although [NAME_159] was not involved in the structuring of the projected pipeline’s ownership, he testified that it would make sense that a [NAME_155] would own the Canadian portion of the pipeline, as it was required by the [NAME_89] regulations, and the [NAME_89] would want to be able to regulate that entity. More particularly, [NAME_159] testified that if there was a hearing at the [NAME_89], costs would have to be assigned to a [NAME_155] because costs will enter into the calculation of the tariffs. [NAME_120] testimony was to the same effect. [ 479 ] I also accept [NAME_133]’s testimony that the assignment of an interest under [NAME_40] by [NAME_37] to a Canadian affiliate of [NAME_1], for purposes of owning the Canadian segment of the projected pipeline, was decided around December 2000. [ 480 ] Finally, in reaching my conclusion, I considered that the [NAME_127] included the various taxes in Canada and in the USA if a pipeline was built. Regarding the various taxes in Canada and in the USA, the Commercial program of [NAME_40] commissioned a note on taxation ([NAME_39], Joint Book of Documents, tab 43). Under the review of the Canadian tax rules, I note that no branch tax consequences were considered, supporting the fact that a [NAME_155] would be used to own the Canadian segment of the projected pipeline. (ii) The [NAME_41]: the Appellant intended to be part of a pipeline [NAME_29] and be the owner of the Canadian segment of the projected pipeline, if constructed and if the [COMPANY_48] had an ownership interest in the pipeline [ 481 ] I do not agree with the Respondent that it was far from guaranteed that the Appellant would have been the chosen affiliate of [NAME_43]. to be the owner of an interest in the projected pipeline. For the following reasons, I find that the Appellant was considered very early in the process for being [NAME_43].’s Canadian affiliate to own the Canadian segment of the projected pipeline. [ 482 ] Further, I find that the evidence showed that the Appellant intended to be part of a pipeline [NAME_29] and be the owner of the Canadian segment of the pipeline, if constructed and if the [COMPANY_48] had an ownership interest in the pipeline. [ 483 ] The Respondent based their reasoning on the fact that the parent of the Appellant and [NAME_63] owned pipelines in [NAME_36], and that the Appellant did not own any natural gas resources in the ANS. Further, the Respondent asserts that activities relating to the operation of pipelines and shipping of oil or natural gas in [NAME_36] were transitioned to [NAME_63] after the Merger. Therefore, in the Respondent’s view, the Appellant would not be the owner or operator of a pipeline in [NAME_36]. [ 484 ] I accept [NAME_160], [NAME_133], [NAME_120] and [NAME_136]’s testimonies that the decision to bring the Appellant as a participant in [NAME_40] was made at an early stage of [NAME_40], namely between December 2000 and no later than February 2001. Witnesses gave a variety of reasons, including the fact that the Appellant already owned an interest in the [NAME_66], and that the projected pipeline would be in [NAME_36], under the [NAME_246] headed by [NAME_133]. [ 485 ] [NAME_160] testified that as of February 2001, although the Appellant was already considered to be the assignee of [NAME_37]’s Participating Interest under [NAME_40] Agreement, the decision was not yet finalized to bring the Appellant as a participant in [NAME_40]. However, before February 14, 2001, there would have been a management conceptual approval in place for the assignment of [NAME_37]’s Participating Interest under [NAME_40] Agreement to the Appellant. The endorsement of the transaction by [NAME_1] management was done around April 2001, and the [NAME_41] was executed on June 15, 2001. [ 486 ] [NAME_160] also testified that sometime in March 2001, [NAME_43]. would have started drafting the [NAME_41] ([NAME_39], Joint Book of Documents, tab 16). In support of that position, [NAME_160] referred to an email exchange between him and [NAME_247] (who was the leader of US tax [NAME_234].), referring to the Appellant as the Canadian participant in the Feasibility Study under [NAME_40] Agreement ([NAME_39], Joint Book of Documents, tab 18). [ 487 ] Furthermore, by May 2001, an advance funding commitment was requested by [NAME_37] to [NAME_128] in favour of the Appellant to finance the costs of the Appellant’s share of the feasibility costs under [NAME_40] Agreement (Exhibit AR‑1, Joint Book of Documents, tab 28). [ 488 ] According to [NAME_133], from a business point of view, it made sense to execute the [NAME_41], as pipelines made good returns regulated by the [NAME_89]. Further, because the pipeline would be in [NAME_36], and the Appellant could bring synergies with its [NAME_82] operations where the Appellant owned interests in natural gas resources, it made sense to assign interests under [NAME_40] to the Appellant. [NAME_133] also indicated that there were no impediments for the Appellant to own a pipeline. [ 489 ] In addition, I accept [NAME_133]’s testimony that an important issue under [NAME_40] was to determine which of the Southern Route or the [NAME_126] would be economically viable. Although the Appellant did not own any natural gas rights in the ANS, the Appellant owned interests in the [NAME_82] natural gas resources. [ 490 ] Consistent with [NAME_133]’s testimony, [NAME_120] testified that under [NAME_40] Agreement, the parties were examining both the Southern Route and the [NAME_126] to make an informed decision as to which route would be the most economical to build a pipeline. [NAME_40] was studying the Southern Route, even though [NAME_88] was claiming exclusivity in Canada under the [NAME_91], as discussed above. Moreover, [NAME_40] was studying the [NAME_126], because it was 700 miles shorter than the Southern Route. However, the logistics for that route were less known. [ 491 ] I also accept [NAME_120]’s testimony that he became aware that the [NAME_41] was negotiated around April 2001. According to him, it was important for [NAME_37] to have a Canadian affiliate involved in the Canadian segment of the pipeline. Furthermore, the [NAME_89] regulations require a [NAME_155] to file [NAME_89] applications. [NAME_120] testified that the rationale for concluding the [NAME_41] was that [NAME_37] wanted the resources, expertise and knowledge of the [NAME_60], particularly in dealing with [NAME_89] applications. [ 492 ] I also accept [NAME_120]’s testimony that because [NAME_37] assigned 68% of its one-third Participating Interest in [NAME_40] Agreement to the Appellant under the [NAME_41], and the Appellant paid the Feasibility Study Costs, the Appellant would have the right to own the Canadian portion of [NAME_29], namely: the Canadian segment of the pipeline from the ANS to Alberta, the NGLs plant if it was built in Canada, and the Canadian segment of the pipeline from Alberta to Chicago. [ 493 ] Further, according to [NAME_120], if no pipeline was built, the Appellant would still get the data from the Feasibility Study carried out under [NAME_40]. [ 494 ] In that respect, the preamble to the [NAME_41] states: WHEREAS, the parties expect that [NAME_56] will benefit to the extent that [NAME_40] Agreement leads to a pipeline [NAME_29] in Canada and the parties expect [NAME_37] to benefit to the extent that [NAME_40] Agreement results in a pipeline [NAME_29] in Alaska and lower-48, the parties intend for [NAME_56] to pay for the joint venture costs associated with the Canadian portion of the pipeline study and for [NAME_37] to pay for the joint venture costs associated with the U.S. portion of the pipeline study… [ 495 ] The Appellant received information, furnished personnel, and managed [NAME_40] by working with [NAME_37]’s [NAME_93] member. As indicated by [NAME_120], the Appellant benefited from the proprietary information received under [NAME_40] Agreement by licensing data to the parties under the [NAME_113] in 2003 ([NAME_39], Joint Book of Documents, tab 99) and again in 2009-2010 by contributing the data under the [NAME_116]. [ 496 ] The Respondent argues that pipeline companies (or owners) were excluded from [NAME_40], unless they added value to it. However, it was clear from the credible testimony of [NAME_136], that documentary evidence relied upon by the Respondent to make that argument was referring to third-party pipeline owners, and not to the Appellant nor to any affiliates of [NAME_43]. ([NAME_39], Joint Book of Documents, tab 25). [ 497 ] Moreover, according to [NAME_136], because the Appellant owned an interest in natural gas resources in the [NAME_82] through the [NAME_165], and because it already owned an interest in the [NAME_66], it made sense for the Appellant to be the Canadian affiliate used for [NAME_40] ([NAME_39], Joint Book of Documents, tab 1). Further, according to [NAME_136]’s testimony, she was working with [NAME_38] and [NAME_32] to arrive at a resolution for the structuring of the pipeline, both in Canada and in the USA, as soon as [NAME_40] started in December 2000. [ 498 ] In support of their position that it was far from guaranteed that the Appellant would be the Canadian affiliate chosen to own the Canadian segment of the pipeline, the Respondent also referred to the 2002 AGP Agreement (dated April 1, 2002) between [NAME_38], [NAME_32] and [NAME_37], whereby no assignment of any interest was made in favour of the Appellant ([NAME_39], Joint Book of Documents, tab 145). However, in that respect, I accept [NAME_120]’s testimony that because all activities to be performed under the 2002 AGP Agreement listed in Attachments A to E were in Alaska, no assignment of interest was made in favour of a [NAME_155] such as the Appellant. [ 499 ] In addition, as indicated above, I accept that the Original Services Agreement was in place during the relevant period. (iii) Events that occurred after 2001 [ 500 ] In coming to the conclusion that [NAME_43]. generally uses [NAME_154] to own Canadian portion of pipelines, and further that the Appellant was considered very early in the process to become [NAME_43].’s Canadian affiliate to own the Canadian segment of the projected pipeline, I also took into account events that occurred after 2001, although I put less weight on these facts. [ 501 ] Following the termination of [NAME_40] Agreement, the evidence shows that [NAME_43]. used [NAME_154] to own Canadian segments of projected pipelines. The evidence also showed that the Appellant was considered in some projects. I accept [NAME_120]’s testimony in that respect. Further, contemporaneous documentation shows that the Appellant was considered for some of the future projected pipelines. [ 502 ] According to [NAME_120], after the termination of [NAME_40] Agreement, the parties were still looking at more fiscal certainty with the [NAME_118]. In 2005, [NAME_43]., [NAME_38], and [NAME_249] worked together under the Stranded Gas Development Act enacted by the [NAME_118], trying to obtain more fiscal certainty with [NAME_250]., [NAME_38] and [NAME_249] had discussions on the structuring of the pipeline, including [NAME_155] structuring ([NAME_39], Joint Book of Documents, tab 104, [NAME_155] Issues dated March 2, 2005). Again, the parties were aligned on the US structure but had to work on the Canadian structure, proposing either a limited partnership or an unincorporated joint venture structure. [ 503 ] Further, on September 21, 2005, the same parties had discussions on Canadian structuring issues regarding the projected pipeline ([NAME_39], Joint Book of Document, tab 105 – Alaska North Slope Pipeline – Canadian Structure). The parties questioned again as to whether a limited partnership or an unincorporated joint venture should be used. The document shows that [NAME_154] of the three parties would be part of the Canadian structure. [ 504 ] During the summer of 2006, they presented a draft agreement to the [NAME_118] under the Stranded Gas Development Act , which was however never executed. [ 505 ] In 2006, new legislation called the Alaska Gasline Inducement Act was enacted by the State of [NAME_250]., [NAME_38] and [NAME_249] did not agree on terms, but a draft agreement was prepared again in 2007, which draft agreement refers to a [NAME_38] affiliate, a [NAME_249] affiliate and an [NAME_1] affiliate ([NAME_39], Joint Book of Documents, tab 110). Hence, it was considered that affiliates would own interests in the projected pipeline, and it was also anticipated that the joint work done under [NAME_40] would be contributed to that new [NAME_29]. [ 506 ] The document prepared in 2005/2006 entitled “Alaska Gas resources and Major Producers” , contains a description of the state of the industry at that time ([NAME_39], Joint Book of Documents, tab 107). In addition, the Canadian structure to be used in a projected pipeline is discussed and specifically shows the Appellant as the specific affiliate of [NAME_43]. as a party to the unincorporated joint venture. [ 507 ] In addition, in a document entitled “[NAME_29] Summary for a proposed [NAME_29] 10, 2006” , prepared by [NAME_38], [NAME_249] and [NAME_1] to brief the Alaskan officials at the Department of [NAME_27], the Appellant was considered as the Canadian affiliate of [NAME_43]. to own the Canadian part of [NAME_40] ([NAME_39], Joint Book of Documents, tab 108). [ 508 ] Around 2009-2010, when [NAME_1] stood alone because [NAME_38] and [NAME_249] decided to work together for the [NAME_29] under the Alaska Gasline Inducement Act , [NAME_1] explored a possible joint venture with [NAME_115]. [NAME_115] had obtained a license under the Alaska Gasline Inducement Act to build a pipeline. At that time, [NAME_115] owned [NAME_88], and the [NAME_91] were still valid. [ 509 ] In a document entitled “[NAME_29], Development phase, proposal sub-phase, work program and budget dated May 5, 2009” describing [NAME_40] scope which included a pipeline from the ANS to Alberta, [NAME_43]. is referred to as including certain of its affiliates ([NAME_39], Joint Book of Documents, tab 112). [ 510 ] Finally, the document entitled “Amended and Restated Alaska [NAME_29] Agreement dated October 29, 2010” , between [NAME_115], [COMPANY_251]., [NAME_252] and the Appellant (which is the [NAME_116]) was not finalized as there were another shift in the energy industry, due to new fracking technology permitting the economic recovery of natural gas ([NAME_39], Joint Book of Documents, tab 113). Given the abundance of natural gas, the price went down. Because the forecast tolls to be paid for shipping gas on the pipeline was more than the market price of natural gas, the parties did not proceed with this pipeline [NAME_29]. The data from [NAME_40] was also intended to be contributed to this joint [NAME_29]. [ 511 ] Then, after that time, according to [NAME_120], and referring to a consensus in industry, the next concept was to pursue an [NAME_29]. [NAME_38], [NAME_249] and [NAME_1], together with the [NAME_118], shared that view. Further, [NAME_115] was involved. So, the five parties went through the preliminary feed phase, engineering phase, and the preliminary, front-end engineering design phase. However, the Appellant was not involved in that [NAME_29] because [NAME_40] was based only in Alaska, and there were no Canadian assets involved. ii. [NAME_40] was not advancing under any of the [NAME_91], but advancing the business of the Appellant [ 512 ] As indicated above, the Respondent argues that [NAME_40] was not advancing the business of the Appellant, because, inter alia , [NAME_88] had exclusivity to develop a pipeline from the ANS to Alberta under the [NAME_91]. For the following reasons, I do not agree with the Respondent’s argument. [ 513 ] The evidence adduced at trial shows that [NAME_40] was not advancing under any of the [NAME_91], and if a pipeline was built, [NAME_88] would not have been the owner of the Canadian segment of the pipeline, but the Appellant would have been, if the [COMPANY_48] had an ownership interest in the pipeline. [ 514 ] [NAME_119]’s testimony, which was credible and reliable, carries a lot of weight in my findings. According to [NAME_119], in 2000, the assumption was that [NAME_40] would be assessed and developed by the three partners, namely [NAME_37], [NAME_38] and [NAME_32], and their [NAME_154]. [NAME_119] stated that the [NAME_91] were issued under the ANGTA and the NPA (Canada). He explained that only phase 1 of the pipeline [NAME_29] from Alberta to Chicago and from Alberta to California was built. Phase 2 of the pipeline, which is a pipeline from the ANS following the [ADDRESS] to Alberta, was never built. [NAME_88] had operated a pipeline since 1982 and kept renewing its Certificates under the ANGTA and NPA annually, hoping that the [NAME_125] would be developed in the future. As explained by [NAME_119], the NPA offered a quick regulatory process in Canada for the [NAME_125], which process was parallel to the [NAME_89] regulatory process. [ 515 ] However, I accept [NAME_119]’ testimony that under [NAME_40], the assumption was that regulatory applications would be filed under the [NAME_89] and [NAME_84], and that [NAME_40] would not use any of the [NAME_91]. [ 516 ] Further, [NAME_119] testified that [NAME_40] was working under [NAME_40] on the basis that [NAME_88] did not have exclusivity to build a pipeline from the ANS to central Alberta. The position of the [NAME_84] was that a certificate could be issued either under the Natural Gas Act , or the ANGTA, even with the [NAME_91] in place. The [NAME_89] would also entertain an application for a pipeline on a similar route. [NAME_119] further stated that other entities pursued the development of an Alaska pipeline [NAME_29], like [NAME_152]. [NAME_115], as the owner of [NAME_88], also recognized that it had competition (Exhibit A-9, [NAME_89] Reasons for Decision, [COMPANY_114], RH-4-2001, June 2002, at p. 18). [ 517 ] In support of his testimony, [NAME_119] referred to documentary evidence, namely the presentations made to both the [NAME_89] and [NAME_84] in November 2000, to apprise the regulatory bodies of [NAME_40], including the parties’ intent to file regulatory applications for the projected pipeline by the second half of 2001 ([NAME_39], Joint Book of Documents, tabs 11 and 8). [ 518 ] Further, [NAME_119] referred to the Steering Committee Review dated December 5, 2000, where the work planning basis for [NAME_40] is outlined as including a target objective to file regulatory applications with the [NAME_84] and the [NAME_89] by the second half of 2001 ([NAME_39], Joint Book of Documents, tab 14). [ 519 ] In addition, as discussed above, the [NAME_91] carried large financial liability. [ 520 ] I also accept [NAME_120]’s testimony on the commercial issues and financial liabilities carried out under the [NAME_91] to conclude that [NAME_40] was not advancing the [NAME_88] [NAME_29], as mentioned above. Further, according to [NAME_120], [NAME_40] had received advice from both the [NAME_89] and [NAME_84] that they would each accept a pipeline application from [NAME_40] regarding the [NAME_125], despite the [NAME_91]. [NAME_120] stated that a full-time program on [NAME_40] was looking at ways to bring the natural gas out of Alberta. [NAME_88] had already built a pipeline from Alberta to San Francisco and from Alberta to Chicago, but it was fully used. Further, [NAME_240] had already built an NGL plant in Chicago, but it was fully prescribed, so there was no possibility to use it to ship gas. [ 521 ] [NAME_136] also testified that the participants under [NAME_40] Agreement were not advancing the [NAME_88] [NAME_29], but their own [NAME_29] (namely, [NAME_40] of [NAME_38], [NAME_32], [NAME_37] and their affiliates). [NAME_160]’s testimony was to the same effect. [ 522 ] [NAME_136] further indicated that because of [NAME_43].’s strong financial position, the Appellant would not have needed third-party financing to finance the construction of the pipeline, if the construction had gone ahead. [ 523 ] [NAME_160] testified similarly. According to [NAME_160], the Appellant had the necessary background and expertise (technical, environmental) and financial ability to build the pipeline through [NAME_43]. funds. I accept [NAME_160]’s testimony that the Appellant would have had the financial capacity to build the pipeline considering it would have been able to borrow from [NAME_43]., subject to Canadian tax rules. iii. Return for participating in [NAME_40] if a pipeline was built [ 524 ] The Respondent also argues that the Feasibility Study Costs were not related to any pursuit of profit by the Appellant because the objective of the [NAME_41] was to share costs, and not to share profits. The Respondent referred to an email between [NAME_247] and [NAME_160] where it was said that the [NAME_41] did not create a partnership under US laws because there was no profit sharing ([NAME_39], Joint Book of Document, tab 18). [ 525 ] For the following reasons, I do not accept the Respondent’s argument. [ 526 ] According to [NAME_119]’ expert opinion, at this stage of a megaproject gate process, only costs are incurred by participants. In the pipeline industry, pipeline owners earn [NAME_27] only when the pipeline is put into service, when shippers pay tolls and tariffs to ship the gas on the pipeline. [NAME_119] testified that the [NAME_239], [NAME_113], [NAME_88] Pipelines all made similar investments at the feasibility study stage. [ 527 ] Further, for the following reasons, I find that if a pipeline had been built, the Appellant would have earned a return on equity invested in the construction of the pipeline. According to the credible and consistent testimonies of various witnesses, pipelines in Canada are regulated by the [NAME_89] and make good returns. [ 528 ] More particularly, as indicated by [NAME_120], in owning the Canadian segment of the pipeline, the Appellant would have earned a return on equity as regulated by the [NAME_89] from parties shipping natural gas on that segment of the pipeline. [ 529 ] Also, [NAME_119] testified as an expert on returns that pipeline owners get under the [NAME_89] regulations. His testimony was credible and not contested by any witness. Since deregulation of the industry around 1985, pipeline owners are purely transporters of natural gas. Pipeline owners do not take commodity risks, nor do they explore for, develop or own the resources shipped on the pipeline. Pipeline owners will get a return on the equity put in the construction and operation of the pipeline, as regulated by the [NAME_89]. [ 530 ] As indicated by [NAME_119], the return for a potential pipeline owner is well established in Canada and subject to extensive stakeholders and regulatory review and approval. The pipeline owners will earn a risk-weighted return on the equity invested. Pipeline owners bear the risks, and the [NAME_89] recognizes those risks when reviewing tolls and tariffs. None of the pipeline owners’ regulatory risk and return relates to gas deposit ownership. [ 531 ] Further, according to [NAME_119]’ expert opinion, the Feasibility Study Costs allocated to the Appellant under the [NAME_41] was a small fraction of the potential benefits of owning a pipeline in the order of 0.006 of the long-term return on equity expected to be received by the Appellant. Using the Minister’s assumptions, [NAME_119] calculated that if construction of the pipeline went ahead, the Appellant would invest approximately $4.5 billion in the construction of the projected pipeline (that is 68% of one-third interest in total costs of $20 billion). Assuming a 30% equity and a [NAME_89]-approved rate of return of 12% on equity, the annual equity return for the Appellant would be $162 million. Over the life of the pipeline (40 years), the equity return would be $6.5 billion. iv. Other benefits for participating in [NAME_40] [ 532 ] For the following reasons, I also find that the Appellant obtained additional benefits for participating in [NAME_40], other than an expectation of being the owner of the Canadian segment of the pipeline, if the pipeline was built and if the [COMPANY_48] had an ownership interest in the pipeline. [ 533 ] As indicated by [NAME_119], because the participants in [NAME_40] spent 125 million USD in the Feasibility Study, they obtained a lot of valuable information on how to build a pipeline and apply to the [NAME_89] and the [NAME_84], which information was all collected in the various job books, including the Restart Manual. [ 534 ] I also accept [NAME_120]’s testimony that the Appellant received all job books prepared under [NAME_40]. [ 535 ] Further, the evidence showed that the Appellant licensed the data received under [NAME_40] to the [NAME_113]’s participants in 2003, as the Appellant was allowed to do under [NAME_40] Agreement. [ 536 ] Paragraph 8.2.1 of [NAME_40] Agreement provides that: [NAME_29] shall be held in confidence by the Parties as set forth in Paragraphs 8.2.2 and 8.2.3 below. Following termination of this Agreement, each Party may freely use, copy, disclose, publish, distribute, license or otherwise transfer all or any part of [NAME_40] to any third party, without restriction and without accounting to each other or any third party therefor. [ 537 ] Effective June 17, 2003, an agreement was entered into to license certain confidential and proprietary data from the Feasibility Study to parties to the [NAME_113] ([NAME_39], Joint Book of Documents, tab 99). The Appellant reported licensing income of $1,031,022 in its taxation year ending November 30, 2004. [ 538 ] In 2009-2010, the evidence also showed that the Appellant contributed the data received under [NAME_40] to the [NAME_116].

2) Paragraph 18(1)(a) [ 539 ] Having found that the Appellant had a source of business income relating to the Feasibility Study, the next issue is to determine whether paragraph 18(1)(a) applies to limit the deductibility of the Feasibility Study Costs in computing the Appellant’s business income for the 2001 Taxation Year. [ 540 ] Paragraph 18(1)(a) reads as follows: 18(1) In computing the income of a taxpayer from a business or property no deduction shall be made in respect of (a) an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property; 18(1) Dans le calcul du revenu du [NAME_187] tiré d’une [NAME_253] ou d’un bien, les éléments suivants ne sont pas déductibles : a) les dépenses, sauf dans la mesure où elles ont été engagées ou effectuées par le [NAME_187] en vue de tirer un revenu de l’[NAME_253] ou du bien; [ 541 ] According to the Respondent, the Feasibility Study Costs were not made or incurred by the Appellant for the purpose of gaining or producing income from any of its business and are therefore not deductible because of the application of the limiting provision in paragraph 18(1)(a). [ 542 ] In support of its position, the Respondent argues that the Appellant had no business related to the Feasibility Study Costs, because the Appellant had no natural gas assets to develop on the ANS. Further, the Respondent argues that until the producers decided to proceed with a pipeline to transport the [NAME_125] to market through Canada and committed to using that pipeline to transport their gas, the Appellant had no potential to earn income. [ 543 ] I do not agree with the Respondent’s arguments. [ 544 ] For the following reasons, I find that the Feasibility Study Costs were made or incurred by the Appellant for the purpose of gaining or producing income from the Appellant’s business, which business includes various pipelines interests and pipeline development and were properly deductible in computing the Appellant’s business income. There were sufficient business connections between the Feasibility Study Costs and the Appellant’s business, and therefore, the limitation provided for in paragraph 18(1)(a) is not applicable.

Accordingly, the Appellant is entitled to deduct the Feasibility Study Costs in computing its business income. [ 545 ] I find that the Respondent conflated the source test by relying on [NAME_220] and [NAME_221] for the application of paragraph 18(1)(a), which is incorrect. [ 546 ] As stated in [NAME_222] , the deductibility of an expense is not to be confused with a source analysis, and the profitability of the activity to which the expense relates does not affect the deductibility of the expense; further, when the deductibility of an expense is in question, the issue is the relationship between the expense and the source to which it purportedly relates ( [NAME_222] , at paras 56 to 58). [ 547 ] Under paragraph 18(1)(a), in addition to showing that an expense was made or incurred, which is not at issue in this appeal, the Appellant must demonstrate a sufficient business connection between the expense and its business. [ 548 ] In addition, the test under paragraph 18(1)(a) is not whether an expense was made or incurred for the purpose of “earning income” , but whether the expense was made or incurred for the purpose of “gaining or producing income” . An earlier version of paragraph 18(1)(a) refers to “earning of income” as the test, but that paragraph was changed. The test now refers to whether an expense was made or incurred for the purpose of “gaining or producing income” , which is a different test. Further, case law has found that an expense is deductible even when it resulted in a loss ( [NAME_217] , at para 57). [ 549 ] The Feasibility Study Costs were made or incurred by the Appellant pursuant to the Appellant’s legal obligation to pay for these costs under the [NAME_41], as provided for in [NAME_40] Agreement. The Respondent did not argue that the transaction between the Appellant and [NAME_43]. was a sham, nor that [NAME_40] Agreement was a sham. [ 550 ] Further, [NAME_111], as named business coordinator under [NAME_40], invoiced the Appellant for the feasibility study costs borne under [NAME_40] Agreement, in proportion to the Appellant’s Participating Interest in [NAME_40] Agreement, as established under the [NAME_41], that is 22.67%. The Appellant was responsible for its share of the costs borne under [NAME_40] Agreement and paid the Feasibility Study Costs accordingly. [ 551 ] As indicated by this Court in Laurentian Bank of Canada v. The Queen , 2020 [NAME_35] 73: [45] In The Queen v. [NAME_254] , the Federal Court of Appeal held that to incur an expense, the taxpayer must have been obliged to pay the amount of money. The Federal Court of Appeal stated as follows in this regard: In our opinion, an expense, within the meaning of paragraph 18(1)(a) of the [Act] is an obligation to pay a sum of money. An expense cannot be said to be incurred by a taxpayer who is under no obligation to pay money to anyone. … [Emphasis added.] [ 552 ] Under paragraph 18(1)(a), an expense will not be deductible in computing a taxpayer’s business income unless it was incurred by the taxpayer for the purpose of gaining or producing income from the business. The purpose is a question of fact and does not need to be exclusive, primary or dominant ( [NAME_217] , at paras 34-41). [ 553 ] Further, according to the Supreme Court, where purpose or intention is to be ascertained under the Act, a court “should objectively determine the nature of the purpose, guided by both subjective and objective manifestations of purpose” ( [COMPANY_255]. v. The Queen , 2001 SCC 62, at para 54). [ 554 ] In [NAME_217] , the Supreme Court provided guidance to determine whether a particular expense was incurred for the purpose of gaining or producing income: (i) whether the deduction is ordinarily allowed as business expense by accountants; (ii) whether the expense would have been incurred if the taxpayer was not engaged in the pursuit of business income; (iii) whether the expense is one normally incurred by others in the same business; and (iv) whether the need for the expense exist apart from the business (applying a business-need test) ( [NAME_217] , at paras 41 to 44). [ 555 ] Applying the test above in [NAME_217] , I find that the Feasibility Study Costs: (i) would ordinarily be allowed as a business expense by accountant; (ii) would not have been incurred by the Appellant if the Appellant was not engaged in the pursuit of business income; (iii) are normally incurred by others in the same business; and (iv) would not be needed apart from the Appellant’s business. [ 556 ] In addition, the following factors show a sufficient business connection to the Appellant’s business for incurring the Feasibility Study Costs. [ 557 ] As indicated in the previous section of these Reasons for Judgment, I find that [NAME_40]’s purpose was to evaluate a potential pipeline [NAME_29] for transporting natural gas from the ANS to [NAME_36] and the Lower-48. I did not find that [NAME_40] was a producers’ study as argued by the Respondent. [ 558 ] Further, by entering into the [NAME_41], the Appellant was obtaining a proportionate share of the rights, benefits and rewards arising in connection with [NAME_40] Agreement and obtained the potential right to own the Canadian segment of the pipeline, if the projected pipeline was built and if [COMPANY_48] owned an interest in the pipeline. It was a business opportunity for the Appellant, as pipelines make good returns. In addition, if no pipeline was built, the Appellant got the rights to all information created under [NAME_40]. [ 559 ] Moreover, the Appellant, as a participant under the Feasibility Study, obtained a copy of the numerous job books prepared by [NAME_40] and the various contractors and subcontractors. I accept [NAME_133]’s testimony that the Appellant got a copy of all job books prepared under the Feasibility Study, including the Restart Manual, that contained all data derived from the Feasibility Study ([NAME_39], Joint Book of Documents, tabs 81, 87 and 90). [NAME_133]’s testimony was corroborated by [NAME_120] and [NAME_119]’ testimonies. [ 560 ] The Appellant licensed the data obtained through its participation in [NAME_40] to the [NAME_113] in 2003 and later contributed the data in 2009-2010 under the [NAME_116]. [ 561 ] I also find that the Appellant was made aware of [NAME_40]’s advancement, as shown by [NAME_133]’s testimony. I do not agree with the Respondent that the role of [NAME_133], as president of the Appellant, was limited to signing the [NAME_41]. [ 562 ] Although the evidence showed that [NAME_133] had no formal role in the Feasibility Study, [NAME_133] received periodic updates on the advancement of the Feasibility Study. [NAME_159] or [NAME_135] also provided updates on [NAME_40] while having informal discussions with him. Furthermore, [NAME_133] received copies of the minutes of the [NAME_93] meetings ([NAME_39], Joint Book of Documents, tab 68). [NAME_133] would have known if major decisions were taken by the [NAME_93]. [ 563 ] Moreover, [NAME_133] would be aware of [NAME_40]’s updates as he was involved in making regular report updates on [NAME_40] to the senior management of [NAME_43]., namely [NAME_128] and [NAME_148] ([NAME_39], Joint Book of Documents, tabs 25, 35, 37 and 44). [ 564 ] However, because [NAME_40] was a feasibility study, I accept [NAME_133]’s testimony that there were not many major decisions taken during this phase because feasibility studies deal with cost estimates, materials to be used, routes, compressors’ location, etc. [NAME_119]’ testimony is to the same effect. [ 565 ] As indicated in the previous section of these Reasons for Judgment, I found the evidence showed that the Appellant had experience in carrying out pipeline businesses and was already involved in the oil and gas industry. More specifically, the evidence showed that the Appellant carries on business of exploring for, and producing and selling, crude oil and natural gas in Canada. Further, the Appellant also carries on the business of natural resources transportation through its ownership and operatorship of various pipelines.

Accordingly, as argued by the Appellant, a pipeline to transport natural gas was clearly within the scope of the Appellant’s activities in the oil and gas industry. [ 566 ] In addition, I find that [NAME_40] was evaluating both the Southern Route following the [ADDRESS], and the [NAME_126], through the [NAME_82] and following the [NAME_81]. The evidence showed that the Appellant owned natural gas resources interests in the [NAME_82]. [ 567 ] Further, as indicated by [NAME_119]’ expert testimony, feasibility studies are normally undertaken by entities involved in megaprojects, and feasibility studies are the norm in the industry. The credibility and reliability of [NAME_119]’ expert opinion was not challenged. Furthermore, the Respondent did not adduce any evidence to show otherwise. [ 568 ] In the case at bar, the evidence showed that [NAME_40] qualifies as a megaproject and that [NAME_40] followed the megaproject gate decision process. Feasibility studies would normally then be undertaken as a necessary step in progressing [NAME_40]. Specifically, [NAME_40] was at the FEL-1 phase (and partly in FEL-2), which includes feasibility studies.

I therefore find that feasibility study costs would normally be incurred by entities involved in the development of pipeline [NAME_29] which qualifies as a megaproject. I also find that in accordance with megaproject gate process, the Appellant was taking steps in advancing, owning and operating the Canadian portion of the projected pipeline, if built and if the [COMPANY_48] owned an interest in the pipeline. [ 569 ] As indicated above, the Appellant was chosen early on as the Canadian affiliate of [NAME_43]. to own the Canadian segment of the projected pipeline. According to regulatory framework, as opined by [NAME_119], the ownership and operatorship of the Canadian portion of the pipeline are required to be housed in a [NAME_155] so that feasibility costs are appropriately taken into account in the tolls and tariffs at the [NAME_89] level. [ 570 ] Further, as found above, [NAME_40] was not advancing under the [NAME_91], as the participants under [NAME_40] Agreement were of the view that there was no exclusivity to [NAME_88] for the development of the [NAME_125] resources. I accept the evidence adduced at the hearing that [NAME_40] made a presentation to the [NAME_89] and [NAME_84] in November 2000 and obtained an assurance that the [NAME_89] and [NAME_84] would consider regulatory applications for the development of a pipeline from the ANS to Alberta and the Lower-48. [ 571 ] In addition, the Feasibility Study Costs were not personal expenses to the Appellant, as acknowledged by the Respondent, and would not have been incurred by the Appellant in the absence of its business activities described above. [ 572 ] For all these reasons, I find that the Feasibility Study Costs were made or incurred by the Appellant in further advancing its business, which business includes pipelines interests and the development of pipeline projects. There were sufficient business connections between the Feasibility Study Costs and the Appellant’s business to allow the deduction of the Feasibility Study Costs in the computation of the Appellant’s business income for the 2001 Taxation Year.

IV. Transfer pricing issues: section 247 [ 573 ] [ADDRESS] must determine whether paragraphs 247(2)(b) and 247(2)(d) apply to deny the deduction of the Feasibility Study Costs, or in alternative, whether paragraphs 247(2)(a) and 247(2)(c) apply to adjust the deduction of the Feasibility Study Costs to zero.

1. The Law [ 574 ] The relevant part of subsection 247(2) as it read in 2001 states: 247(2) Where a taxpayer … and a non-resident person with whom the taxpayer … does not deal at arm’s length are participants in a transaction or a series of transactions and (a) the terms or conditions made or imposed, in respect of the transaction or series, between any of the participants in the transaction or series differ from those that would have been made between persons dealing at arm’s length, or (b) the transaction or series (i) would not have been entered into between persons dealing at arm’s length, and (ii) can reasonably be considered not to have been entered into primarily for bona fide purposes other than to obtain a tax benefit, any amounts that, but for this section and section 245, would be determined for the purposes of this Act in respect of the taxpayer … for a taxation year … shall be adjusted (in this section referred to as an “adjustment”) to the quantum or nature of the amounts that would have been determined if, (c) where only paragraph 247(2)(a) applies, the terms and conditions made or imposed, in respect of the transaction or series, between the participants in the transaction or series had been those that would have been made between persons dealing at arm’s length, or (d) where paragraph 247(2)(b) applies, the transaction or series entered into between the participants had been the transaction or series that would have been entered into between persons dealing at arm’s length, under terms and conditions that would have been made between persons dealing at arm’s length. 247(2) Lorsqu’un [NAME_187]… et une [NAME_171] non-résidente avec laquelle le [NAME_187]… a un lien de dépendance… prennent part à une opération ou à une série d’opérations et que, selon le cas: a) les modalités conclues ou imposées, relativement à l’opération ou à la série, entre des participants à l’opération ou à la série diffèrent de celle qui auraient été conclues entre personnes sans lien de dépendance, b) les faits suivants se vérifient relativement à l’opération ou à la série: (i) elle n’aurait pas été conclue entre personnes sans lien de dépendance, (ii) il est raisonnable de considérer qu’elle n’a pas été principalement conclue pour des objets véritables, si ce n’est l’obtention d’un avantage fiscal, les montants qui, si ce n’était le présent article et l’article 245, seraient déterminés pour l’application de la présente loi quant au [NAME_187]… pour une année d’imposition… font l’objet d’un redressement de façon qu’ils correspondent à la valeur ou à la nature des montants qui auraient été déterminés si: c) dans le cas où seul l’alinéa a) s’applique, les modalités conclues ou imposées, relativement à l’opération ou à la série, entre les participants avaient été celles qui auraient été conclues entre personnes sans lien de dépendance; d) dans le cas où l’alinéa b) s’applique, l’opération ou la série conclue entre les participants avait été celle qui aurait été conclue entre personnes sans lien de dépendance, selon des modalités qui auraient été conclues entre de telles personnes.

2. Applicable Principles 1) General overview of the transfer pricing rules [ 575 ] In [NAME_256] v. R. , 2012 SCC 52 [ [NAME_257] ], the Supreme Court provided guidance on how to apply the transfer pricing rules. Although this decision covered former subsection 69(2), I agree with this Court’s conclusion in [NAME_258] v. R. , 2013 [NAME_35] 404 [ [NAME_259] ] (at para 121) that these principles are relevant for purposes of applying subsection 247(2) even if the wording is different. [ 576 ] In [NAME_257] , the Supreme Court provided the following comments: [61] …. First, s. 69(2) uses the term “reasonable amount”. This reflects the fact that, to use the words of the 1995 Guidelines , “transfer pricing is not an exact science” (para. 1.45). It is doubtful that comparators will be identical in all material respects in almost any case. Therefore, some leeway must be allowed in the determination of the reasonable amount. As long as a transfer price is within what the court determines is a reasonable range, the requirements of the section should be satisfied. If it is not, the court might select a point within a range it considers reasonable in the circumstances based on an average, median, mode, or other appropriate statistical measure, having regard to the evidence that the court found to be relevant…. [62] Second, while assessment of the evidence is a matter for the trial judge, I would observe that the respective roles and functions of [NAME_260] and the [COMPANY_261] should be kept in mind…. Transfer pricing should not result in a misallocation of earnings that fails to take account of these different functions and the resources and risks inherent in each ….. [63] Third, prices between parties dealing at arm’s length will be established having regard to the independent interests of each party to the transaction. That means that the interests of [COMPANY_261] and [NAME_260] must both be considered. An appropriate determination under the arm’s length test of s. 69(2) should reflect these realities. [Emphasis added.] [ 577 ] Whether the terms and conditions of a transaction differ from those that would have been made between persons dealing at arm’s length under subparagraph 247(2)(a) requires a judge to consider all transactions, characteristics, and circumstances (including risks, resources, functions, etc.) that are relevant ( [NAME_259] , at para 120). The Organisation for Economic Co‑operation and Development ( “OECD” ) guidelines, including OECD methodology or commentary, are not controlling, and the test to any transaction or prices must be determined according to the Act ( [NAME_257] , at para 20; [NAME_259] , at para 120). [ 578 ] Further, the arm’s length price under the transfer pricing rules must be determined having regards to the independent interest of each party to the transaction. The application of the transfer pricing rules is not an exact science ( [NAME_257] , at para 61). So long as the transfer price is within a reasonable range, the requirements of the transfer pricing rules should be satisfied. [ 579 ] In Canada v. [NAME_262] , 2020 FCA 112 [ [NAME_263] ], the most recent Federal Court of Appeal decision to deal with the transfer pricing rules, the Federal Court of Appeal emphasized the background and preconditions for subsection 247(2) when it stated (at paras 28-30): [28] Parliament added Part XVI.1 – Transfer Pricing to the Act to address issues related to transactions between a Canadian taxpayer and a non-arm's length person in another jurisdiction. In particular, a Canadian corporation could effectively shift profit to a lower tax jurisdiction by selling goods or providing services to a wholly-owned subsidiary in another jurisdiction for an amount that is less than the amount that would be paid in an arm's length transaction or by buying goods or services from that subsidiary for an amount that is greater than the amount that would be paid in an arm's length transaction. [29] Any adjustments that are to be made under this Part of the Act are made under subsection 247(2) of the Act. The opening part of this subsection sets out the general condition for its application: “[w]here a taxpayer ... and a non-resident person with whom the taxpayer ... does not deal at arm's length ... are participants in a transaction or series of transactions”…. [30] If this condition in the opening part of subsection 247(2) of the Act is met, the next question is whether the conditions in paragraphs 247(2)(a) or (b) of the Act are satisfied. [Emphasis added.]

2) Transfer pricing rules: paragraphs 247(2)(a) and 247(2)(c) [ 580 ] The purpose of paragraphs 247(2)(a) and 247(2)(c) was described by the Federal Court of Appeal in [COMPANY_264]. v. R. , 2010 FCA 344 [ GE Canada ] as follows: [54] The concept underlying subsection 69(2) and paragraphs 247(2)(a) and (c) is simple. The task in any given case is to ascertain the price that would have been paid in the same circumstances if the parties had been dealing at arm's length. This involves taking into account all the circumstances which bear on the price whether they arise from the relationship or otherwise. [55] This interpretation flows from the normal use of the words as well as the statutory objective which is to prevent the avoidance of tax resulting from price distortions which can arise in the context of non arm's length relationships by reason of the community of interest shared by related parties. The elimination of these distortions by reference to objective benchmarks is all that is required to achieve the statutory objective. Otherwise all the factors which an arm's length person in the same circumstances as the respondent would consider relevant should be taken into account. [Emphasis added.] [ 581 ] [COMPANY_265]. v. The Queen , 2020 [NAME_35] 91 [ [NAME_267] ], the Court commented on the scope of paragraphs 247(2)(a) and 247(2)(c) and indicated that these provisions require the Court to consider whether the terms and conditions of the parties’ transaction would have been agreed to by arm’s length parties, and if not, what would be the terms and conditions that arm’s length parties would have agreed to (at para 22). [ 582 ] In [NAME_259] (at para 119), the Court commented on the function of the mid‑amble of subsection 247(2) and how the activation of paragraph 247(2)(a) would be used to apply paragraph 247(2)(c), stating that if “the “terms and conditions” do so differ, then the “amounts” that would otherwise be used by the taxpayer for purposes of the Act shall be “adjusted” to the “quantum or nature” of the amounts that would have been determined had the “terms and conditions” been those that arm’s length parties would have agreed to. [ 583 ] In addition, case law indicates that although adjustments under paragraph 247(2)(c) do not allow for a recharacterization of the transaction, they are not strictly limited to pricing ( [NAME_259] , at para 126; [NAME_267] , at para 23). [ 584 ] Consequently, meeting the requirement of paragraph 247(2)(a) requires a finding that the terms and conditions of the parties’ transaction differ from those that would have been agreed to by arm’s length parties. If paragraph 247(2)(a) applies, then paragraph 247(2)(c) instructs the Court to determine what terms and conditions arm’s length parties would have agreed to. The amounts that would otherwise be used by the taxpayer should be adjusted to the “quantum or nature” of the amounts determined based on the “terms and conditions” that arm’s length parties would have agreed to.

3) Transfer pricing rules: paragraphs 247(2)(b) and 247(2)(d) [ 585 ] Both subparagraphs 247(2)(b)(i) and 247(2)(b)(ii) must be satisfied for paragraph 247(2)(d) to apply to any given transaction. [ 586 ] Subparagraph 247(2)(b)(i) “raises the issue of whether the transaction … would have been entered into between persons dealing with each other at arm’s length (an objective test based on hypothetical persons) – not whether the particular taxpayer would have entered into the transaction … with an arm’s length party (a subjective test)” ( [NAME_263] , at paras 43-44, 82). [ 587 ] Subparagraph 247(2)(b)(i) will only be satisfied if it is determined that “no arm’s length persons would have entered into the transaction … under any terms and conditions” ( [NAME_263] , at para 44). [ 588 ] Therefore, the question that must be answered under subparagraph 247(2)(b)(i) is whether any hypothetical arm’s length persons would have entered into the transaction under any terms and conditions. The analysis under subparagraph 247(2)(b)(i) is not a speculative exercise but involves an objective assessment of the commercial rationality of the transaction, which assessment may be aided by expert evidence ( [NAME_262] v. The Queen , 2018 [NAME_35] 195 [ [NAME_268] ], at para 714). [ 589 ] Subparagraph 247(2)(b)(ii) will be satisfied when it is determined that the “transaction … can reasonably be considered not to have been entered into primarily for bona fide purposes other than to obtain a tax benefit” . [ 590 ] At the relevant time, the term “tax benefit” was defined under subsection 247(1) as meaning “a reduction, avoidance or deferral of tax or other amount payable under this Act or an increase in a refund or tax or other amount under this Act” . [ 591 ] In [NAME_268] , the Court relied on the Supreme Court’s interpretation of the similarly worded former subsection 245(3) in [NAME_269] Co. v. Canada , 2005 SCC 54 [ [NAME_269] ] (at paras 28-29) to state that subparagraph 247(2)(b)(ii) requires a weighting of the evidence to “make an objective assessment of the relative importance of the driving forces behind the transaction or the series to determine whether it is reasonable to consider that the transaction or the series was not entered into primarily for bona fide purposes other than to obtain a tax benefit” ( [NAME_268] , at para 694). [ 592 ] When the requirements of both subparagraphs 247(2)(b)(i) and (ii) are met, paragraph 247(2)(d) applies. [ADDRESS] must then “replace the transaction … with the transaction …. that would have been entered into between persons dealing with each other at arm’s length” ( [NAME_263] , at para 53). Under paragraph 247(2)(d), the transaction or series can be recharacterized, rather than adjusting the terms and conditions as if paragraphs 247(2)(a) and (c) were to apply. [ 593 ] Moreover, the Federal Court of Appeal held that the same arm’s length persons should be considered under both paragraphs 247(2)(b) and 247(2)(d) ( [NAME_263] , at para 52). Further, the Federal Court of Appeal also held that paragraph 247(2)(d) contemplates replacing the transaction with some other transaction, but not with nothing ( [NAME_263] , at para 53).

3. Overview of the Positions of the Parties 1) The Appellant [ 594 ] According to the Appellant, paragraphs 247(2)(a) and 247(2)(b) do not apply to the [NAME_41], and no adjustment or recharacterization is necessary under paragraphs 247(2)(c) and 247(2)(d). [ 595 ] The Appellant relies on the lay witnesses’ testimony, the expert evidence and testimony of [NAME_270] and [NAME_273] of [COMPANY_276] (Mr. [NAME_272] and Mr. [NAME_275], together being referred to as “[NAME_278] experts” or “[NAME_278]” ), and the expert evidence and testimony of [NAME_119]. [ 596 ] Both Mr. [NAME_272] and Mr. [NAME_275] were qualified as transfer pricing experts. Mr. [NAME_272] and Mr. [NAME_275] prepared an Expert Report dated January 6, 2025 (Exhibit A-10, “[NAME_278]” ), and a Rebuttal Report dated February 6, 2025 (Exhibit A-13, “[NAME_278]” ). [ 597 ] As indicated above, [NAME_119] was qualified as an expert on pipeline [NAME_29] development and pipeline regulatory matters. [NAME_119] prepared the [NAME_47] (Exhibit A-3) and the [NAME_47] (Exhibit A-6). [ 598 ] Further, the Appellant relies on the complete failure of the Respondent’s transfer pricing experts to undertake the requisite transfer pricing analysis. [ 599 ] According to the Appellant, the sole non-arm’s length transaction that could be reviewed under section 247 is the [NAME_41], and more specifically, the consideration paid by the Appellant to [NAME_37] for the acquisition of 68% of [NAME_37]’s one-third Participating Interest in and to [NAME_40] Agreement. Once the Appellant acquired that interest, all rights, benefits, obligations, costs (including the Feasibility Study Costs), rewards, risks and liabilities arose under [NAME_40] Agreement. [NAME_40] Agreement is an arm’s length agreement and cannot not be reviewed under section 247. [ 600 ] The Appellant argues that the expert evidence provided by [NAME_278] and by [NAME_119] supports the position that paragraphs 247(2)(a) and 247(2)(c) do not apply to the [NAME_41]. Consequently, no adjustments to the [NAME_41] should be made under paragraph 247(2)(c). [ 601 ] Further, the Appellant denies that the [NAME_41] would not have been entered into by notional arm’s length persons and also denies the [NAME_41] can reasonably be considered not to have been entered into primarily for bona fide purposes other than to obtain a tax benefit. [ 602 ] Therefore, the [NAME_41] should not be recharacterized under subparagraphs 247(2)(b) and 247(2)(d). [ 603 ] According to the Appellant, the expert opinion provided by [NAME_279], namely the expert proposed by the Respondent in this appeal, was purely speculative, and should be given no weight, as, inter alia , there was no comparable transaction considered to suggest what arm’s length persons would have done.

2) The Respondent [ 604 ] The Respondent’s primary transfer pricing assessing position is the application of paragraphs 247(2)(b) and 247(2)(d). The Respondent argues paragraphs 247(2)(a) and 247(2)(c) apply as their alternative transfer pricing assessing position. [ 605 ] The Respondent submits that they do not intend to take any position as to whether paragraphs 247(2)(a) and 247(2)(b) could both apply to the same transaction and whether this would lead to the application of paragraph 247(2)(d). [ 606 ] The Respondent relies upon the expert evidence adduced by [NAME_282] at the hearing. [NAME_282] and [NAME_283] prepared numerous expert reports for this appeal. At the hearing, only [NAME_282] testified. [NAME_282] was qualified as an expert in transfer pricing. [ 607 ] The following expert reports were filed in evidence: Expert Report dated December 27, 2024 (Exhibit R-3; “[NAME_281]” ); Rebuttal of [NAME_278] dated February 5, 2025 (Exhibit R-7, “ [NAME_281] of [NAME_278]” ); Rebuttal of [NAME_47] dated February 5, 2025 (Exhibit R-11); Surrebuttal of [NAME_278] dated March 6, 2025 (Exhibit R-15, “[NAME_281] of [NAME_278]” ); Surrebuttal of [NAME_47] dated March 6, 2025 (Exhibit R-19). [ 608 ] The Respondent argues that parties dealing at arm’s length would not have entered into the [NAME_41] under any terms and conditions. Further, the [NAME_41] was entered into by the parties solely to save tax, as there were no other bona fide purposes to enter into the [NAME_41]. [ 609 ] Instead of entering into the [NAME_41], the Respondent argues that parties dealing at arm’s length would have entered into a fee-for-services agreement, if any transaction would have been entered into at all, bringing the Feasibility Study Costs to nil. [ 610 ] In the alternative, if the Court does not find that paragraphs 247(2)(b) and 247(2)(d) apply, the Respondent argues that paragraphs 247(2)(a) and 247(2)(c) apply, requiring also a downward adjustment of the Feasibility Study Costs to zero. [ 611 ] Relying on [NAME_282]’s expert opinion, the Respondent takes issue with three specific terms under the [NAME_41] (paragraphs 2, 4, and 6). The Respondent argues that these terms differ from those terms that would have been entered into had the Appellant and [NAME_43]. been dealing at arm’s length. Although changes may be made to paragraphs 2 and 4, there is no way to bring paragraph 6 within a range that arm’s length parties would consider acceptable. [ 612 ] Finally, the Respondent took issue with numerous sections of the [NAME_278] and with some parts of the expert evidence provided by [NAME_119], which I will discuss below.

4. Analysis [ 613 ] The preamble of subsection 247(2) requires that a taxpayer and a non-resident person with whom the taxpayer does not deal at arm’s length be participants in a transaction or series of transactions before applying any of paragraphs 247(2)(a), 247(2)(b), 247(2)(c), or 247(2)(d). [ 614 ] The parties agreed to the following for purposes of the transfer pricing issue in this appeal: (i) the Appellant and [NAME_43]. (acting through its division [NAME_37]) did not deal at arm’s length with each other at the relevant time; (ii) the [NAME_41] is the transaction to be reviewed; and (iii) the Appellant and [NAME_43]. were participants in the transaction. [ 615 ] The requirements found in the preamble to subsection 247(2) are therefore met. [ 616 ] At the hearing, the Respondent made it clear that its primary assessing position for purposes of the transfer pricing rules was based on the application of paragraphs 247(2)(b) and 247(2)(d). In the alternative, the Respondent argued that paragraphs 247(2)(a) and (c) apply to the [NAME_41]. The Respondent also indicated that no sham arguments are being raised in this appeal. [ 617 ] The issues are therefore whether paragraphs 247(2)(b) and 247(2)(d) apply and alternatively, whether paragraphs 247(2)(a) and 247(2)(c) apply to the [NAME_41]. [ 618 ] For the following reasons, I find that the evidence clearly showed that the transfer pricing provisions do not apply to the [NAME_41]. Consequently, there should be no adjustment to, and no recharacterization of, the transaction under either paragraph 247(2)(c) or paragraph 247(2)(d). [ 619 ] I find that the Appellant provided convincing lay and expert evidence showing that the transfer pricing provisions do not apply to the facts in this appeal. [ 620 ] On the other hand, I find that the Respondent did not provide satisfactory evidence to demonstrate, on a balance of probabilities, that its allegations and positions should be maintained in the case at bar. [ 621 ] For the reasons detailed below, I find that [NAME_282]’s expert opinion should be given very limited weight by the Court. [NAME_282] did not provide any comparable transactions but made assertions which were not verified and made unsupported conclusions on what arm’s length parties would or would not do. [ 622 ] I also find that part of [NAME_282]’s testimony and opinions were not within his sphere of transfer pricing experience and therefore, [NAME_282]’s opinion was unpersuasive with respect to feasibility studies and megaprojects development, and what arm’s length parties would or would not do, as more fully explained below. [ 623 ] Further, the expert opinion provided by [NAME_278] as well as the expert opinion provided by [NAME_119] were credible and persuasive, and therefore, I find that a lot of weight should be given to their respective expert evidence.

1) Overview of the weight to be given to the expert opinions a) The transactional recognition principle [ 624 ] In the [NAME_281], [NAME_282] premised that he was allowed to determine the reality behind the [NAME_41] in applying the arm’s length principle, relying on paragraph 1.39 of the OECD Guidelines to support this assumption (in these Reasons for Judgment, the OECD Guidelines are the “Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations” from the OECD dated July 1995). [ 625 ] Paragraph 1.39 of the OECD Guidelines reads as follows: 1.39 Associated enterprises are able to make a much greater variety of contracts and arrangements than can unrelated enterprises because the normal conflict of interest which would exist between independent parties is often absent. Associated enterprises may and frequently do conclude arrangements of a specific nature that are not or are very rarely encountered between unrelated parties. This may be done for various economic, legal, or fiscal reasons dependent on the circumstances in a particular case. Moreover, contracts within an MNE could be quite easily altered, suspended, extended, or terminated according to the overall strategies of the MNE as a whole and such alterations may even be made retroactively. In such instances tax administrations would have to determine what is the underlying reality behind a contractual arrangement in applying the arm’s length principle. [ 626 ] Relying on that paragraph, [NAME_282] stated that the underlying reality of the [NAME_41] was that [NAME_37] assigned to the Appellant 100% of [NAME_37]’s one-third Participating Interest in [NAME_40] Agreement pertaining to the Canadian segments of the pipeline, not 68% of [NAME_37]’s one-third Participating Interest in [NAME_40] Agreement pertaining to the combined Canadian and US segments of the pipeline ([NAME_281], p. 56, as corrected in the [NAME_281] of [NAME_278], p. 5). [NAME_282] then proceeded to analyse the [NAME_41] on that basis. [ 627 ] However, the [NAME_41] provides for an assignment to the Appellant of “68% of [NAME_37]’s one-third Participating Interest in and to the rights, duties, benefits, obligations, costs, rewards, risks, and liabilities arising in connection with [NAME_40] Agreement” (paragraph 2). The assignment under the [NAME_41] is an assignment of a proportionate share of the Participating Interest of [NAME_37] in and to [NAME_40] Agreement as a whole. [NAME_37] and the Appellant intended for the Appellant to pay for the joint venture costs associated with the Canadian portion of the pipeline study and for [NAME_37] to pay for joint venture costs associated with the US portion of the pipeline study. Costs associated with the Canadian portion of the pipeline study were aggregated by [NAME_111] and billed to the Appellant. I also accept [NAME_160]’s testimony that that was the business deal between [NAME_37] and the Appellant. [ 628 ] Further, on that same premise, [NAME_282] opined that the [NAME_41] should be recharacterized as a fee-for-services agreement between [NAME_37] and the Appellant, where [NAME_37] would authorize the Appellant to act as [NAME_37]’s agent to file for permits to do environmental work in Canada, which agreement would have been consistent with the arm’s length principle ([NAME_281], p. 69). [ 629 ] As indicated in the OECD Guidelines, there are two possible exceptions to the transactional recognition general principle as described in paragraphs 1.36 and 1.37: 1.36 A tax administration’s examination of a controlled transaction ordinarily should be based on the transaction actually undertaken by the associated enterprises as it has been structured by them, using the methods applied by the taxpayer insofar as these are consistent with the methods described in Chapters II and III. In other than exceptional cases, the tax administration should not disregard the actual transactions or substitute other transactions for them. Restructuring of legitimate business transactions would be a wholly arbitrary exercise the inequity of which could be compounded by double taxation created where the other tax administration does not share the same views as to how the transaction should be structured. 1.37 However, there are two particular circumstances in which it may, exceptionally, be both appropriate and legitimate for a tax administration to consider disregarding the structure adopted by a taxpayer in entering into a controlled transaction. The first circumstance arises where the economic substance of a transaction differs from its form. In such a case the tax administration may disregard the parties’ characterisation of the transaction and re-characterise it in accordance with its substance.... The second circumstance arises where, while the form and substance of the transaction are the same, the arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner and the actual structure practically impedes the tax administration from determining an appropriate transfer price. … [Emphasis added.] [ 630 ] According to [NAME_278], none of the exceptions to the application of the transactional recognition principle as found in the OECD Guidelines were met in the present case. Further, [NAME_278] opined that by failing to respect the transactional recognition principle, [NAME_282] incorrectly recharacterized the [NAME_41] as a fee-for-services agreement under paragraph 247(2)(d) ([NAME_278], p. 19). [ 631 ] I agree with [NAME_278]’s conclusions and expert evidence. [ 632 ] In [NAME_263] , the Federal Court of Appeal considered both exceptional circumstances described in the OECD Guidelines and provided guidance on their potential application to paragraphs 247(2)(b) and 247(2)(d): [68] There are two circumstances identified in paragraph 1.37 of the 1995 Guidelines that would allow a tax administration to disregard a structure put in place by a taxpayer. As noted, “[t]he first circumstance arises where the economic substance of a transaction differs from its form”. There is no allegation in this appeal that the transactions undertaken did not reflect the substance of the transactions. This was essentially the sham argument that was raised before the Tax Court and which the Tax Court Judge rejected. As noted above, the Crown has not appealed this finding. [69] The second circumstance identified in the 1995 Guidelines “arises where, while the form and substance of the transaction are the same, the arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner and the actual structure practically impedes the tax administration from determining an appropriate transfer price”. In this case, there is no indication that the structure, as implemented, impeded the determination of an appropriate transfer price. There is nothing to indicate or suggest that the structure impeded either the Canada [NAME_27]’s or the Tax Court Judge’s ability to determine the appropriate transfer price. The Tax Court Judge was able to determine the value of the Tenex and Urenco agreements when they were entered into and whether the prices at which the uranium was sold by [NAME_263] to CEL “were well within an arm’s length range of prices” (paragraph 856 of his reasons). [Emphasis added.] [ 633 ] As indicated above, the Respondent did not raise any sham argument in this appeal, and therefore, the first exception to the transactional recognition general principle described in the OECD Guidelines is not applicable. [ 634 ] Further, as will be explained in the analysis of subparagraph 247(2)(b)(i) below, none of the requirements for applying the second exception are found in this appeal. No evidence was adduced at the hearing showing that the structure as implemented by the parties impeded the determination of an appropriate transfer price, and that the [NAME_41] was not commercially rational. [ 635 ] In arriving at my findings, I also recognized the weight to be given to the OECD Guidelines, which guidelines are not controlling, but the provisions of the Act are ( [NAME_257] , at para 20). [ 636 ] This appeal will ultimately turn on the application of the provisions of the Act to the [NAME_41]. [NAME_282]’s failure to properly apply the widely accepted interpretative aid of the OECD Guidelines, as well as his failure to review the [NAME_41] as drafted and intended by the parties, leads me to find that his expert opinion should be given very limited weight. b) Shortcomings of [NAME_282]’s expert opinion [ 637 ] I also find that [NAME_285]’s expert opinion should be given less weight for the following reasons. [ 638 ] In the [NAME_281], [NAME_282] did not provide an industry analysis, a company analysis and a functional analysis, as instructed by the OECD Guidelines, but only provided a partial economic analysis. [NAME_282] testified that he was not asked by the Respondent to evaluate and rely on the OECD Guidelines. [NAME_282] stated that he was not asked to carry a transfer pricing analysis in exact accordance with the OECD Guidelines, but he was asked to answer three specific questions from the Respondent. [ 639 ] I agree with [NAME_278] that the failure by [NAME_282] to consider the building blocks (as called by [NAME_278], namely an industry analysis, a functional analysis and a company analysis) in the [NAME_281] leads to an incomplete analysis of the [NAME_41] under the transfer pricing rules ([NAME_278], p. 10). [ 640 ] Further, although [NAME_282] made an economic analysis, it was misapplied as there was no selection of a transfer pricing method and of a comparable transaction, and no consideration of any adjustment. [ 641 ] In addition, as will be discussed below, the three questions asked to [NAME_282] were flawed questions, not in line with the wording of subsection 247(2). [ 642 ] During the voir-dire, it was established that [NAME_282] is a prominent economist, having experience in oil pipeline regulatory issues representing the [NAME_118] and oil pipeline shippers on tariff disputes at the [NAME_84] and at the Alaska regulatory board, as well as in transfer pricing disputes (tax planning, audit, documentation). However, [NAME_282] admitted he did not have experience with natural gas pipeline regulatory matters, but only with oil pipeline regulatory matters. Further, [NAME_282] testified that he did not have any experience with feasibility studies for pipeline projects and had no experience in relation to the FEL-1 to FEL-3 development stages of megaprojects and in relation to the oil and gas industry. [ 643 ] [NAME_282]’s lack of experience regarding the stages of megaprojects development and his lack of experience with the oil and gas industry, I find that [NAME_282]’s opinion should be given less weight than [NAME_278] and [NAME_119]’ expert opinions. I find that accepting [NAME_282]’s opinion on how parties would deal with feasibility study costs, either in an arm’s length or non-arm’s length situations, under a megaproject would be inappropriate, as [NAME_282] admitted he was not an expert in feasibility studies for pipeline projects and given his lack of consideration of comparable transactions. [ 644 ] I also find that [NAME_282]’s expert opinion showed a lack of understanding of [NAME_40] Agreement and the [NAME_41], and the resulting effects of these agreements on the parties involved. [ 645 ] For example, when evaluating benefits under [NAME_40], [NAME_282] testified that he did not turn his mind to paragraph 8.2.1 of [NAME_40] Agreement which allowed the Appellant to license the data obtained under [NAME_40], after termination of [NAME_40] Agreement. As mentioned above, the Appellant licensed the data it obtained under [NAME_40] to the [NAME_113] in 2003 ([NAME_39], Joint Book of Documents, tab 99) and contributed these data in 2009-2010 under the [NAME_116] ([NAME_39], Joint Book of Documents, tabs 112 and 113). [ 646 ] Furthermore, [NAME_282] was not aware that the Appellant owned interest in natural gas resources in the [NAME_82], which is part of the [NAME_126], and that the Appellant was part of the [NAME_113]. [ 647 ] Further, [NAME_282] did not consider section 9.2 of [NAME_40] Agreement which deals with the right of a party to withdraw from [NAME_40] Agreement, and the consequences arising from the ability to withdraw from [NAME_40]. As indicated above, because the Appellant stepped into the shoes of [NAME_43]. as an assignee, I find that the Appellant had the ability to withdraw from [NAME_40]. [ 648 ] Moreover, as more fully discussed below, I find that the [NAME_281] is factually flawed due to its reliance on the [NAME_127] which reflects “hindsight bias, since the [NAME_127] was not completed until February 2002 where the [[NAME_41]] was entered into in June 2001” ([NAME_278], p. 17). [ 649 ] In addition, [NAME_282]’s expert opinion always refers to June 2001 as being the relevant date for the [NAME_41], and his expert opinion. However, although the [NAME_41] was executed on June 15, 2001, all parties acknowledged that the [NAME_41] was effective December 5, 2000. [ 650 ] As indicated in the previous section of these Reasons for Judgment, I find that the Appellant was identified very early in the process to be a participant under [NAME_40], and more particularly no later than February 2001 with a conceptual management approval obtained before that date. The memorialization process started no later than March 26, 2001. The effective date of the [NAME_41] is December 5, 2000, and the Respondent had no issue with that date. I also accept the evidence that showed that cost estimates indicating that [NAME_40] may be nonviable were only received starting in the fall of 2001. [ 651 ] [NAME_282] testified using December 5, 2000, instead of June 15, 2001, would not change his ultimate expert opinion. I find it very unlikely that [NAME_282] would not have modified or qualified his expert opinion had he considered the facts existing as of December 5, 2000, instead of June 15, 2001. c) [NAME_278] and [NAME_119]’ expert opinions [ 652 ] The Respondent took issue with numerous sections of the [NAME_278] and the [NAME_47], in addition to other sections of their expert reports discussed more fully below. The Respondent asked that little weight be given to [NAME_278] and [NAME_119]’ expert opinions. [ 653 ] I do not agree with the Respondent. [ 654 ] For the reasons below, and as it will be more fully discussed in the following sections of these Reasons for Judgment, I find that the expert opinion provided by [NAME_278] and by [NAME_119] should be given a lot of weight by the Court, as both [NAME_278] and [NAME_119] provided expert opinions which were credible and persuasive. [ 655 ] The Respondent asserts that [NAME_278] and [NAME_119] were not provided with all documents and evidence that was before the Court to opine appropriately, and further, questions which were asked by the Appellant to the experts were restrictive and subjective. I do not agree with the Respondent, as the questions asked to the experts were appropriate, and the expert reports and the testimonies of the experts showed their understanding of the transactions entered into by all parties. [ 656 ] According to the Respondent, [NAME_278] relied on the wrong provisions of the Act to carry out its transfer pricing analysis and gave undue weight to the OECD Guidelines. I do not agree with the Respondent. [NAME_278] analyzed the transfer pricing provisions found in the Act and provided their expert opinion on their application to the present facts in this appeal, recognizing that the OECD Guidelines, including OECD methodology or commentary, were not controlling and the test to any transaction or prices must be determined according to the Act ( [NAME_257] , at para 20; [NAME_259] , at para 120). [ 657 ] I find that [NAME_278] provided a complete transfer pricing opinion respecting the arm’s length principle and applying the transactional recognition principle to the [NAME_41]. [ 658 ] The Respondent also argues that [NAME_278] were unaware of key documents that addressed the stated purpose of the [NAME_41]. I do not agree with the Respondent. [NAME_278] analyzed the [NAME_41], as informed by [NAME_40] Agreement. [NAME_278]’s understanding of [NAME_40] and how a megaproject is advanced informs the opinion provided in the [NAME_278] and should be accepted by the Court. [ 659 ] With respect to [NAME_119]’ expert testimony, the Respondent does not dispute [NAME_119]’ following testimony: - [NAME_40] as defined in section 1 of [NAME_40] Agreement would be a megaproject and would be managed as such; - that megaprojects are managed through a stage-gate or decision-gate process; - that some work would be carried out at the front-end of a megaproject before a decision was made to proceed with [NAME_40]; and - that pipeline companies would participate in a pipeline megaproject at some point during the life of [NAME_40]. [ 660 ] However, the Respondent’s main concern with [NAME_119]’ expert testimony is the failure of [NAME_119] to appreciate the full effect and properly interpret paragraph 6 of the [NAME_41]. In the Respondent’s view, [NAME_119] failed to interpret paragraph 6 correctly. [ 661 ] For the reasons discussed in the next section dealing with paragraph 6 of the [NAME_41], I do not agree with the Respondent.

2) Paragraphs 247(2)(b) and 247(2)(d) a) Subparagraph 247(2)(b)(ii): can the [NAME_41] reasonably be considered not to have been entered into primarily for bona fide purposes other than to obtain a tax benefit? i. Positions of the parties: (i) The Appellant [ 662 ] The Appellant denies the [NAME_41] can reasonably be considered not to have been entered into primarily for bona fide purposes other than to obtain a tax benefit. [ 663 ] Although the Appellant conceded that there was a tax benefit for the Appellant to enter into the [NAME_41], namely a deduction of the Feasibility Study Costs, the [NAME_41] does not meet the requirement of subparagraph 247(2)(b)(ii), because it has been entered into primarily for bona fide purposes other than to obtain a tax benefit. [ 664 ] According to the Appellant, the primary purpose of the [NAME_41] was to avoid subjecting [NAME_37] to Canadian civil and tax jurisdiction and allow the Appellant to advance its entitlement to [NAME_40]. [ 665 ] The Appellant argues that the testimony clearly demonstrated that the primary purpose of entering into the [NAME_41] was much more than one statement found in a funding request made to senior management “to capture the beneficial tax treatment associated with the Canadian portion of the line” ([NAME_39], Joint Book of Documents, tab 28). [NAME_160], [NAME_120], [NAME_133] and [NAME_136] all testified that the sole or primary purpose of the [NAME_41] was not to capture beneficial tax treatment associated with the Canadian portion of the pipeline. [ 666 ] Further, the evidence showed that the Canadian portion of the pipeline needed to be owned by an [NAME_1] [NAME_155] as a matter of [NAME_43].’s policy to avoid civil liability exposure, as [NAME_136] testified. Furthermore, the Appellant would benefit from the ownership of the pipeline with the potential to earn significant revenues ($162 million per year as calculated by [NAME_119]). Even if the pipeline was not built, the Appellant was entitled to benefit from having rights to the information created by [NAME_40]. [ 667 ] The evidence showed that the obtention of a tax benefit was not the driving force behind the transaction. The driving forces were to move the [NAME_125] from the ANS to [NAME_36] and the Lower-48. Further advancing a pipeline in a large corporate group that goes through countries is to everyone’s benefit, and the [NAME_41] recognized benefits to the Appellant to own a pipeline in Canada. [ 668 ] The Appellant was chosen because it owned an interest in the [NAME_287] and had pipeline experience. [ 669 ] Further, [NAME_278] also opined that it was reasonable to conclude that the [NAME_41] is bona fide and has not been entered into primarily to obtain a tax benefit ([NAME_278], p. 56). (ii) The Respondent [ 670 ] According to the Respondent, the [NAME_41] was entered into by the parties solely to save tax, as there were no other bona fide purposes to enter into the [NAME_41]. To support their position, the Respondent relied on various documents and other evidence adduced at the hearing, which I will examine below, as well as on [NAME_282]’s opinion as to the third question he was asked to opine on. ii. Analysis: [ 671 ] For the following reasons, I find that the [NAME_41] can reasonably be considered to have been entered into primarily for bona fide purposes other than to obtain a tax benefit. The requirement of subparagraph 247(2)(b)(ii) is therefore not met in this case. [ 672 ] As indicated by the Supreme Court in [NAME_269] (at para 27), when dealing with subsection 245(3): If there are both tax and non-tax purposes to a transaction, it must be determined whether it was reasonable to conclude that the non-tax purpose was primary. [ 673 ] In [NAME_269] , the Supreme Court also recognized that tax and non-tax purposes can be intertwined in a particular transaction. It requires then a weighting of the evidence to make an objective assessment of the relative importance of the driving forces behind the transaction ( [NAME_269] , at para 8; [NAME_268] , at para 694). [ 674 ] Therefore, to determine whether the transaction could reasonably be considered not to have been entered into primarily for bona fide purposes other than to obtain a “tax benefit” , subparagraph 247(2)(b)(ii) requires a weighting of the evidence to make an objective assessment of the relative importance of the driving forces behind the transaction. [ 675 ] I cannot just accept a statement by the Appellant that the [NAME_41] was undertaken primarily for a non-tax purpose, as I must weigh the evidence to determine whether it is reasonable to conclude that the [NAME_41] was not undertaken primarily for a non-tax purpose ( [NAME_269] , at para 29). [ 676 ] The Supreme Court had also recognized that the expression “non-tax purpose” has a broader meaning than the expression “business purpose” and referred for example to transactions arranged for family or investment purposes ( [NAME_269] , at para 33). [ 677 ] As indicated above, the Appellant had conceded the existence of a tax benefit, being the deduction of the Feasibility Study Costs, but had not conceded that that was the primary purpose for entering into the [NAME_41]. [ 678 ] To support their position that there was no reason, other than achieving a tax benefit, for both parties to enter into the [NAME_41], the Respondent relied on the following: (i) An email dated February 2, 2001, where [NAME_38] shared its plan with [NAME_32] and [NAME_43]. to allocate a portion of its feasibility study costs to a Canadian affiliate, along with calculations of the tax benefits ([NAME_39], Joint Book of Documents, tab 56); (ii) By March 26, 2001, [NAME_1] tax group specialists were looking at the draft assignment agreement [NAME_38] proposed to use to assign an interest in [NAME_40] Agreement to one of its Canadian subsidiaries ([NAME_39], Joint Book of Documents, tab 16, pp. 5-7, and [NAME_160]’s testimony); (iii) By early April 2001, the potential strategy of assigning an interest to the Appellant was circulated among the [NAME_1] management personnel for approval and endorsement ([NAME_39], Joint Book of Documents, tabs 18 and 55); (iv) During the discovery process, the Appellant’s nominee, namely [NAME_120], confirmed that the reasons for [NAME_37]’s allocation of feasibility study costs to the Appellant was a belief that the costs could be expensed in Canada, but not in the USA where the expenses would be capitalized and would only be deductible once [NAME_40] was constructed; (v) A request for funding made to [NAME_128] on how the cost sharing structure of the [NAME_41] was made “to capture the beneficial tax treatment associated with the Canadian portion of the line” ([NAME_39], Joint Book of Documents, tab 28); (vi) [NAME_40] was a producer study, and the producers were trying to maintain control of [NAME_40], as shown in a presentation made to [NAME_128] ([NAME_39], Joint Book of Documents, tab 25). Furthermore, [NAME_136] testified that [NAME_43]. would only allow a non-producer company if it could add value; (vii) An email dated April 12, 2001, where [NAME_288] indicated that the purpose of the [NAME_41] was to avoid [NAME_43]. being subject to Canadian tax and/or civil jurisdiction ([NAME_39], Joint Book of Documents, tab 26). [ 679 ] Additionally, the Respondent relied on [NAME_282]’s answer to the third question he was asked to opine on by the Respondent ([NAME_281], p. 69): Whether the transaction is one that parties dealing at arm’s length would have entered into, and whether that transaction can reasonably be considered to have been entered into solely to obtain a tax benefit . [Emphasis added.] [ 680 ] [NAME_282] opined that the [NAME_41] can reasonably be considered to have been entered into solely to obtain a tax benefit ([NAME_281], p. 70). To support his opinion, [NAME_282] referred to the documents listed above under (i) and (v), as well as an email from [NAME_290] ([NAME_29] Counsel to [NAME_40]) dated March 22, 2001 and a memorandum from [COMPANY_292] dated March 5, 2001 ([NAME_39], Joint Book of Document, tabs 16 and 56, and tab 38). I will discuss these documents further below. [ 681 ] The Respondent seems to imply that the tax benefit in the present appeal includes not only the reduction of taxes or amount payable under the Act by the Appellant resulting from the deduction of the Feasibility Study Costs, which tax benefit was conceded by the Appellant, but also that a tax benefit would include [NAME_43].’s objective to avoid Canadian tax jurisdiction, as part of its corporate policy. For the following reasons, I do not agree with the Respondent. [ 682 ] At the relevant time, the expression “tax benefits” meant “a reduction, avoidance or deferral of tax or other amount payable under this Act or an increase in a refund or tax or other amount under this Act” (subsection 247(1); emphasis added). [ 683 ] There are no assumptions in the Reply to the Notice of Appeal dealing with the existence of a tax benefit for transfer pricing purposes, other than paragraph 45ddd) dealing with the purpose of the [NAME_41], which states: The purpose of the Assignment Methodology – that is, the use of 68% as the allocation portion under the Assignment Agreement – was to capture the beneficial tax treatment associated with the Canadian portion of the Alaska Pipeline. [ 684 ] At this stage of [NAME_40], only costs were paid by the participants to the Feasibility Study in relation to costs for services performed by various third-party service providers and to costs for contributions made by the participants. No evidence was provided to show that if [NAME_43]. had paid the Feasibility Study Costs, which were feasibility study costs relating to the Canadian portion of the Feasibility Study, that [NAME_43]. would have reduced, avoided or deferred any tax or other amount payable under the Act. I find that, with respect to the facts of this case, [NAME_43].’s objective to avoid Canadian tax jurisdiction would not be captured under the definition of “tax benefit” in subsection 247(1). [ 685 ] Further, although avoiding Canadian tax jurisdiction may be construed as a tax purpose, I find that, in this appeal, that objective is part of the overreaching business purposes of [NAME_43]. to avoid both Canadian civil and tax jurisdiction, in accordance with [NAME_43].’s corporate policy. As indicated by [NAME_136], in accordance with [NAME_43].’s policy to avoid any civil liability exposure, a [NAME_155] would be the owner of the Canadian segment of the pipeline. [ 686 ] Therefore, for the purposes of this analysis, I consider that the sole “tax benefit” under subsection 247(1) was the “reduction … of tax or other amount payable under the Act…” as a result of the deduction of the Feasibility Study Costs by the Appellant. [ 687 ] Subparagraph 247(2)(b)(ii) refers to the word “primarily” . I find that just because the Appellant obtained a tax benefit by entering into the [NAME_41], that does not mean that the primary purpose of the [NAME_41] was to obtain a tax benefit. [ 688 ] To make a determination under subparagraph 247(2)(b)(ii), I also consider the purpose of [NAME_40] Agreement, which informs the purpose of the [NAME_41]. The purpose of [NAME_40] Agreement was to advance and progress a potential pipeline from the ANS to [NAME_36] and the Lower-48, within a regulated industry that is lucrative. [ 689 ] Considering the evidence adduced at the hearing, I do not agree with the Respondent that the sole reason for entering into the [NAME_41] was to achieve a tax benefit. Further, I do not find that achieving a tax benefit outweighs the business and investment purposes for entering into the transaction. In other words, for the following reasons, I find that the business and investment purposes described below were the primary purposes for entering into the [NAME_41] as these purposes greatly outweigh the tax purpose for entering into the [NAME_41]. [ 690 ] I find that the evidence showed, on a balance of probabilities, that the business and investment purposes described below were the primary purposes for entering into the [NAME_41], all being primary business and investment purposes for entering into the [NAME_41] and all being non-tax purposes: (i) [NAME_234].: to avoid Canadian civil jurisdiction; (ii) [NAME_234].: to avoid Canadian tax jurisdiction; and (iii) For the Appellant: [redacted] [ 691 ] In coming to my conclusion, I also consider that the driving forces behind the [NAME_41] was to move the [NAME_125] from the ANS to [NAME_36] and the Lower-48, which are of benefit to the [COMPANY_48], as informed by [NAME_40] Agreement. [ 692 ] Further, entering into the [NAME_41] allowed the Appellant to advance its entitlement to [NAME_40]. As will be discussed in the following section of these Reasons for Judgment, the Appellant expected to benefit from obtaining 68% of [NAME_37]’s one-third Participating Interest in [NAME_40] Agreement. If a pipeline was built, the Appellant would benefit from ownership of a segment of the pipeline (if the [COMPANY_48] had an ownership interest in the pipeline) with the potential to earn significant revenues, namely $162 million per year as described by [NAME_119]. [ 693 ] In addition, even if a pipeline was not built, the Appellant was entitled to benefit from having rights to the information and data created by [NAME_40], which the Appellant licensed to the [NAME_293] in 2003 and further contributed to the [NAME_116] in 2009 and 2010. [ 694 ] Obtaining these rights and benefits allowed the Appellant to advance its entitlement to [NAME_40]. I find that this business purpose or investment purpose is very important for the Appellant and outweighs the tax purposes identified above for entering into the [NAME_41]. [ 695 ] Referring to the request for funding made to [NAME_128] where it is indicated that the cost sharing under the [NAME_41] was made to “capture the beneficial tax treatment associated with the Canadian portion of the line” , and although [NAME_160] testified that that sentence was a reference to the different tax treatment of feasibility study costs in Canada and in the USA, I accept [NAME_160]’s testimony that the overall tax position of the [COMPANY_48] is always of concern ([NAME_39], Joint Book of Documents, tab 31). [NAME_160], [NAME_120], [NAME_133] and [NAME_136] all testified that the sole or primary purpose of the [NAME_41] was not to capture beneficial tax treatment associated with the Canadian portion of the pipeline. I accept their testimonies. [ 696 ] I also accept [NAME_160]’s testimony that one of the primary reason for entering into the [NAME_41] was because, as a matter of corporate policy, [NAME_43]. does not do business in foreign jurisdictions and, in these particular circumstances, [NAME_43]. wants to avoid any risk that it be considered to carry on business in Canada, with the result that it may be subject to tax in Canada. [ 697 ] [NAME_160] further stated that entering into the [NAME_41] represented a business opportunity for the Appellant to invest in a segment of a pipeline that would be regulated by the [NAME_89] and would set a guaranteed rate of return. [NAME_133] testified similarly, and I accept their testimonies. [ 698 ] [NAME_120] testified that it was important [NAME_234]. to have a Canadian affiliate involved in the Canadian segment of the pipeline. Furthermore, according to [NAME_120], a [NAME_155] is required because [NAME_89] applications must be filed by a [NAME_155]. [ 699 ] Further, contemporaneous communication (emails listed above as referred to by the Respondent) as well as additional testimonies showed that [NAME_43]. does not do business in Canada and did not want to take the risk that it would be considered as carrying on business in Canada. [ 700 ] As indicated above, the credible testimony of [NAME_136] clearly established that the Canadian portion of the pipeline needed to be owned by an [NAME_1] [NAME_155] as a matter of [NAME_43].’s policy to avoid civil liability exposure. [ 701 ] An email exchange between [NAME_294] (from [NAME_3]) and [NAME_298] (from [NAME_43].) shows that [NAME_1] was aware of the risk of creating a permanent establishment and wanted to structure the [NAME_41] to avoid that result ([NAME_39], Joint Book of Documents, tab 18 at p. 1-2). This email is also an illustration of the corporate policy that [NAME_43]. follows of not wanting to be subject to Canadian tax jurisdiction. [ 702 ] Further, the evidence that [NAME_43]. does not do business in Canada is illustrated by the following email dated March 22, 2001, dealing with the filing for field permits in Canada, which [NAME_282] referred to when he opined on the third question. In that email, [NAME_300], as legal Counsel for [NAME_40], stated that ([NAME_39], Joint Book of Document, tab 56): It is my understanding that [[NAME_43].] does not do business in Canada , and accordingly would not want to participate in making a permit filing if that would cause any risk of becoming subject to taxation. [Emphasis added.] [ 703 ] This email also corroborates the credible testimony of [NAME_136] on [NAME_43].’s corporate policy and how [NAME_43]. structures its operation and investment ownership in foreign jurisdictions. Therefore, I find that this email shows that one of the primary non-tax purposes for entering into the [NAME_41] was to avoid any risk that [NAME_43]. would be considered to carry on business in Canada and, and as a potential result, be subject to Canadian tax jurisdiction. [ 704 ] [NAME_282] assumed that the memorandum from [COMPANY_292] dated March 5, 2001 was in response to [NAME_300]’s email and was a tax opinion explaining to [NAME_32] that an assignment similar to the [NAME_41] was not necessary to avoid being subject to Canadian tax and civil jurisdiction ([NAME_39], Joint Book of Document, tab 38). [ 705 ] However, [NAME_282]’s assumption that this memorandum was prepared in response to [NAME_300]’s email is wrong as the memorandum was dealing with the recovery of costs at the [NAME_89] and was not dealing with tax matters. Given the content of [NAME_244]’s memorandum, I find that [NAME_282]’s opinion on this issue should be given no weight. [ 706 ] I also relied on the email from [NAME_301] dated April 12, 2001, which specifically indicates that ([NAME_39], Joint Book of Documents, tab 26): [B]ecause we do not want to subject [NAME_53] [NAME_51] to Canadian tax and/or civil jurisdiction we will notify the other participants ([NAME_30] and [NAME_33]) of the partial assignment to [NAME_56] of [NAME_37]’s interest. We will also notify [NAME_111] of the partial assignment so they can bill [NAME_56] directly for the portion of [NAME_40] agreement cost related to work involving the Canadian portion of [NAME_40]. Furthermore, any Canadian permits will be taken in the name of [NAME_56], not [NAME_37]…. [Emphasis added.] [ 707 ] The above emails do not indicate that the purpose of the [NAME_41] was to obtain a tax benefit but show that one of the primary purposes of the [NAME_41] was to avoid subjecting [NAME_43]. to Canadian tax and civil jurisdiction, as part of its corporate policy to avoid any civil liability exposure, being a business purpose. [ 708 ] Further, I also find that the answer given by [NAME_120], the Appellant’s nominee, as referred to by the Respondent, does not support the Respondent’s position. The question asked by the Respondent on discovery was as follows: “[NAME_120], do you know what the beneficial tax treatment was that the [COMPANY_123] is attempting to capture? And this is in relation to the May 17, 2001, funding request”. [Emphasis added.] [ 709 ] [NAME_120] answered that the beneficial tax treatment was that feasibility study costs are deductible as current expenses in Canada but are not in the USA. [NAME_120] was not asked what the purpose of the [NAME_41] was, or what was the purpose of the funding request made to [NAME_128] to finance the Appellant’s obligations under the [NAME_41]. [ 710 ] To support their position, the Respondent also relies on the fact that [NAME_40] was a producers’ study, and that [NAME_43]. would only allow non-producers into [NAME_40] if they added value ([NAME_39], Joint Book of Documents, tab 25). I do not find these arguments persuasive. [ 711 ] [NAME_136] testified about the purpose of various sections of [NAME_40] Agreement, namely assignment to affiliates (section 10.4 of [NAME_40] Agreement) and participation of third parties (article 9 of [NAME_40] Agreement). I accept [NAME_136]’s testimony that in a multinational context, agreements would provide for similar terms and are not specific to [NAME_40] Agreement. Adding these terms while drafting [NAME_40] Agreement does not suggest that the parties wanted to leave the door open to creating a tax benefit from a future assignment. [ 712 ] I also accept [NAME_278]’s expert opinion that it is reasonable to conclude that the [NAME_41] was not entered into primarily to obtain a tax benefit ([NAME_278], p. 56). All the relevant circumstances must be considered, so that it is not a speculative exercise. [NAME_278] considered all the relevant circumstances to opine on the purpose of the [NAME_41]. [ 713 ] For these reasons, weighting the evidence, I find that the primary purposes of the [NAME_41] were of a business and investment nature, being to avoid subjecting [NAME_43]. to Canadian tax and civil jurisdiction, and to allow the Appellant to advance its entitlement to [NAME_40] (including entitlement to data and information from [NAME_40]), outweighing the tax purpose for entering into the [NAME_41]. [ 714 ] Therefore, for these reasons, the requirement of subparagraph 247(2)(b)(ii) is not met in the present appeal. Although this dispenses with the application of subparagraph 247(2)(b), for the sake of completeness, I will address, in the following sections of these Reasons for Judgment, whether the requirements of subparagraph 247(2)(b)(i) are met and whether paragraph 247(2)(d) applies in this case. b) Subparagraph 247(2)(b)(i): the [NAME_41] would not have been entered into between persons dealing at arm’s length; and paragraph 247(2)(d): recharacterization provision i. Positions of the parties: (i) The Appellant [ 715 ] The Appellant denies that the [NAME_41] would not have been entered into by notional arm’s length persons. [ 716 ] According to the Appellant, the evidence adduced at the hearing established that arm’s length parties commonly enter into joint venture arrangements such as [NAME_40] Agreement and the [NAME_41] which involves cost sharing with the objective of advancing a common goal. [NAME_278] opined that it is common for arm’s length parties to enter into joint venture arrangements like [NAME_40] Agreement and the [NAME_41] to share the costs with the objective of advancing a common goal ([NAME_278], at pp. 18-19). [ 717 ] Further, the evidence established that the type of governance agreed to under such arrangements reflects the common goal of advancing the FEL process ([NAME_47], at pp. 28-30). [NAME_119]’ expert testimony described how pipeline [NAME_29] developments are advanced and how parties come together in advancing that kind of [NAME_29]. [NAME_119] was involved in the [NAME_29] involving [NAME_152] and ten funding participants, where the ten funding participants contributed $283 million of the $656 million and further authorized [NAME_152] to control the advancement of the [NAME_89] regulatory application process ([NAME_47], p. 28). [ 718 ] According to the Appellant, [NAME_282]’s expert opinion was purely speculative, and should be given no weight, as there was no comparable transaction considered to suggest what arm’s length persons would have done. [NAME_282] replaced the [NAME_41] with a fee-for-services agreement, to avoid the risk that [NAME_37] “would be exposed to Canadian tax and civil jurisdiction if [NAME_37] itself had filed for permits to do the environmental work in Canada” ([NAME_281], p. 68). Under the alternate arrangement, the Appellant would have the authority as agent to enter into contract on behalf of its principal, [NAME_37]. [NAME_282] did not lay out the terms and conditions of that agreement. [ 719 ] In reality, according to the Appellant, [NAME_282] is replacing the transaction with nothing, which is not the principle to be followed according to the transfer pricing jurisprudence. [ 720 ] [NAME_278] also opined that the [NAME_41] should not be recharacterized under subparagraphs 247(2)(b) and 247(2)(d) ([NAME_278], p. 56). (ii) The Respondent [ 721 ] The Respondent argues that the requirements of subparagraph 247(2)(b)(i) are met because parties dealing at arm’s length would not have entered into the [NAME_41] under any terms and conditions. [ 722 ] For the purposes of applying subparagraph 247(2)(b)(i), the Respondent asserts that the stage at which [NAME_40] was during the 2000-2002 period is very important. In their submissions, the Respondent stressed that entering into the [NAME_41] is a timing issue. The Appellant may have gotten involved in [NAME_40] at some future point but not at a very preliminary stage where three producers, namely [NAME_37], [NAME_38] and [NAME_32], are merely evaluating costs and evaluating different ways to commercialize their stranded natural gas. [ 723 ] According to the Respondent, [NAME_278] and [NAME_282] took different approaches; however, [NAME_282] followed the approach endorsed by this Court and the Federal Court of Appeal, and accordingly, the Respondent argues that [NAME_282]’s expert opinion should be accepted. [ 724 ] The Respondent relies on [NAME_282]’s opinion as follows: - Paragraphs 2, 4 and 6 of the [NAME_41] are not terms and conditions that the Appellant and [NAME_37] would have entered into if they had been dealing at arm’s length, under the facts and circumstances in June 2001 ([NAME_281], pp. 53-62); - The recharacterization of the [NAME_41] as a fee-for-services agreement, where “EMCP would authorize [the Appellant] to act as [NAME_37]’s agent in filing for permits to do environmental work in Canada required to support the [[NAME_29]’s] analysis” is consistent with the arm’s length principle ([NAME_281], p. 69); and - The [NAME_41] was not an agreement that parties dealing at arm’s length would have entered into in June 2001 ([NAME_281], p. 70). [ 725 ] The Respondent further argues that because the producers wanted to maintain complete control over the feasibility study, they would not have allowed an arm’s length party to participate in the Feasibility Study. [ 726 ] In addition, the Respondent argues that the divergent interests of the parties to the [NAME_41] would preclude them from entering into an assignment and cost allocation agreement of any kind. The Respondent argues that producers and pipeline companies are on opposite sides of transactions, and their interests are not aligned. Producers want to pay less tolls, and the tolls are the source of the [NAME_27] of pipeline companies. [ 727 ] Instead of entering into the [NAME_41], the Respondent argues that parties dealing at arm’s length would have entered into a fee-for-services agreement, if any transaction would have been entered into at all. ii. Analysis: [ 728 ] For the reasons below, I do not agree with the Respondent that the evidence showed that the [NAME_41] would not have been entered into between persons dealing at arm’s length under any terms and conditions. [ 729 ] Further, for the reasons below, I do not find that [NAME_282]’s expert opinion supports that conclusion, and moreover, I find that [NAME_282]’s opinion should be given very limited weight. [ 730 ] I find that the evidence adduced at the hearing showed that the [NAME_41] was a commercially rational transaction and therefore, that the requirements of subparagraph 247(2)(b)(i) are not met ( [NAME_268] , at para 714). [ 731 ] Further, for the reasons below, I find that it is not appropriate to recharacterize the [NAME_41] as a fee-for-services agreement to reduce the Feasibility Study Costs to nil. [ 732 ] The test under subparagraph 247(2)(b)(i) “raises the issue of whether the transaction … would have been entered into between persons dealing with each other at arm’s length (an objective test based on hypothetical persons) …” ( [NAME_263] , at para 43). [ 733 ] Subparagraph 247(2)(b)(i) requires the application of an objective test based on hypothetical persons, not the particular taxpayer, and requires that no arm's length persons would have entered into the disputed transaction under any terms and conditions ( [NAME_263] , at paras 43-44, 82). [ 734 ] In order to recharacterize the transaction under subparagraph 247(2)(d), the Court must look at what transaction notional arm’s length parties would have entered into (an objective test based on hypothetical persons) and then apply this transaction to the participants in the [NAME_41], namely [NAME_37] and the Appellant ( [NAME_263] , at paras 43-44, 82). [ 735 ] However, [NAME_282]’s expert opinion does not follow the standard test set out in [NAME_263] for the application of subparagraph 247(2)(b)(i). [NAME_282] opined on what [NAME_37] and the Appellant would have done if they were dealing at arm’s length, namely he applied a subjective test, and not an objective test in his analysis in support of subparagraph 247(2)(b)(i). [ 736 ] I also find that [NAME_282]’s expert opinion is the result of a speculative exercise by suggesting that a fee-for-services agreement is consistent with the arm’s length principle under paragraph 247(2)(d) ([NAME_281], at p. 69). (i) Subparagraph 247(2)(b)(i) [ 737 ] In the [NAME_281], [NAME_282] was asked by the Respondent to answer three questions. The third question [NAME_282] was asked to answer reads as follows: Whether the transaction is one that parties dealing at arm’s length would have entered into , and whether the transaction can reasonably be considered to have been entered into solely to obtain a tax benefit. [Emphasis added.] [ 738 ] To answer the first part of that third question, [NAME_282] relied on his answer to the first question he had examined in his report, namely: Whether the terms and conditions of the transaction entered into between the Appellant [[NAME_56]] and its related non-resident entity [[NAME_37]] were terms and conditions that entities dealing at arm’s length would enter into. [Emphasis added.] [ 739 ] [NAME_282] stated that “[o]ur response to [NAME_302] #1 above explains why we conclude that …the [NAME_41] would not have been entered into in June 2001 if the parties, [NAME_37] and [NAME_56], had been dealing at arm’s length” ([NAME_281], p. 70). [ 740 ] I find a few preliminary problems with this conclusion. Firstly, as stated above, [NAME_282]’s conclusion applies a subjective standard about what the parties to the [NAME_41] would have done instead of what notional arm’s length parties would have done, which is not the appropriate test under subparagraph 247(2)(b)(i). [ 741 ] Furthermore, [NAME_282] appears to improperly conflate his answer to whether the “terms and conditions” of the [NAME_41] would have been entered into between arm’s length parties with whether the entire [NAME_41] (or the transaction) would have been entered into by notional arm’s length parties. As noted in [NAME_263] , these are separate inquiries ( [NAME_263] , at para 44). [ 742 ] More particularly, [NAME_282] relies on three terms of the [NAME_41], namely paragraphs 2, 4 and 6 to justify his opinion, without considering whether the entire transaction was commercially rational or not, which is the test to be applied under subparagraph 247(2)(b)(i). [ 743 ] Further, at the hearing, [NAME_282] testified that although paragraphs 2 and 4 could be changed, it would be impossible to make changes to paragraph 6 to meet the arm’s length principle. Hence, [NAME_282] testified that parties dealing at arm’s length would not agree to the [NAME_41] under any terms and conditions. [ 744 ] As mentioned above, the analysis under subparagraph 247(2)(b)(i) is not a speculative exercise but involves an objective assessment of the commercial rationality of the transaction. [NAME_282] did not provide convincing evidence that paragraphs 2, 4 and 6 were not commercially rational and would not have been agreed to by arm’s length parties. Further, [NAME_282]’s opinion failed to show that the [NAME_41] was not a commercially rational transaction and would not have been entered into between arm’s length persons under subparagraph 247(2)(b)(i). [ 745 ] [NAME_282]’s conclusion cannot be accepted, as it is not supported by the evidence adduced at the hearing, as the alleged non-arm’s length terms do not mean that the transaction itself is commercially irrational. Otherwise, this would collapse the clear distinction between paragraphs 247(2)(a) and 247(2)(b) made by the Federal Court of Appeal in [NAME_263] (at para 44) and would allow the Minister to invoke subparagraph 247(2)(b) when only certain terms of a transaction are shown to be unsatisfactory in respect of the arm’s length standard. [ 746 ] As will be explained below, I find that the expert evidence provided by [NAME_278] and [NAME_119] established the commercial rationality of the [NAME_41]. [ 747 ] I will review below the three terms of the [NAME_41] [NAME_282] took issue with, namely paragraphs 2, 4 and 6. [ 748 ] Under paragraph 2, [NAME_37] assigned to the Appellant “68% of [NAME_37]’s one-third Participating Interest in and to the rights, duties, benefits, obligations, costs, rewards, risks, and liabilities arising in connection with the performance of [NAME_40] Agreement” . Under paragraph 2, the Appellant was assigned by [NAME_37] a 22.67% [NAME_112] in and to the rights, duties, benefits, obligations, costs, rewards, risks and liabilities arising in connection with the performance of [NAME_40] Agreement. [ 749 ] [NAME_282] stated that to avoid Canadian tax and civil jurisdiction, [NAME_37] should have assigned to the Appellant 100% of [NAME_37]’s one-third Participating Interest in [NAME_40] Agreement pertaining to the Canadian segment of the pipeline, and 0% of [NAME_37]’s one-third Participating Interest in [NAME_40] Agreement pertaining to the US segments of the pipeline ([NAME_281], p. 55). However, under the [NAME_41] as drafted, [NAME_282] opined that [NAME_37] retained a 32% interest in the Canadian segment of the pipeline. [NAME_282] ultimately concluded that “[i]n short, the PACA’s assignment of a proportionate interest is not a term which entities dealing at arm’s length would have agreed” . [ 750 ] By stating that if the parties had been dealing at arm’s length, both parties would have insisted that the [NAME_41] provides that [NAME_37] would assign to the Appellant, and the Appellant would accept, 100% of [NAME_37]’s one-third Participating Interest in [NAME_40] Agreement pertaining to the Canadian segment of the pipeline, [NAME_282] effectively opined that it would be possible for [NAME_37] and the Appellant to enter into a similar transaction as the [NAME_41], but on different terms and conditions, if they were dealing at arm’s length. [ 751 ] Furthermore, [NAME_282]’s ultimate conclusion is not supported by the evidence or any comparable transaction. [NAME_282] did not convince me that the assignment of a proportionate interest in [NAME_40] Agreement makes the entire [NAME_41] a commercially irrational transaction under subparagraph 247(2)(b)(i). [ 752 ] I find that both the Respondent and [NAME_282] did not appreciate the stage of [NAME_40], which was a feasibility study, and did not appreciate the FEL-1 to FEL-3 stages of a megaproject. The purpose of [NAME_40] Agreement is to advance a pipeline [NAME_29]. [NAME_40] is a megaproject that follows the megaproject gate decisions’ phases, as indicated by [NAME_119]. [NAME_40] was at the FEL-1 phase, with some work being in the FEL-2 phase. At the FEL-1 phase, feasibility studies are conducted to determine the feasibility of a [NAME_29], but [NAME_40] is not constructed or built during that phase. At that stage, costs are incurred to determine the feasibility of a [NAME_29]. Further, the [NAME_41] is not contemplating an assignment of segments of pipeline, but an assignment of rights under a feasibility study regarding a pipeline [NAME_29]. [ 753 ] I accept [NAME_136]’s testimony that the parties to [NAME_40] Agreement had commenced early in the process to discuss the structure of ownership and operatorship of the projected pipeline, both in Canada and in the USA, but no consensus was reached for the Canadian structure. [ 754 ] Further, no evidence was provided to the Court as to whether [NAME_37] or the Appellant would be subject to tax in Canada or in the USA, with respect to any costs incurred under the Feasibility Study. The evidence adduced at the hearing provides that [NAME_111] was advised to bill the Appellant for its share of the Feasibility Study Costs arising in Canada ([NAME_301]’s email – [NAME_39], Joint Book of Documents, tab 26). [ 755 ] The Respondent also asserted that the percentage assigned under the [NAME_41] is based on a flawed methodology. For the following reasons, I do not agree with the Respondent. [ 756 ] I accept the testimony of [NAME_160], [NAME_133] and [NAME_120] who testified that it was an objective calculation based on the length of various routes located in Canada and in the USA, under various scenarios. [ 757 ] I also accept [NAME_119]’ testimony that, given the stage of the Feasibility Study and given the purpose of the Feasibility Study, the percentage assigned based on the length of various routes under various scenarios was objective and reasonable. According to [NAME_119], the pipeline length is the main driver of costs and it is a reasonable way to allocate costs at the feasibility study stage, as it was done under the [NAME_41]. [ 758 ] I also accept [NAME_278]’s opinion that the allocation was based on industry standards and based on common practice ([NAME_278], p. 51). [ 759 ] The Respondent also asserts that the term “Participating Interest” is vague. I do not agree. The term “Participating Interest” is defined in [NAME_29] Agreement. The defined terms under [NAME_40] Agreement have the same meaning ascribed to them by virtue paragraph 1 of the [NAME_41]. [NAME_40] Agreement is part of the [NAME_41] and was also attached as Exhibit “A” to the [NAME_41]. [ 760 ] Further, the Respondent stated that the defined term “Participating Interest” does not indicate that the Appellant would be the owner or operator of any segment of the projected pipeline. [ 761 ] However, the evidence that I accepted shows that the Appellant expected to be the owner of a proportionate interest in the pipeline segment in Canada, if the pipeline was built and if the [COMPANY_48] had an ownership interest in the pipeline. [ 762 ] Although the assignment under the [NAME_41] relates to feasibility studies costs and not directly to the assignment of any pipeline segment, the preamble to the [NAME_41] refers to intended expected benefits the parties will gain from [NAME_40]: “…the parties expect that [NAME_56] will benefit to the extent that [NAME_40] Agreement leads to a pipeline [NAME_29] in Canada and the parties expect [NAME_37] to benefit to the extent that [NAME_40] Agreement results in a pipeline [NAME_29] in Alaska and the lower-48…” [ 763 ] Further, according to the Respondent, a Canadian investor would not be expected to assume costs associated with the US segment of the pipeline. [NAME_282] also asserts that only the Canadian costs are of value to the Canadian participants. I do not agree with that conclusion. [ 764 ] I accept [NAME_119]’ expert opinion that the finding that only the Canadian costs are of value to the Canadian participants “ignores the fact that the benefits are only shared if a cross-border pipeline is advanced, with the potential benefits on each side of the border being dependent upon each other” and ignores the fact that a well-informed decision requires consideration of both sides of the border for a cross-border [NAME_29] ([NAME_47], p. 27). [ 765 ] For all these reasons, I find that [NAME_282] did not provide convincing evidence that paragraph 2 of the [NAME_41] was not commercially rational and would not have been agreed to by arm’s length parties. [ 766 ] Paragraph 4 of the [NAME_41] reads as follows: Obligations to pay expenses under [NAME_40] Agreement shall be borne in proportion to the [NAME_112] and consistent with the intent of the parties for [NAME_56] to bear the expense associated with the Canadian portion of the pipeline and for [NAME_37] to bear the costs associated with the U.S. portion of the pipeline. In consideration thereof, the parties agree that [NAME_56] shall bear all joint venture costs arising in Canada, plus joint venture costs necessary to bring [NAME_56]’s total burden of the joint venture costs to 68% of the total cost for which [NAME_56] and [NAME_37] are, in the aggregate, responsible under [NAME_40] Agreement. In no event, however, shall [NAME_56]’s burden of the total joint venture costs exceed 68% of the total costs for which [NAME_56] and [NAME_37] are, in the aggregate, responsible under [NAME_40] Agreement, unless pursuant to the terms of a valid amendment to this Agreement in accordance with Paragraph 12…. [Emphasis added.] [ 767 ] Paragraph 4 allocates to the Appellant 68% of the joint venture costs for which the Appellant and [NAME_37] were responsible under [NAME_40] Agreement. [ 768 ] [NAME_282] opined that the Appellant would not have entered into the [NAME_41] with [NAME_37] had they been dealing at arm’s length “because the modest return that [NAME_56] would achieve if and only if the [pipeline] was ultimately placed in service was insufficient to compensate [NAME_56] for the high risk as of June 2001 that the [pipeline] might never be placed in service” ([NAME_281], p. 62). According to [NAME_282], paragraph 4 should be nil. [ 769 ] [NAME_282] focused on evaluating whether the benefits that the Appellant might reasonably expect to receive under the [NAME_41] were commensurate with the risk that the pipeline might never be constructed, placed in service and thus realized the projected tariff revenues. [ 770 ] [NAME_282] opined that the preliminary projected pipeline tariff rates were well below what a third-party investor would require as compensation for the substantial downside risk the investor would face if [NAME_40] might never be placed in service, or if the investor would ultimately never own an interest ([NAME_281], pp. 59-62). [ 771 ] [NAME_282] testified that the [NAME_127] developed by [NAME_40] was a key document he reviewed for the purposes of his expert opinion. Using the [NAME_127] and examining one iteration of this model, [NAME_282] calculated that the Appellant would be projected to earn an IRR on its after-tax cash flow of 7% per annum. On that basis, according to [NAME_282], it did not make sense to pay 68% of the feasibility study costs. [ 772 ] According to [NAME_282], several factors contributed to the Appellant’s risk that the pipeline would never be built, one being the fact that the pipeline [NAME_29] was not commercially viable. To reach that conclusion, [NAME_282] testified that the DCFR for the Southern Route was analysed in September 2000 under the internal [NAME_1] economic model as being between 10-12%, and the DCFR for the Southern Route under the [NAME_127] was calculated to be 10.9%. [ 773 ] In his cross-examination, [NAME_282] however stated that he was not suggesting that [NAME_43]. knew from the outset that [NAME_40] was not commercially viable. Further, [NAME_282] accepted that the DCFR calculated under the internal [NAME_1] economic model in May 2001 had increased to 12-14% for the Southern Route ([NAME_39], Joint Book of Documents, tab 29). [ 774 ] [NAME_282] also understood the [NAME_127] was finalized in early 2002 at the conclusion of [NAME_40] and understood the Appellant did not have the benefit of the [NAME_127] at the time of signing the [NAME_41], much less at the effective date. [NAME_282] also testified that generally, independent parties evaluating a cost allocation agreement would rely on information available when the agreement is executed. [ 775 ] However, [NAME_282] testified that he nonetheless relied on the [NAME_127] in formulating his conclusion ([NAME_281], p. 60): [NAME_37] concluded in September 2001 and (again) in April 2002 that the [pipeline] was not technically and commercially feasible, we see no reasonable basis for [NAME_37] or [NAME_56]’s having a more optimistic assessment of the [pipeline]’s commercial prospects in June 2001 when the [NAME_41] was made. [ 776 ] In the [NAME_281] of [NAME_278] (p. 7), [NAME_282] maintained his position and stated the following: In our view, the [NAME_127] provides the best available evidence of the costs and benefits that [NAME_37] and [NAME_56], respectively, might reasonably have expected at the time they entered into the [NAME_41] on June 15, 2001. Although the results of the [NAME_127] were not released until February 12, 2002, to the best of our knowledge, the data and assumptions underlying the [NAME_127] do not reflect any unforeseen events that occurred in the eight months between June 15, 2001 and February 12, 2002. [Emphasis added.] [ 777 ] I find that the conclusions reached by [NAME_282] reflect hindsight bias, because the [NAME_127] was not completed until February 2002, whereas the [NAME_41] was executed in June 2001, with an effective date of December 5, 2000. [ 778 ] Further, I find that [NAME_282]’s assumption that no unforeseen events occurred between June 15, 2001, and February 2002 is an unfounded assumption. [ 779 ] I accept both [NAME_120] and [NAME_159]’s testimony that in September 2001, cost estimates under the Feasibility Study were still being collected by [NAME_40], and they were still within a +/- 20% range. [NAME_282] testified that that was not relevant for him, but I find that the whole purpose of a feasibility study is to assess the feasibility of a [NAME_29] and obtain cost estimates. [ 780 ] To support his risk analysis, [NAME_282] also listed alternative methods of commercializing the [NAME_125] as being a risk factor for the Appellant as these alternative methods would not require building the projected pipeline, which I do not accept as being relevant risk factors. [ 781 ] As indicated above, [NAME_120] testified that in 1999 and by the time he joined [NAME_40], [NAME_43]. had decided not to pursue a [NAME_29], which is an expensive technology and had determined to go ahead with [NAME_40] Agreement, given the market for the natural gas and oil resources at the time. Documentary evidence adduced at the hearing showed that in September 2000, [NAME_43]. had determined to go ahead with [NAME_40] ([NAME_39], Joint Book of Documents, tab 7). [ 782 ] As for the [NAME_91] which [NAME_282] listed as a risk factor, I also found that the evidence showed that [NAME_88] had no exclusivity on the A to B segment of the pipeline, and that the [NAME_89] and the [NAME_84] had indicated to [NAME_40] that they would be ready to entertain regulatory greenfield applications for the pipeline. [NAME_282] acknowledged at the hearing that he was not aware that the [NAME_91] relates to old technology and smaller pipes, and that he was not aware of the important debt carried under the [NAME_91]. [ 783 ] As for the [NAME_29] (a [NAME_29] relating to pipelines to bring the natural gas to the coast of Alaska, build an LNG plant to cool the gas and put it on LNG carriers to be sent to the far east), being [NAME_120]’s first involvement with the commercialization of the [NAME_125], I accept his testimony that that study lasted from 1992 to 1995. Because the price of crude oil went down, the participants in the study concluded that [NAME_40] was not commercially viable, and [NAME_53] moved on to other projects to commercialize its [NAME_125]. [ 784 ] [NAME_282] further referred to various potential showstoppers identified by [NAME_43]. that could severely impair the viability of the projected pipeline (Exhibit AR‑1, Joint Book of Documents, tab 13). However, I accept [NAME_120]’s testimony that the document was dated early 2002 and would not have been considered at the relevant time. This document was more probably than not a result of the Feasibility Study. [ 785 ] Further, relying on his conclusion that [NAME_40] was modelled on the [NAME_239], [NAME_282] described the projected benefits for the Appellant as being of a modest return (using a 70-30 debt-equity ratio, and a 12% after-tax return on equity) which return did not include any risk premium that would compensate an investor “for the significant risk as of June 2001 that the [pipeline] might never be constructed and placed in service” ([NAME_281], p. 61). According to [NAME_282], on that basis, the expected return for the Appellant is not high enough to justify the risks. [ 786 ] To support his conclusion that the [NAME_239] was a model for [NAME_40], [NAME_282] refers to the document entitled “Information Exchange with [NAME_63]” dated November 5 and 6, 2001 which outlines the lessons learned to that date under [NAME_40] ([NAME_39], Joint Book of Documents, tab 50). [NAME_282] stated that this document specifically refers to the use of the [NAME_239] as a model for tariffs and rates principles. Also, according to [NAME_282], the three components used under the [NAME_240] would be used for [NAME_40], namely using negotiated rates (instead of higher recourse rates), marketing of all available capacity during open season and negotiating of take-or-pay precedent agreements during open season. Further, according to [NAME_282], the parties to [NAME_40] Agreement would likely sell their participation after the holding of the open season to pipeline investors. [ 787 ] However, the evidence that I accepted showed that the [NAME_239] was not a model for [NAME_40], but for tariffs and rate principles at the Feasibility Study assessment stage. Further, I also accept that the evidence showed that tariffs and rates principles were still not yet finalized under [NAME_40]. [ 788 ] The document entitled “Information Exchange with [NAME_63]” dated November 5 and 6, 2001 also indicates that rates principles and tariffs issues were still under discussion with [NAME_40]. Other sections of that documents also indicate that work was still to be done regarding tariff design, precedent agreements and other open season documents. [ 789 ] I also accept [NAME_119]’ expert opinion that the conclusion reached by [NAME_282] that the [NAME_239] was a model for the potential pipeline under [NAME_40] is simply wrong ([NAME_47], p. 17). [ 790 ] According to [NAME_119], any reference to the [NAME_239] being a model for [NAME_40], was only referencing the [NAME_239] as a model for tolls and tariffs principles. [NAME_119] opined that the [NAME_239] reflected an industry standard at the relevant time in respect of rates and tariffs principles, including the holding of an open season, using negotiated rates and not higher recourse rates, as well as using a 70-30 debt-equity ratio and 12% return on equity. [ 791 ] As indicated by [NAME_119], the [NAME_239] was an important consideration for framing the potential pipeline being advanced under [NAME_40] Agreement, because it was a recent [NAME_89]-approved large diameter, fuel efficient, successful, greenfield and cross-border pipeline (from Northeast British Columbia to Chicago). The [NAME_240] [NAME_29] was a good illustration from a general [NAME_29] management perspective with respect to time, costs and benefits ([NAME_47], p. 9). However, at the feasibility study stage of [NAME_40], matters such as the ownership structure of the pipeline, holding of an open season, shippers’ subscriptions, tariffs rates, [NAME_84] and [NAME_89] applications and subsequent transfers were not yet determined or finalized by [NAME_40]. Specifically, [NAME_119] noted that the tolls were not yet finalized and would require approval by the [NAME_89]. [ 792 ] Additionally, [NAME_119] testified that beginning in the mid-1990s, the use of negotiated rates and holding of open seasons were common to [NAME_89]-regulated pipelines and not specific to the [NAME_239]. [NAME_119] referred to the decision entitled “Cost of Capital Decision RH-2-94” by the [NAME_89] in 1994 which determined that many pipelines had common equity rates of return and capital structure. [ 793 ] Further, according to [NAME_119], the following factors would be assessed at the [NAME_89] regulatory application stage, including the availability of long-term gas supply, long-term outlook for gas demand in the markets, and the contractual commitments underpinning the proposal and [NAME_29] financing. [ 794 ] As indicated above, I accept that lower negotiated rates were the norm in the industry at the relevant time. [ 795 ] For all these reasons, I find that [NAME_282] did not provide convincing evidence that paragraph 4 of the [NAME_41] was not commercially rational and would not have been agreed to by arm’s length parties. [ 796 ] Paragraph 6 of the [NAME_41] reads as follows: For the purpose of voting and reaching decisions under [NAME_40] Agreement, and as required by [NAME_40] Agreement, the [NAME_112] of [NAME_37] and [NAME_56] shall be aggregated and treated as one vote. Such vote shall be exercised through representative(s) mutually agreed by [NAME_37] and [NAME_56]; further, upon request by either party, such party shall be given reasonable opportunity to give input into the exercise of such vote. Also, if requested by [NAME_56], [NAME_37] shall provide [NAME_56] a copy of the minutes of [NAME_93] meetings that occur after execution of this Cost Allocation Agreement. Until and unless [NAME_37] and [NAME_56] otherwise agree in writing, [NAME_303], [NAME_74], and [NAME_305] shall be authorized to represent and bind both [NAME_37] and [NAME_56] in all meetings and decisions respectively of the Executive Committee, the Steering Committee, and the [NAME_93] established under [NAME_40] Agreement. [ 797 ] As indicated above, Section 10.4 of [NAME_40] Agreement allowed a Party to assign all or part of its interest to an affiliate, specifically requiring that the voting interests and decision-making authority of that Party and its affiliate be aggregated and treated as one vote. [ 798 ] According to the Respondent, while [NAME_37] assigned 68% of its one-third Participating Interest in [NAME_40] Agreement, [NAME_37] maintained complete control over the Feasibility Study, and potentially, future stages of [NAME_40]. [ 799 ] The Respondent argues that although the Appellant may have had the opportunity to give input into votes, [NAME_37] was authorized to represent and bind the Appellant in all meetings of [NAME_40]’s committees. The Appellant did not have any direct representatives on the Executive, Steering and Management committees. The Appellant had no ability to change [NAME_37]’s control over [NAME_40] unless [NAME_37] relinquished this control. [ 800 ] According to the Respondent, [NAME_37]’s sole control over [NAME_40] was the basis for determining that parties dealing at arm’s length would not have entered into the [NAME_41]. In the Respondent’s view, the failure by the Appellant and its experts to appreciate the full effect of paragraph 6 is significant. [ 801 ] Further, according to the Respondent, an arm’s length pipeline investor might reasonably disagree with the direction [NAME_37] wished to take in [NAME_40], such as suspending work on the Feasibility Study, route selection, or whether to proceed with own-built pipeline for the B to C portion of the pipeline. [ 802 ] [NAME_282] opined that [NAME_37]’s insistence on maintaining complete control of [NAME_40] would result in an inherent and unavoidable conflict with a third-party equity investor’s reasonable expectation of balanced governance. [NAME_282] opined that an arm’s length pipeline investor would not agree to such one-sided governance, and a producer who required sole control over the study would not agree to balanced governance. [ 803 ] [NAME_282] concluded that such conflict was insurmountable and a partial assignment of [NAME_37]’s interest in [NAME_40] Agreement would not be included in any agreement with a third-party under the facts and circumstances in June 2001 ([NAME_281], p. 59). [ 804 ] I do not agree with the Respondent’s submissions, and I do not agree with [NAME_282]’s expert opinion regarding paragraph 6. [ 805 ] I find that the Appellant had a representative on the various [NAME_29]’s committees, although the Appellant’s representatives were the same as [NAME_37]’s representatives. I do not agree with the Respondent that [NAME_37] kept control over the Feasibility Study. Further, the Respondent’s argument that [NAME_37] kept control over future stages of [NAME_40] cannot be accepted as no evidence was provided to the Court. [ 806 ] [NAME_282] testified that there was a large potential for misalignments at the stage of a feasibility study. However, [NAME_282] acknowledged that he was not an expert on feasibility studies for pipelines projects. For this reason, and given the expertise of [NAME_119], I accept [NAME_119]’ opinion that, at the feasibility study stage of a [NAME_29], risk of material misalignment between participants is minimal as all participants are seeking information to make an informed decision on [NAME_40]. Moreover, in this particular case, because both the US and Canadian segments of the pipeline were needed for the entire pipeline to work, the risk of misalignment was low. [ 807 ] In addition, I accept [NAME_133]’s testimony that few decisions are taken at the feasibility study stages of a [NAME_29]. [ 808 ] I agree with [NAME_119] that paragraph 6 shows appropriate governance, considering that there were clear and well-articulated objectives of [NAME_40] and work plans. As indicated by [NAME_119], a third-party investor would not require equal governance at this stage of a megaproject but instead would want to ensure there is appropriate governance from that party’s perspective. [NAME_119] opinion is supported by his experience with Northern Gateway Pipeline where the funding partners who owned 49.5% of [NAME_40] gave [NAME_152] full control over the regulatory application process, with the funding partners being only provided updates over the course of [NAME_40]. [NAME_119]’ expert opinion established that the type of governance agreed to under the [NAME_41] reflected the common goal of advancing the FEL process under a megaproject ([NAME_47], pp. 28-30). [ 809 ] Further, I also considered that updates and reporting were done through various slide deck presentations to [NAME_128] and [NAME_129]. [NAME_133], as president of the Appellant, was involved in the process of updating upper management. The fact that [NAME_133] was getting regular updates on [NAME_40] from [NAME_135] and [NAME_148], so the Appellant was apprised of the development of [NAME_40] and could have given input as [NAME_40] was progressing, is indicative of an appropriate level of governance. [ 810 ] In addition, as discussed above, I find that the Appellant had the ability to withdraw from [NAME_40], because it stepped into the shoes of [NAME_37], being a factor contributing to the Appellant’s appropriate level of governance. [ 811 ] Further, according to [NAME_119], a third-party pipeline owner would find it very compelling to be part of a feasibility study where commercially sophisticated stakeholders are sharing the relatively minimal costs of a feasibility study with respect to a megaproject investment. Moreover, [NAME_37]’s support as a credit worthy shipper would be a key requirement for a third-party investor ([NAME_47], p. 29). [ 812 ] For all these reasons, I find that [NAME_282] did not provide convincing evidence that paragraph 6 was not commercially rational and would not have been agreed to by arm’s length parties. [ 813 ] To support their position that the requirements of subparagraph 247(2)(b)(i) are met, the Respondent raised additional arguments. [ 814 ] The Respondent asserted that the potential pipeline [NAME_29] for bringing natural gas from the ANS to the Lower-48 has a long history fraught with uncertainties. The Respondent relied on the fact that early projects in the 70s and 80s failed, that [NAME_40] was short lived and full of its own complexities, the proposed pipeline routes were not determined and the ownership structure of the projected pipeline was never settled. Further, the Respondent argued that the participation of various governments in [NAME_40] was unlikely. [ 815 ] I do not agree with the Respondent. The purpose of a feasibility study is to determine the feasibility of a [NAME_29], and one cannot use the uncertainties of a feasibility study as an argument to conclude that [NAME_40] was too uncertain. [NAME_40] was a feasibility study to progress a pipeline from the ANS to [NAME_36] and the Lower-48. [NAME_136] testified that the market had changed, and it was a good period to examine the feasibility of a pipeline to bring the natural gas to market. [ 816 ] Further, although the ownership structure of the projected pipeline was never settled for the Canadian segment, [NAME_136] had numerous discussions with her counterparts at [NAME_38] and [NAME_32] to settle that issue early in the process. [ 817 ] Moreover, [NAME_282] opined that the tremendous uncertainty of [NAME_40], combined with low returns based on preliminary and essentially unreliable data and the inability to reconcile the governance tension (paragraph 6 of the [NAME_41]), would lead parties dealing at arm’s length away from entering into the [NAME_41] ([NAME_281], pp. 53-62). [ 818 ] As indicated above, the [NAME_127] was not in place when the [NAME_41] was executed, much less when the [NAME_41] was contemplated. Therefore, I do not accept [NAME_282]’s opinion, as it is inappropriate to use hindsight to “now suggest that no two persons dealing at arm’s length would have entered into” the [NAME_41] ( [NAME_263] , at para 86). [ 819 ] Further, to suggest that the Appellant should have known that the Feasibility Study would not be successful is also using hindsight, which is inappropriate. [ 820 ] In addition, the Respondent noted the absence of a termination clause in the [NAME_41], similar to section 9.2 of [NAME_40] Agreement. Under section 9.2 of [NAME_40] Agreement, [NAME_37] had the right to withdraw from [NAME_40] by giving 90 days’ notice to the other parties. The Respondent asserted that it is hard to imagine that an independent pipeline investor would have agreed to that. [ 821 ] The Respondent further argued that the absence of a termination clause in the [NAME_41], when read in combination with paragraph 6, means that as long as [NAME_37] wanted to participate in [NAME_40] Agreement, the Appellant would have been obligated to continue to fund 68% of [NAME_37]’s costs. Conversely, if [NAME_37] decided to withdraw from [NAME_40] Agreement, the Appellant would have had no right to continue as a participant in [NAME_40]. [ 822 ] I do not accept the Respondent’s arguments. As indicated above, by entering into the [NAME_41], the Appellant stepped into the shoes of [NAME_37], and hence, the Appellant obtained all the rights devoted to [NAME_37] under [NAME_40] Agreement, including a right to withdraw from [NAME_40]. [ 823 ] Finally, the Respondent stressed that entering into the [NAME_41] is a timing issue, as the Appellant may have gotten involved in [NAME_40] at some future point, but not at the very preliminary stage where three producers are evaluating costs and ways to commercialize their stranded natural gas resources. However, this argument does not demonstrate the commercial irrationality of the [NAME_41]. Further, the evidence showed that the purpose of [NAME_40] was to evaluate a pipeline [NAME_29], and not to evaluate ways for the producers to commercialize the natural gas resources. [ 824 ] For the reasons below, I find that the expert evidence provided by [NAME_278], as supplemented and corroborated by [NAME_119], established the commercial rationality of the [NAME_41], and therefore, I find that the requirements of subparagraph 247(2)(b)(i) are not met. [ 825 ] [NAME_278] showed that it was commercially reasonable for arm’s length parties to engage in transaction similar to the [NAME_41] in consideration of expected benefits deriving from the [NAME_41], which opinion I find persuasive and credible for the reasons below ([NAME_278], p. 55). [ 826 ] [NAME_278]’s opinion is not the result of a speculative exercise, as [NAME_278] assessed the commercial rationality of the transaction in an objective way. [NAME_278] opined that “persons dealing at arm’s length routinely enter into joint development agreements related to ascertaining the feasibility of advancing midstream gas pipelines in the North American pipeline sector” ([NAME_278], at p. 55). [ 827 ] [NAME_278] relied on its analysis of the industry of the North American pipeline sector found under section 3 of the [NAME_278] which demonstrates that many third parties participate in the midstream sector which focuses on the transportation, storage and wholesale marketing of crude and refined petroleum product. [NAME_278] provided many examples of significant North American pipelines with shared ownership. [ 828 ] Further, given the cost and scale of gas pipelines in North American market, [NAME_278] opined that “it is commonplace for parties to diversify their risk by entering into partnerships, joint venture and other arrangements which facilitate unrelated third parties to combine resources to achieve a common commercial goal” ([NAME_278], p. 54). [ 829 ] To support its conclusion, [NAME_278] referred to four arrangements: (i) [NAME_40] Agreement; (ii) the [NAME_116] ([NAME_39], Joint Book of Documents, tab 113); (iii) the Amended and Restated Limited Partnership Agreement of the [COMPANY_69] dated June 24, 1999 between the general partner ([COMPANY_307].) and the Appellant, [COMPANY_309]. and [COMPANY_310]. as limited partners ([NAME_39], Joint Book of Documents, tab 158); and (iv) the Amended and Restated Limited Liability Company Agreement dated June 29, 1999, between [COMPANY_311], Westcoast Energy (US) Inc., [COMPANY_166] [COMPANY_312]. and [NAME_313] ([NAME_39], Joint Book of Documents, tab 159). [ 830 ] On that basis, [NAME_278] concluded that it is “fundamentally reasonable and supportable that arm’s length parties would enter into a joint venture to ascertain the feasibility of the advancement of the Alaska gas pipeline” ([NAME_278], p. 54). I accept this opinion. [ 831 ] I also accept [NAME_278]’s opinion that “it is commercially reasonable for arm’s length parties to engage in similar transactions to the [[NAME_41]] in consideration of the expectation of benefits deriving from the [[NAME_41]]” ([NAME_278], pp. 54-55). [NAME_278] came to that conclusion after performing an economic analysis (section 6 of the [NAME_278]), looking at the expectation of benefits for the parties and the factors of comparability for arm’s length parties engaged in similar transactions. [ 832 ] I will further discuss benefits in the section of these Reasons for Judgment dealing with paragraphs 247(2)(a) and 247(2)(c). [ 833 ] [NAME_278]’s opinion is also supported by various attempts made by arm’s length parties to advance an Alaska natural gas pipeline. [ 834 ] Further, as indicated above, [NAME_119]’ expert testimony described how pipeline [NAME_29] development is advanced and how parties come together in advancing that kind of [NAME_29]. I accept [NAME_119]’ opinion which also supports [NAME_278]’s expert opinion regarding the industry analysis and the functional analysis as described in sections 3 and 5 of [NAME_278]. (ii) Paragraph 247(2)(d): recharacterization provision [ 835 ] The Respondent, relying on [NAME_282]’s expert testimony, has submitted that recharacterizing the [NAME_41] as a fee-for-services agreement using paragraph 247(2)(d) allows for an appropriate transfer pricing adjustment to reduce the Feasibility Study Costs to nil. [ 836 ] [NAME_282] opined that a service agreement under which [NAME_37] would have authorized the Appellant to act as [NAME_37]’s agent in filing for permits to do environmental work in Canada would have been consistent with the arm’s length principle ([NAME_281], p. 69). [ 837 ] According to [NAME_282], [NAME_37] would agree to pay the Appellant an arm’s length fee for services rendered, but [NAME_37] would not assign to the Appellant or any third-party service provider any portion of [NAME_37]’s Participating Interest in [NAME_40] Agreement ([NAME_281], pp. 68-69). [ 838 ] Even if I had concluded that the requirements of both subparagraphs 247(2)(b)(i) and 247(2)(b)(ii) were met, which I did not, for the following reasons, [NAME_282]’s opinion on the recharacterization of the [NAME_41] as a fee-for-services agreement would not have met the requirement of paragraph 247(2)(d) and would not have been accepted by the Court. [ 839 ] I agree with [NAME_278]’s opinion that [NAME_282]’s expert opinion is erroneous as he referred to [NAME_37] and the Appellant in his analysis ([NAME_278], pp. 17-18). As indicated by the Federal Court of Appeal, the analysis under paragraph 247(2)(d) is an objective test based on hypothetical persons. Under paragraph 247(2)(d), the issue to determine is what transaction would have been concluded between two arm’s length parties, and not what one of the participants would have done if they were dealing at arm’s length ( [NAME_263] , at para 55). Further, the test to be applied under paragraph 247(2)(d) is between the same two notional arm’s length parties as under paragraph 247(2)(b). [ 840 ] In addition, I find that the recharacterization as a fee-for-services agreement is speculative. [NAME_282] provided no terms for this alleged fee-for-services agreement. To restate the test from [NAME_263] (at paras 52-53): [52] In applying paragraph (d), “the transaction or series entered into between the participants” is replaced by the transaction or series of transactions “that would have been entered into between persons dealing at arm’s length”. The text of paragraphs 247(2)(b) and (d) of the Act suggests that it would be the same arm’s length persons for paragraphs (b) and (d). The terms and conditions that such arm’s length persons would have adopted in such transaction or series of transactions then become the relevant terms and conditions for the participants —the taxpayer and the non-resident person with whom the taxpayer does not deal at arm’s length. [53] Paragraph 247(2)(d) of the Act requires the Court to replace the transaction or series of transactions that was entered into between the participants with the transaction or series of transactions that would have been entered into between persons dealing with each other at arm’s length. It contemplates replacing the existing transaction or series of transactions with some other transaction or series of transactions. It does not contemplate replacing the existing transaction or series of transactions with nothing, which is the result proposed by the Crown in paragraph 4 of its memorandum: “[NAME_263] Canada would not have entered into any transactions with its Swiss subsidiary if they had had been dealing at arm’s length”. [NAME_263] as if it had not entered into any transactions with CEL would, in effect, result in the separate existence of CEL being ignored or effectively CEL being amalgamated with [NAME_263]. [Emphasis added.] [ 841 ] According to [NAME_282], although the recital to the [NAME_41] provides that the parties wanted to pool their resources and knowledge, he stated that he was not aware of any significant resources, knowledge or expertise contributed by the Appellant to [NAME_40]. I do not agree with [NAME_282] as the evidence showed that the Appellant made contributions to [NAME_40], and more specifically, had paid its proportionate share of the feasibility study costs under [NAME_40] Agreement. [ 842 ] Further, [NAME_282] stated that he was not persuaded that [NAME_37] entered into the [NAME_41] to avoid the risk that [NAME_43]. would otherwise be subject to Canadian tax and civil jurisdiction ([NAME_281], p. 66). To opine on this matter, [NAME_282] relied on the same documents referred to above in the section dealing with subparagraph 247(2)(b)(ii), including an opinion from [COMPANY_292] dated March 5, 2001, entitled “[NAME_89] of Sponsorship Costs” . As indicated above, [NAME_282] had wrongly assumed that this document was a tax opinion concluding that it was not necessary for a Party to assign its Participating Interest in [NAME_40] Agreement to a Canadian affiliate to avoid being subject to tax in Canada ([NAME_39], Joint Book of Document, tab 38). [ 843 ] Because of [NAME_282]’s wrong assumption on the content of the [COMPANY_292] opinion dated March 5, 2001 to which he was not privy when he wrote his report, [NAME_282] inferred that it was not necessary for [NAME_32] to assign any Participating Interest in [NAME_40] Agreement to a Canadian affiliate to avoid exposing [NAME_32] to tax and civil jurisdiction in Canada. Further, [NAME_282] testified that even though he knows now that the [COMPANY_292] opinion does not pertain to tax matters, [NAME_282] testified that his ultimate opinion pertaining to a fee-for-services agreement was still maintained. [ 844 ] I am not convinced by [NAME_282]’s statement. I find that the inference drawn by [NAME_282] from the content of the opinion from [COMPANY_292] was a very important factor he considered to opine that a fee-for-services agreement would be consistent with the arm’s length principle. [ 845 ] I also take issue with [NAME_282] stating that because the [COMPANY_292] opinion was not available to him, he then relied on his “general transfer-pricing experience in opining on the terms of an alternative arm’s length agreement” ([NAME_281], p. 67). At the hearing, [NAME_282] acknowledged that he was not an expert on feasibility studies for pipeline projects, and he was not an expert on phases of megaprojects development, and therefore, his opinion on these matters has a very limited weight. [ 846 ] [NAME_282] stated that US parent companies often enter into agreement with their foreign affiliates under which the foreign affiliates agree to render services to the parent companies, in consideration of arm’s length fees for services rendered typically based on fees for comparable services rendered by third-party service providers ([NAME_281], p. 67). [ 847 ] However, to support this opinion, [NAME_282] did not provide any example which would demonstrate that a fee-for-services arrangement would have been consistent with the arm’s length principle. [NAME_282]’s expert opinion is not justified by any comparable agreements and is grounded on erroneous assumptions. [NAME_282] did not provide any example of cross-border agreements, as agreements he referred to in support of the recharacterization of the [NAME_41] were all agreements between parties within the same jurisdiction. [ 848 ] To support his opinion, [NAME_282] referred to the Amended Services Agreement. However, all parties to that agreement, and all services, were within Canadian jurisdiction. [ 849 ] [NAME_282] then opined as follows ([NAME_281], pp. 68-69): Given the Amended and Restated Upstream Services Agreement between [NAME_63] and [NAME_56], we conclude we can reasonably assume that [NAME_37] could have entered into a services agreement with [NAME_56] to avoid the risk that [NAME_37] would be exposed to Canadian tax and civil jurisdiction if [NAME_37] itself had filed for permits to do the environmental work in Canada required to support the [NAME_29] team’s analysis. [ 850 ] The evidence showed that the Feasibility Study undertaken under [NAME_40] Agreement was not limited to environmental issues as the activities were much more extensive. The numerous job books evidenced the extent of the work performed by [NAME_40]. I find that referring to a fee-for-services service agreement for filing for environmental permits is very limitative. [ 851 ] [NAME_282] also opined that large companies like [NAME_37] enter into service agreement with third parties to act as agents in entering into contracts with third parties. For example, according to [NAME_282], [NAME_37], [NAME_38] and [NAME_32] appointed a Business Coordinator under [NAME_40] Agreement ([NAME_111]), and [NAME_111] would enter into contracts with third parties as authorized by the [NAME_93] ([NAME_39], Joint Book of Documents, tab 15). However, most of the work performed by [NAME_111] was related to administrative work. [ 852 ] [NAME_282] also referred to the 2002 AGP Agreement where [NAME_37], [NAME_38] and [NAME_32] appointed one another to be the lead party in the performance of different functions ([NAME_39], Joint Book of Documents, tab 145). However, the evidence showed that all activities under the 2002 AGP Agreement were located in the USA, and none were in Canada. [ 853 ] As indicated by the Federal Court of Appeal, subparagraph 247(2)(d) does not allow for a recharacterization into nothing. It must be based on the commercial reality of the transaction, being the advancement of a pipeline, whether [NAME_40] is feasible and working toward filing [NAME_89] and [NAME_84] applications by mid-2001. [NAME_282] put a name on the recharacterized agreement, no terms and conditions were proposed. Based on [NAME_282]’s report, it would be a speculative exercise to suggest how any terms and conditions in the suggested fee-for-services agreement would adjust the quantum or nature of any amount. [ 854 ] Finally, recharacterizing the [NAME_41] as a fee-for-services agreement fails to appreciate that a service agreement between [NAME_43]. and the Appellant could trigger Article V(5) of the Canada-United States Convention with Respect to Taxes on Income and on Capital signed on September 26, 1980 (the “Treaty” ), which would expose [NAME_43]. to having a permanent establishment in Canada and jeopardizing [NAME_43].’s corporate policy of avoiding exposure to Canadian tax and civil jurisdiction. [ 855 ] [NAME_282] admitted that he did not consider the permanent establishment implications in advancing the alternate arrangement. [ 856 ] For all these reasons, I find that the Respondent failed to provide convincing evidence that a fee-for-services agreement as recharacterized under paragraph 247(2)(d) would have been the transaction that the Appellant and [NAME_37] should have entered into.

3) Paragraphs 247(2)(a) and 247(2)(c) [ 857 ] Having found in the previous section of these Reasons for Judgment that the requirements of paragraph 247(2)(b) were not met, I should now determine the Respondent’s alternative argument as to whether paragraphs 247(2)(a) and 247(2)(c) apply to the [NAME_41] and require a downward adjustment of the Feasibility Study Costs to zero. a) Positions of the parties i. The Appellant [ 858 ] Relying on [NAME_278]’s expert evidence, [NAME_119]’ expert evidence, as well as the lay witnesses’ evidence, the Appellant is of the view that paragraphs 247(2)(a) and 247(2)(c) do not apply to the facts in the present appeal. [ 859 ] More particularly, the Appellant argues that the expert evidence provided by [NAME_278] and by [NAME_119] supports the position that paragraphs 247(2)(a) and 247(2)(c) do not apply to the [NAME_41] as: - arm’s length parties would enter into a transaction like the [NAME_41]; and - the terms and conditions of the [NAME_41] do not differ from those that would have been made if [NAME_37] and the Appellant dealt at arm’s length. [ 860 ] The conclusion reached by [NAME_278] is reinforced by [NAME_119]’ expert evidence. According to [NAME_119], activities performed by the parties under [NAME_40] Agreement were consistent with industry practices and [NAME_29] management best practices. [ 861 ] Further, the Appellant asserts that the extensive evidence adduced at the hearing refutes the application of the transfer pricing provisions and refutes the “inherently unreliable evidence of [NAME_282] and the transfer pricing premises contained in the [NAME_281], and their rebuttal and surrebuttal reports” (Appellant’s Written Final Closing Argument, para 214). ii. The Respondent [ 862 ] The Respondent argues that paragraphs 247(2)(a) and 247(2)(c) apply, requiring also a downward adjustment of the Feasibility Study Costs to zero. [ 863 ] The Respondent argues that arm’s length parties would not have been able to agree to terms and conditions as found in the [NAME_41], at the time the [NAME_41] was executed. [ 864 ] Relying on [NAME_282]’s expert opinion, the Respondent takes issue with three specific terms under the [NAME_41] (paragraphs 2, 4, and 6). The Respondent argues that these terms differ from those terms that would have been entered into had the Appellant and [NAME_43]. been dealing at arm’s length. [ 865 ] According to the Respondent, adjustments should be made to these terms to satisfy paragraph 247(2)(c) to what arm’s length parties would have done, which bring the Feasibility Study Costs to nil. b) Analysis [ 866 ] For the following reasons, I find that the requirement of paragraph 247(2)(a) is not met, and therefore, no adjustment to the terms and conditions of the [NAME_41] is necessary under paragraph 247(2)(c). [ 867 ] I find that [NAME_278] provided a persuasive and reliable expert opinion that “the main terms and conditions applied by [NAME_37] and [the Appellant] to the [[NAME_41]] (including the parties, the effective date, the purpose and objectives, the assignment of part of [NAME_37]’s one-third participating interest in [NAME_40] Agreement, the governance and the voting rights) align with those which would have been made between [NAME_37] and [the Appellant] had they been dealing at arm’s length” ([NAME_278], p. 57). [ 868 ] [NAME_119] also opined that i) a potential pipeline owner would indeed undertake the types of activities performed by the parties under [NAME_40] Agreement to advance a potential pipeline to the regulatory application stage; (ii) the activities undertaken by the Appellant in the Feasibility Study were consistent with [NAME_29] management best practices, typical of third-party pipeline feasibility studies and aligned with [NAME_89] pipeline requirements for new pipeline developments and were necessary and expected; (iii) feasibility studies are the norm for the evaluation and advancement of potential pipeline projects and were completed for the [NAME_239], Northern Gateway Pipeline and the [NAME_81] ([NAME_47], pp. 11-13). [ 869 ] I was not convinced by [NAME_282]’s expert testimony that parties dealing at arm’s length would not have entered into the [NAME_41], specifically with respect to paragraphs 2, 4 and 6 of the [NAME_41]. [ 870 ] More specifically, the first question [NAME_282] opined on was: Whether the terms and conditions of the transaction entered into between the appellant [[NAME_56]] and its related non-resident entity [[NAME_37]] were terms and conditions that entities dealing at arm’s length would enter into? [ 871 ] As indicated in the previous section of these Reasons for Judgment dealing with paragraphs 247(2)(b) and 247(2)(d), the [NAME_281] identifies three specific paragraphs of the [NAME_41] as terms that arm’s length parties would not have agreed to, namely paragraphs 2, 4, and 6. I will review paragraphs 2 and 4 of the [NAME_41] together, then review [NAME_278]’s expert opinion, followed by a review of paragraph 6 of the [NAME_41], keeping in mind the test under paragraph 247(2)(a). i. Paragraphs 2 and 4 of the [NAME_41] per [NAME_282] [ 872 ] Paragraphs 2 and 4 of the [NAME_41] are inherently related. Paragraph 2 is the provision providing that [NAME_37] assigns 68% of its one-third Participating Interest in and to the rights, duties, benefits, obligations, costs, rewards, risks and liabilities arising in connection with [NAME_40] Agreement to the Appellant. Paragraph 4 provides the Appellant with an obligation to pay a proportionate share of the feasibility study costs that [NAME_37] and the Appellant would be responsible for under [NAME_40] Agreement, in consideration for the assignment to the Appellant of 68% of [NAME_37]’s one-third Participating Interest in [NAME_40] Agreement. [ 873 ] Paragraph 4 also provides that the intent of the parties is for the Appellant to bear “the expenses associated with the Canadian portion of the pipeline and for [NAME_37] to bear the costs associated with the U.S. portion of the pipeline.” [ 874 ] Further, under paragraph 4, [NAME_37] and the Appellant agreed that the Appellant would incur all joint venture costs arising in Canada, plus joint venture costs necessary to bring the Appellant’s total burden of the joint venture costs to 68% of the total costs for which [NAME_37] and the Appellant are jointly responsible under [NAME_40] Agreement. Paragraph 4 also provides that in no event shall the Appellant’s burden of the total joint venture costs exceed 68% of the total costs for which [NAME_37] and the Appellant are jointly responsible for under [NAME_40] Agreement. [ 875 ] [NAME_282]’s central concern relates to the wording of paragraph 2. According to [NAME_282], paragraph 2 provides an assignment of 68% of [NAME_37]’s whole one-third Participating Interest in [NAME_40] Agreement instead of exclusively assigning the Canadian costs to the Appellant ([NAME_281], p. 55). Hence, according to [NAME_282], the language used in paragraph 2 implies that [NAME_37] would continue to own 32% of the Participating Interest in the Canadian segment of any pipeline built. [ 876 ] The [NAME_281] states that the experts (p. 55): … would have expected that to avoid Canadian tax and civil jurisdiction, [NAME_37] would have assigned to [the Appellant] 100% of [NAME_37]’s interest in the [NAME_29] Agreement pertaining to Canadian segments of the AGP, and 0% of [NAME_37]’s interest pertaining to the U.S. segments of the AGP. [ 877 ] [NAME_282] opined that if [NAME_37] and the Appellant had been dealing at arm’s length, neither party would have agreed to [NAME_37]’s assignment of a proportionate interest in [NAME_40] Agreement ([NAME_281], p. 56). Rather, if the parties had been dealing at arm’s length, both parties would have insisted that the [NAME_41] provide that [NAME_37] would assign to the Appellant, and the Appellant would accept, 100% of [NAME_37]’s Participating Interest in [NAME_40] Agreement pertaining to the Canadian segment of the pipeline. [ 878 ] I find that [NAME_282]’s conclusion regarding paragraph 2 as drafted which implies that [NAME_37] would continue to own 32% of the Participating Interest in the Canadian segment of any pipeline is incorrect. The evidence clearly shows that the intention of the parties to the [NAME_41] was that the Appellant would get an eventual share of the Canadian segment of the pipeline, and not any share in any US segment, and [NAME_37] would get an eventual share of the US segment of the pipeline, and not any share in any Canadian segment, if [NAME_40] resulted in a pipeline in either Canada or in the USA, and if the [COMPANY_48] owned an interest in the pipeline. [ 879 ] Further, the wording of the [NAME_41] is clear: [NAME_37] assigned to the Appellant 68% of its one-third Participating Interest in and to the rights, duties, benefits, obligations, costs, rewards, risks and liabilities arising in connection with [NAME_40] Agreement. The preamble of the [NAME_41] indicates that the parties intended that the joint venture costs to be payable by the Appellant are the joint venture costs associated with the Canadian portion of the pipeline study. The costs allocation under paragraph 4 is in direct proportion to the Participating Interest in [NAME_40] Agreement that [NAME_37] assigned to the Appellant under paragraph 2. [ 880 ] The preamble to the [NAME_41] also indicates that the parties intended the Appellant to benefit to the extent [NAME_40] results in a pipeline in Canada and that [NAME_37] would benefit to the extent [NAME_40] results in a pipeline in the USA. The proportionate Participating Interest of [NAME_37] and of the Appellant in [NAME_40] under the [NAME_41] is based on the best estimates of the parties regarding “the proportions of the [NAME_126] and the Southern Route that lie respectively within the United States and Canada based on the estimated distances of each route” (paragraph 3 of the [NAME_41]). [ 881 ] [NAME_40] Agreement is a feasibility study for a pipeline [NAME_29]. At this stage of a feasibility study, [NAME_40] Agreement does not relate to the construction of any segment of pipelines but relates to the gathering of cost estimates to progress a pipeline [NAME_29] and determine the feasibility of [NAME_40]. As indicated by [NAME_120], the construction of the projected pipeline would not be done under [NAME_40] Agreement, as [NAME_40] Agreement relates to a feasibility study to progress a pipeline [NAME_29], not to construct a pipeline. [ 882 ] I accept the testimony of [NAME_160] as well as various email exchanges that show that the parties intended to enter into the [NAME_41] as drafted, and that the wording used in the [NAME_41] represents the business deal reached by the Appellant and [NAME_37] at the relevant time. [ 883 ] Furthermore, [NAME_282] opined on paragraph 4 assuming [NAME_37] had assigned to the Appellant 100% of its one-third Participating Interest in [NAME_40] Agreement pertaining to the Canadian segment of the pipeline. As mentioned above, this assumption is incorrect. [ 884 ] With respect to paragraph 4, [NAME_282] focused on whether the benefits that the Appellant might reasonably expect to receive under the [NAME_41] were commensurate with the risk that the pipeline might never be constructed, placed in service and thus realized the projected tariff revenues. [NAME_282] stated that the projected benefits for pipeline investors did not include any risk premium that would compensate a pipeline investor for the significant risk in June 2001 that the pipeline might never be constructed and placed in service. [ 885 ] On that basis, the [NAME_281] states that the Appellant would not have entered into the [NAME_41] with [NAME_37] had they been dealing at arm’s length because the modest return the Appellant would receive if the pipeline was ultimately placed in service would be insufficient to compensate the Appellant for the high risk as of June 2001 that the pipeline might never be placed in service ([NAME_281], p. 62). [ 886 ] In concluding as such, [NAME_282] used one iteration of the [NAME_127] built by [NAME_40] to calculate an IRR on after-tax cash flow of 7% per annum for pipeline investors and concluded that that return is well below what a third-party investor would require as compensation for the substantial downside risks the investor would face as of June 2001. This calculation also used the negotiated tariffs determined under the [NAME_239], instead of the higher recourse tariffs. [ 887 ] According to [NAME_282], these risks included the fact that the [NAME_1] internal economic model had determined in September 2000 a DCFR of 10 to 12% for the Southern Route, which is equivalent to the results derived from the [NAME_127] prepared by [NAME_40] (Southern Route: IRR of 10.9%). [ 888 ] Moreover, [NAME_282] suggested that alternative methods for commercializing the [NAME_125] (a GTL refinery, a pipeline to Valdez, and [NAME_91]) should have been accounted for as potential risks for a pipeline owner. As discussed in the previous section of these Reasons for Judgment, I do not agree that these alternative methods were considered at the relevant time and thus represented any risk. [ 889 ] As mentioned in the previous section of these Reasons for Judgment, [NAME_282]’s opinion reflects hindsight bias, which is inappropriate. [NAME_282] used the [NAME_127] to opine on the economic viability of [NAME_40] at the outset, but the [NAME_127] was not in existence when the [NAME_41] was executed in June 2001, and much less when the [NAME_41] was negotiated between the Appellant and [NAME_37]. [ 890 ] Further, I accept [NAME_120]’s and [NAME_159]’s evidence that [NAME_40] received cost estimates during the fall of 2001, and [NAME_40] made various updates to the model, and that cost estimates were within a +/- 20% range. [ 891 ] [NAME_282]’s opinion regarding paragraphs 2 and 4 is not supported by any comparable transactions and is not supported by any functional analysis, company analysis, industry analysis and is only partly supported by an economic analysis. [ 892 ] Further, in his review of the benefits for the Appellant, [NAME_282] did not consider the fact that the Appellant licensed the data from [NAME_40] in 2003, and that the Appellant contributed the data in 2009/2010 under the [NAME_116], which makes his analysis unreliable. [ 893 ] [NAME_282] also used unreliable assumptions to make his calculations of the projected benefits under the [NAME_41] for the Appellant. I will discuss the expected benefits as derived from [NAME_40] more fully below. [ 894 ] Moreover, [NAME_282] did not opine on the projected benefits or risks for [NAME_37] as he focused on whether the benefits the Appellant might reasonably expect to receive under the [NAME_41] were commensurate with the risk that the pipeline might never be constructed, placed in service and thus realized the projected tariff revenues. [ 895 ] For all these reasons, I find that [NAME_282]’s opinion with respect to paragraphs 2 and 4 is unreliable and does not allow the Court to determine whether [NAME_37] and the Appellant would have entered into these terms, if they were dealing at arm’s length. ii. [NAME_278] and testimony [ 896 ] The [NAME_278] contains a thorough transfer pricing analysis informed by the interpretative aide of the OECD Guidelines. The [NAME_278] also refers to comparable transactions and uses reliable assumptions verified by the evidence that I accepted, to opine on whether the terms and conditions of the [NAME_41] differ from those that would have been made if [NAME_37] and the Appellant were dealing at arm’s length. I find that [NAME_278]’s expert testimonies and the [NAME_278] carry a lot of weight. [ 897 ] [NAME_278] reviewed the [NAME_41] examining both parties to the transaction, namely [NAME_37] and the Appellant, which examination was not properly done by [NAME_282]. [ 898 ] According to [NAME_278], the framework for a transfer pricing analysis would always involve the following (which [NAME_278] referred to as the “Building Blocks” of a transfer pricing analysis): (i) An analysis of the companies, namely an analysis of the parties involved including an overview of the business, a review of the multinational group activities, and a review of the entities involved; (ii) An analysis of the industry; (iii) An analysis of the transaction to be reviewed. This includes a functional analysis (which contains an analysis of functions performed, risks assumed, and assets used) and an economic analysis (which involves a selection of a transfer pricing method, a selection of a comparable transaction and consideration of comparability adjustments). [ 899 ] I find that the use of the building blocks as described by [NAME_278] accord with the GE Canada decision, where the Federal Court of Appeal stated that the concept underlying paragraphs 247(2)(a) and 247(2)(c) involves taking into account “all the circumstances which bear on the price whether they arise from the relationship or otherwise” ( GE Canada , at para 54). [ 900 ] [NAME_278] rightly identified the transaction to be reviewed under the transfer pricing provisions, namely the [NAME_41], which provides for an assignment by [NAME_37] to the Appellant of 68% of [NAME_37]’s one-third Participating Interest in and to the rights, duties, benefits, obligations, costs, rewards, risks and liabilities arising in connection with [NAME_40] Agreement, and as a consequence, 68% of its one-third share of the feasibility study costs under [NAME_40] Agreement. [ 901 ] [NAME_278] selected the comparable uncontrolled price or transaction method ( “CUP” or “CUT” method) using [NAME_40] Agreement itself as an internal comparable to the [NAME_41] for how arm’s length parties would have behaved in similar circumstances ([NAME_278], pp. 43-44). [ 902 ] To determine that [NAME_40] Agreement was an internal comparable to the [NAME_41], [NAME_278] examined five factors which [NAME_278] opined were either the same or similar under both agreements: same characteristics of property and services, comparable functions performed by all participants in the feasibility study, comparable contractual terms, comparable economic circumstances and alignment in business strategies. [ 903 ] [NAME_278] conducted a company analysis of both parties to the [NAME_41] (section 2 of the [NAME_278]). [ 904 ] The [NAME_278] specifically relied on the fact that the Feasibility Study under [NAME_40] Agreement “did not include the evaluation of upstream facilities related to the production of gas and instead commenced with the evaluation of a gas treatment plant needed to purify the natural gas and the gas transmission pipelines and reflected compression facilities along the proposed pipeline. A gas treatment plant is a normal course pipeline asset” ([NAME_278], p. 11). [ 905 ] [NAME_120] also testified that the pipeline would begin with a gas treatment plant to purify the gas so it could be shipped through the pipeline. [ 906 ] I agree that a gas treatment plant is a normal course pipeline asset. I further agree that the evidence showed that [NAME_40] did not include feasibility studies with respect to upstream activities, namely production of natural gas. [ 907 ] I agree with [NAME_278]’s statements regarding the purpose of the Feasibility Study. The evidence showed that there were no activities undertaken under [NAME_40] Agreement which relate to the production of the natural gas. Section 2.3 of [NAME_40] Agreement specifically excluded the shipment or marketing of gas or NGLs, providing that each party remains solely and individually responsible for shipping and marketing its gas and NGLs. [ 908 ] Under section 3 of the [NAME_278], [NAME_278] conducted an industry analysis, providing an overview of the natural gas pipeline sector within North America, a business overview of natural gas pipeline business and stages of pipeline development (feasibility study, route selection, regulatory approval, design and engineering). [NAME_278] also provided examples of tolling arrangements and of North American pipelines with shared ownership or joint venture arrangements. [ 909 ] Consistent with [NAME_119]’ testimony, [NAME_278] stated that with respect to pipeline ownership, the pipeline industry is highly fragmented, because of the very expensive price of constructing a pipeline. [NAME_278] also indicated that in very large capital asset projects, like constructing a major pipeline, a gating-process is used, including several stages that could span over several years (section 3.1 of the [NAME_278]). [ 910 ] [NAME_278]’s overview of pipeline development is corroborated by [NAME_119]’ expert testimony on the subject and must be accepted by the Court. [ 911 ] Further, [NAME_278] stated that when a large asset is built, an investor earned a return on equity invested. [ 912 ] Under section 5 of the [NAME_278] (pp. 31-41), [NAME_278] conducted a functional analysis, examining the functions performed, the risks assumed, and the assets used by [NAME_37] and the Appellant respectively, as they are relevant comparability factors to be considered in a transfer pricing analysis, and are relied upon in the search for comparable transactions. [ 913 ] I agree with [NAME_278]’s conclusion that the functions performed by the parties to [NAME_40] Agreement, including [NAME_37], are extensive and align with an entrepreneurial role. I also agree with [NAME_278]’ conclusions that the functions performed by the Appellant in accordance with the [NAME_41] are similar to those performed by [NAME_37] under [NAME_40] Agreement and align also with an entrepreneurial role. [ 914 ] [NAME_278] opined that given that [NAME_40] Agreement specifically excludes the evaluation of any feasibility related to [NAME_125] production and marketing, as well as the evaluation of any feasibility related to other hydrocarbons, similar functions were performed by [NAME_37] and the Appellant. [ 915 ] As the evidence has shown, and as relied upon by [NAME_278], the Feasibility Study consisted of a series of specific studies of the commercial, engineering, safety, health, environmental, regulatory, external affairs, security, risk management, construction plan, costs estimation plan, quality assurance, quality control plan, maintenance and technical aspects of [NAME_40], including consultation with various parties, with the ultimate objective of pursuing the filing of regulatory applications with the [NAME_89] and the [NAME_84] in mid 2001 (as shown in the numerous job books prepared by [NAME_40]). No study was in relation to production. [ 916 ] Further, as the evidence has also shown, and as relied upon by [NAME_278], the feasibility costs incurred under [NAME_40] Agreement were agreed upon between the parties and were incurred under contracts with various arm’s length service providers located in the USA and in Canada. The feasibility costs were invoiced to the participants to [NAME_40] Agreement in their proportionate [NAME_112], and [NAME_111] was hired to handle such invoicing and perform other services. [ 917 ] However, [NAME_282] did not agree with [NAME_278] that functions performed by [NAME_37] and the Appellant were the same or were comparable ([NAME_281] of [NAME_278], pp. 9-10). [NAME_282] agreed with the description of functions performed by [NAME_37] as outlined in the [NAME_278], [NAME_282] opined that the Appellant did not contribute any tangible or intangible assets to [NAME_40], as [NAME_37] did. [ 918 ] I do not agree with [NAME_282]. The evidence showed that the Appellant contributed employees and office space, which contributions were all accounted for by [NAME_111] in aggregating the total feasibility study costs under [NAME_40] Agreement, and most importantly the Appellant contributed cash to [NAME_40] by paying its proportionate share of the feasibility study costs. Therefore, I find that functions performed by [NAME_37] and the Appellant were similar. [ 919 ] Regarding the risks assumed by the parties, [NAME_278] opined that the Appellant assumed the same risks as [NAME_37] under [NAME_40] Agreement, as well as the other parties to [NAME_40] Agreement. These risks were economically significant as there were market volatility risks, feasibility risks, investment risks, execution and other associated risks, and counterparty risks. I agree with [NAME_278]’s statement. [ 920 ] Further, [NAME_278] relied on the fact that the Appellant had adequate financial resources, including capital reserves, liquidity and access to funding, and had the capacity to endure potential losses or adverse outcomes associated with the risks assumed. The Appellant has annual capital expenditure budget of $300 million, the CEO was authorized to approve up to $5 million to address risks associated with the [NAME_41], participation in the [NAME_41] and projected amounts were clearly approved in 2001 and revised. The affiliation of the Appellant with the [COMPANY_48], along with the Appellant’s capacity to secure third-party financing though parental guarantees or loans confirms the financial capacity of the Appellant to manage the risks assumed under the [NAME_41]. [ 921 ] I agree with [NAME_278]’s analysis of the risks assumed by both parties. I also consider the effect of the assignment of an interest in [NAME_40] Agreement, providing the Appellant with all the rights and obligations under [NAME_40] Agreement, including the right to withdraw from [NAME_40]. [ 922 ] In addition, the experience of the Appellant in similar projects, including the [NAME_66], gave the Appellant awareness of the risks it undertook and potential issues it could face. As the Appellant had experience, it could prepare for potential challenges, which would enable it to anticipate and address issues effectively. To come to this conclusion, I considered the testimony of [NAME_133] dealing with the business of the Appellant, which included pipelines ownership. [ 923 ] With respect to assets used, the Appellant shares the rights and obligations with the other participants to [NAME_40] Agreement, which provides the potential right to the ownership of a segment of a pipeline, and the opportunity for transportation as well as ownership of the proprietary rights to the Feasibility Study data and information once [NAME_40] Agreement was terminated. Again, as indicated above, the Appellant did license the data to the [NAME_113] in 2003 and contributed the data in 2009-2019 under the [NAME_116]. [ 924 ] Under section 6 of the [NAME_278], [NAME_278] conducted an economic analysis to determine the expected benefits for the parties involved in [NAME_40] and whether the allocation of feasibility study costs between the Appellant and [NAME_43]. under the [NAME_41] was in line with the arm’s length principle. [ 925 ] In applying the CUP method to the [NAME_41], [NAME_278] opines that, in accordance with section 247 and the OECD Guidelines, an application of the arm’s length principle to cost allocation arrangements requires that costs be allocated in proportion to the expected benefits for the parties involved ([NAME_278], pp. 44 and 50). The underlying reasoning is that cost allocation criterion aligns with what independent enterprises would establish in similar transactions among themselves. [ 926 ] This proportionality standard derived from the OECD Guidelines (at para 7.23) is more fully described in the OECD Guidelines from 2009 (Exhibit A‑18, para 8.9), which provides that: “The expectation of mutual benefit is fundamental to the acceptance by independent enterprises of an arrangement for pooling resources and skills without separate compensation. Independent enterprises would require that each participant's proportionate share of the actual overall contributions to the arrangement is consistent with the participant's proportionate share of the overall expected benefits to be received under the arrangement. ” [Emphasis added.] [ 927 ] Following the OECD guidelines, [NAME_278] stated that the arm’s length principle can be applied to the [NAME_41] by ensuring that [NAME_37]’s portion of feasibility study costs is allocated between [NAME_37] and the Appellant in proportion to their expected benefits ([NAME_278], p. 45). [ 928 ] [NAME_278] opined that [NAME_37], [NAME_38] and [NAME_32] have allocated the costs of [NAME_40] among themselves in proportion to their respective [NAME_112], each owning one-third Participating Interest and each paying one-third of the feasibility study costs. [ 929 ] [NAME_278] further opined that [NAME_37] and the Appellant have also allocated the costs of [NAME_40] among themselves under the [NAME_41] in proportion to their respective [NAME_112] in [NAME_40] Agreement by virtue of paragraph 4, as instructed by paragraph 2 where [NAME_37] assigned to the Appellant 68% of its one-third Participating Interest in [NAME_40] Agreement, and the Appellant agreed to pay its proportionate share of the feasibility study costs under [NAME_40] Agreement. [ 930 ] Applying the proportionality standard, [NAME_278] concludes that both the Parties to the [NAME_41] and the Parties to [NAME_40] Agreement (the comparable transaction) have allocated the costs of [NAME_40] among themselves in proportion to their respective [NAME_112]. [NAME_278] opined that “the allocation to [the Appellant] of 68% of [NAME_37]’s one-third portion of the Feasibility Study Costs aligns with the cost allocation made by independent parties participating in a comparable transaction” ([NAME_278], p. 49). [ 931 ] [NAME_278] stated that the allocation of costs in proportion to [NAME_112] aligns with the terms and conditions in other pipeline [NAME_29] agreements amongst arm’s length parties. For example, [NAME_278] referred to the [NAME_116]. [ 932 ] I agree with [NAME_278] and find that the proportionality standard is met under the circumstances when considering the proportionate interest in [NAME_40] Agreement owned by the Appellant and [NAME_37], and the proportionate feasibility study costs assumed by each of the parties to the [NAME_41]. [ 933 ] The proportionality standard would also apply to ensure that the feasibility study costs were allocated in proportion to the expected benefits of the Appellant and [NAME_37] as derived from [NAME_40]. [ 934 ] [NAME_278] stated that pipeline construction projects often require significant capital investments; companies involved in such [NAME_29] often enter into similar arrangements to pool resources and share burdens of construction projects, and stated that “[i]n many cases, companies that invest in the construction of a pipeline through a joint venture will own an equity stake in the pipeline proportional to their contributions” ([NAME_278], p. 50). [ 935 ] In that regard, [NAME_278] opined that it was reasonable to consider the portion of the pipeline, if constructed, that the Appellant and [NAME_37] could expect to own. Indeed, in this appeal, the evidence showed that the Appellant would be the owner of the Canadian segment of the pipeline, if built and if the [COMPANY_48] had an ownership interest in the pipeline. [ 936 ] [NAME_278] stated that “the primary expected benefit that [NAME_37] and [the Appellant] expect to derive from [NAME_40] is represented by the tolls they expect to receive from the operation of any resulting pipeline and the profits associated therewith” ([NAME_278], p. 50). According to [NAME_278], other expected benefits are incidental and very difficult to quantify at this stage of a feasibility study. [ 937 ] I accept [NAME_278]’s statement regarding the pooling of resources and sharing burdens of construction projects, as it was also corroborated by [NAME_119] and the evidence that I accepted. Further, as indicated above, [NAME_40] is a feasibility study to progress a pipeline [NAME_29] and does not involve any study for production. The evidence also showed that if the pipeline was built and if the [COMPANY_48] owned an interest in the pipeline, the Appellant would be the owner of the Canadian segment of the pipeline. As such, I accept [NAME_278]’s opinion that the primary expected benefits from [NAME_40] are the tolls to be derived from the pipeline. [ 938 ] Further, in applying the concept of proportionality between contributions and expected benefits, [NAME_278] measured the value of the contributions made by the parties to [NAME_40] Agreement and the [NAME_41] and opined that the value of the contributions made by the Appellant to [NAME_40] is aligned with the overall feasibility study costs borne by the Appellant. I agree with [NAME_278] that the material contributions made by the parties to the [NAME_41] and [NAME_40] Agreement are represented by the share of the feasibility study costs incurred by each of them. I also agree with [NAME_278] that the value of contributions made by unrelated parties who provided services for the feasibility study is measured in accordance with the arm’s length principle. Further, the evidence showed that all contributions made by the participants to [NAME_40] were aggregated and allocated between them (including [NAME_38] and [NAME_32]). As such, [NAME_278] opined that the value of contributions would be in line with the arm’s length principle. [ 939 ] [NAME_278] therefore concluded that “the allocation of 68% of [NAME_37]’s one-third share of the Feasibility Study Costs ensures that the share of overall contributions made by [the Appellant] is consistent with the portion of the expected benefits [the Appellant] can expect to derive from [NAME_40]” ([NAME_278], p. 51). [ 940 ] I accept [NAME_278]’s opinion, which is in line with the preamble to the [NAME_41] stating that “the parties expect that [the Appellant] will benefit to the extent that [NAME_40] Agreement leads to a pipeline [NAME_29] in Canada and the parties expect [NAME_37] to benefit to the extent [NAME_40] Agreement results in a pipeline [NAME_29] in Alaska and the lower-48…” . [ 941 ] Finally, [NAME_278] opined that the decision to allocate the feasibility study costs in proportion to the projected pipeline housed in Canada versus in the USA is in line with industry standards, being in line with the common practice and industry ([NAME_278], p. 51). Further, for large pipeline projects, such as the projected pipeline under [NAME_40], the advantage of using a distance-based allocation method is its simplicity and transparency. [ 942 ] [NAME_119] also opined that the [NAME_41] accurately reflects expected costs and benefits from [NAME_40] and the Feasibility Study. An allocation based on average distance of pipeline in Canada and in the USA was logical, objective, documented and independently verifiable. [ 943 ] However, [NAME_282] opined that [NAME_278]’s conclusion on expected benefits would be correct only if [NAME_40] was sponsored by three typical natural gas pipeline investors. According to [NAME_282], since [NAME_40] is a producer-led [NAME_29] that did not welcome typical natural gas pipelines as sponsors, and since the [NAME_127] developed by [NAME_40] calculated the net cash flow for the pipeline, not only for the pipeline owners but also for the producers, it would make sense to include the expected cash flow for the producers in the evaluation of the expected benefits from [NAME_40] ([NAME_281] of [NAME_278], pp. 10-14). [ 944 ] [NAME_282] further opined that [NAME_37]’s total benefits under [NAME_40] Agreement are both larger and riskier than the Appellant’s benefits under the [NAME_41], and so the Appellant’s benefits under the [NAME_41] are not comparable to [NAME_37]’s benefits under [NAME_40] Agreement ([NAME_281] of [NAME_278], pp. 17-18). [ 945 ] For the following reasons, I do not agree with [NAME_282]’s conclusion that expected benefits should include revenues from production or exploitation of the resources when analysing the proportionality under the [NAME_41], and I find [NAME_278]’s opinion more convincing, being in line with [NAME_119]’ expert opinion. [ 946 ] I accept [NAME_278]’s testimony that although the exploitation of the natural gas resources is relevant to [NAME_1] as a global group, as well as to [NAME_38] and [NAME_32], the scope of the [NAME_41] is related to the division of feasibility study costs for a pipeline [NAME_29], and as such, the primary expected benefits from [NAME_40] are the tolls to be expected from the pipeline. [ 947 ] In concluding that the primary expected benefits from [NAME_40] are the tolls to be expected from the pipeline itself, I have also considered that the purpose of [NAME_40] is a feasibility study for a pipeline [NAME_29] as shown by [NAME_40] Agreement itself, the testimony of the lay witnesses, and the nature of the feasibility studies performed under [NAME_40]. Further, [NAME_40] Agreement specifically excludes the production, marketing and shipping of natural gas. All studies performed under [NAME_40] Agreement relate to the feasibility of a pipeline, and no studies were performed regarding the production or exploitation of resources. [ 948 ] I further accept [NAME_278]’s testimony that the pipeline must be feasible within the ecosystem in which a pipeline operates, as it would go through the regulatory approvals ([NAME_89] and [NAME_84]) and would have to charge tariffs and tolls for its owners to get an appropriate rate of return. Moreover, I accept [NAME_278]’s testimony that it would not be possible to purposefully construct a pipeline that would be a loss leader and for the pipeline investors to lose money, so that the natural gas resources could be exploited by the producers. [ 949 ] I find that the analysis of proportionality under the arm’s length principle cannot be whether all potential benefits in relation to [NAME_40] are proportionate to the limited feasibility study costs incurred under the feasibility study performed under [NAME_40]. I find that analysing proportionality in these circumstances requires ensuring that the feasibility study costs were allocated between [NAME_37] and the Appellant in proportion to their respective expected benefits derived from [NAME_40]. [NAME_40], a feasibility study for a pipeline [NAME_29], has to be able to stand on its own financially, without consideration of additional [NAME_27] sources not being derived from [NAME_40] itself, for example, revenues from the exploitation of the natural gas resources. The analysis to be made is focused on whether the expected benefits from [NAME_40] are proportionate to the costs incurred under the [NAME_41], namely costs for a feasibility study for a pipeline [NAME_29]. Costs paid in accordance with the [NAME_41] did not include any costs for feasibility for the production or exploitation of resources. [ 950 ] Moreover, I accept [NAME_119]’ testimony that regulatory authorities ([NAME_89] and [NAME_84]) would not include costs for production in the costs that could be recovered under the tariffs and tolls. More specifically, [NAME_119] stated that “[p]ipeline companies would not incorporate the expected benefits obtained by the Producers in arms-length transactions with shippers, nor would someone expect the [NAME_89] (now [NAME_314]) to approve such arrangement” ([NAME_47], p. 23). [ 951 ] Relying on [NAME_282]’s opinion, the Respondent also asserts that [NAME_40] was a producer-led study and refers to various documents ([NAME_39], Joint Book of Documents, tabs 5, 6, 7 and 68). In essence, these documents referred to various alternative options to commercialize the [NAME_125] that [NAME_43]. had considered, namely an LNG or a GTL option. Additionally, they referred to economic projections of [NAME_40] as derived from the [NAME_127] and [NAME_93] meetings which suggest [NAME_40] is “producer-driven” . [ 952 ] I find that the question of whether [NAME_40] qualifies as a producer-led study or not is not relevant to the issue I must consider. I accept the Appellant’s argument that every pipeline [NAME_29] stands on its own and has parties involved in it for their own reasons, and further that no entity would want to progress a pipeline unless there is supply of resources. [ 953 ] As indicated by [NAME_119], there are many examples of producers and pipeline operator-owned pipelines. For example, the Express Pipeline is owned jointly by [NAME_115] and [COMPANY_315]; the Northern Gateway Pipeline was funded by [NAME_152] and a combination of Canadian oil producers and some Asian participants. According to [NAME_119], nothing established that [NAME_40] participants did not plan on owning any potential pipeline segments arising out of [NAME_40] ([NAME_47], pp. 18-20). [ 954 ] Moreover, the [NAME_281] uses the [NAME_239] negotiated tariff rates with an assumed 70-30 debt-equity ratio and a 12% after-tax return on equity as a model for the expected benefits the Appellant could receive from a pipeline. However, because the [NAME_240] tariff method did not include any risk premium that would compensate a potential investor for the risk that the pipeline may never be built, [NAME_282] concluded that an arm’s length person would not agree to the [NAME_41] ([NAME_281], pp. 61-62). I do not agree with [NAME_282]’s conclusion. [ 955 ] I accept the evidence which showed that the [NAME_239] economics used by [NAME_282] to opine on the expected benefits for the Appellant were not determined yet for [NAME_40]. As indicated in the previous section of these Reasons for Judgment, I accept [NAME_119]’ credible evidence, which was supported by documentary evidence ([NAME_39], Joint Book of Documents, tab 50), that the [NAME_239] was not a model for [NAME_40], but for tariffs and rate principles at the feasibility study assessment stage. Further, the evidence showed that tariffs and rates principles were still not yet finalized. [ 956 ] I also accept [NAME_119]’ expert evidence that the conclusion reached by [NAME_282] that the [NAME_239] was a model for [NAME_40] is simply wrong ([NAME_47], p. 17). Further, I accept [NAME_119]’ evidence that the use of negotiated rates, instead of higher recourse rates, was the norm for pipelines at the relevant time. [ 957 ] In addition, as indicated by [NAME_119], there are clear benefit expectations for a potential pipeline owner: these are the tolls that would be established by the [NAME_89] under federal regulation ([NAME_47], at p. 22). [ 958 ] As explained by [NAME_119], although the [NAME_239] would serve as a model for [NAME_40]’s tariff and rate principles at the feasibility study assessment stage, these principles were not novel to the [NAME_239]. The 70-30 debt-equity ratio was established at the [NAME_89] three years before the [NAME_89] decision concerning the [NAME_239] was rendered ([NAME_89] Decision GH-3-97 rendered in November 1998). The [NAME_89] rendered its Costs of Capital Decision RH-2-94 in March 1995 regarding multi-pipelines which established a formula using the 70-30 debt-equity ratio ([NAME_47], p. 14). At the time that [NAME_240]’s 12% negotiated rate of return was negotiated, the formula in [NAME_89] Decision RH-2-94 prescribed 11.25% and when the [NAME_239] went into service, the formula prescribed 9.90% ([NAME_47], p. 15). Further, the rate of return was to be adjusted annually based on the Government of Canada’s bond yield forecasts ([NAME_47], p. 16). [ 959 ] According to [NAME_119], at the feasibility stage of [NAME_40], it was appropriate to evaluate [NAME_40] economics by using recently approved cross-border greenfield pipeline debt-equity ratio and return on equity precedents. According to [NAME_119], the approved debt-equity ratio and return on equity would have evolved in the [NAME_89] approval process ([NAME_47], p. 16). [ 960 ] A fair or reasonable rate of return that would be approved by the regulator should be based on the following factors according to the [NAME_89]’s Costs of Capital Decision RH-4-2001 (Exhibit A-9; quoted in the [NAME_47], p. 16): “Be comparable to the return available from the application of the invested capital to other enterprises of like risk (the comparable earnings standard); Enable the financial integrity of the regulated enterprise to be maintained and permit incremental capital to be attracted to the enterprise on reasonable terms and conditions (the financial integrity and capital attraction standards); and Achieve fairness both from the viewpoint of the customers and from the viewpoint of present and prospective investors (appropriate balance of customer and investor interests).” [ 961 ] Therefore, although the benefits the Appellant could expect to receive from being a pipeline owner were not finalized, reasonable estimations were available to the Appellant. The ultimate benefits the Appellant could expect to receive from tolls were guaranteed to be calculated in a federally regulated environment. [ 962 ] Furthermore, as explained by [NAME_119], assuming that the total cost of [NAME_40] would be $20 billion (considering the Appellant’s 22.67% share of the costs, namely $4.5 billion) and assuming a 30% equity and an approved rate of return on common equity of 12%, the annual return on equity for the Appellant would be $162 million, or $6.5 billion assuming a 40-year life of the pipeline ([NAME_47], p. 23). These returns are significant and would be calculated in direct proportion to the costs the Appellant stood to incur. [ 963 ] The [NAME_278] applies the standard of proportionality to gauge whether the arm’s length standard is met for the [NAME_41], as per the OECD Guidelines. The OECD Guidelines are not controlling as Canadian statutes are, and the case must ultimately be determined in accordance with the Act ( [NAME_257] , at para 20). However, they can and have been used as a useful guiding tool in Canadian transfer pricing jurisprudence. [ 964 ] Proportionality is assessed based on the reasonable expectation of benefits in comparison to the cost at the time the arrangement is entered into, with the acknowledgement of the uncertainty that the potential [NAME_29] may not proceed. To apply a risk premium as suggested by [NAME_282] to the expected benefits, without increasing the costs the independent investors would incur, would make the benefits of a pipeline investors disproportionate to the costs they are incurring. [ 965 ] In addition, [NAME_282] concluded that the allocation of feasibility study costs based on estimated distance of each of the [NAME_126] and the Southern Route (under four different scenarios) is not based on industry standard, contrary to [NAME_278]’s opinion. [NAME_282] opined that the common industry standard is reflected in the two-step allocation procedure developed under the [NAME_127], namely all feasibility study costs are allocated to the three original parties to [NAME_40] Agreement, and then each of the original parties to [NAME_40] Agreement are allocated one-third of the total costs allocated to the Canadian segment of the pipeline and one-third of the total costs allocated to the US segment of the pipeline. [NAME_282] also referred to the true-up adjustment provided in the [NAME_41] to bring the Appellant’s share of the feasibility study costs to 68% of the total costs, which would increase the Appellant’s share of the feasibility study costs. [ 966 ] I do not agree with [NAME_282]’s conclusion. I find [NAME_278]’s opinion more persuasive as it is corroborated by [NAME_119] who was qualified as an expert on pipeline [NAME_29] development. Further, both [NAME_119] and [NAME_120] testified that this represented an objective and fair allocation of costs at the feasibility study stage of a pipeline. I also considered [NAME_278]’s testimony that each kilometre of a pipeline does not cost the same. [ 967 ] To determine the reliability of [NAME_282]’s conclusion regarding allocation of feasibility study costs at the stage where [NAME_40] was, namely at the FEL-1 (with some of FEL-2) stage, I also considered that [NAME_282] admitted he was not an expert on feasibility study stages of pipeline development and did not know how feasibility study costs are allocated among parties in different jurisdictions. Thus, I find [NAME_278] opinion more persuasive. [ 968 ] I find that the Respondent had not established that the Appellant’s interest and contributions to the Feasibility Study fall outside an arm’s length range when measured against the benefits properly attributable to it under the [NAME_41], as informed by [NAME_40] Agreement. I also find that the Respondent had not adduced any evidence regarding whether [NAME_37]’s interest and contributions to the Feasibility Study fall outside an arm’s length range when measured against the benefits attributable to it under the [NAME_41], as informed by [NAME_40] Agreement. [ 969 ] For all these reasons, and given [NAME_278]’s persuasive and convincing expert opinion, I find that the requirements of paragraph 247(2)(a) are not met in relation to both paragraph 2 and paragraph 4 of the [NAME_41]. Further, considering my findings in respect of paragraph 6 of the [NAME_41] detailed in the next section of these Reasons for Judgment, I accept [NAME_278]’s expert opinion that the main terms and conditions applied by the parties to the [NAME_41] align with those which would have been made between [NAME_43]. and the Appellant, had they been dealing at arm’s length, therefore the requirement of paragraph 247(2)(a) is not met in this appeal. iii. Paragraph 6 of the [NAME_41] [ 970 ] A central concern of the Respondent relates to the Appellant’s governance rights under paragraph 6 of the [NAME_41]. The Respondent argues that this governance structure is fatal to whole transaction and renders paragraph 6 a term that parties dealing at arm’s length would not agree to. [ 971 ] The Respondent states that no arm’s length party would agree to incur 22.67% of the feasibility study costs under [NAME_40] Agreement where: - Voting rights of the assignor and assignee are aggregated and treated as one vote; - Effective control over this vote remained with [NAME_37] absent written consent; and - The Appellant lacks unilateral decision-making authority over scope, budget or direction of [NAME_40]. [ 972 ] The Respondent relies on [NAME_282]’s statements that “[NAME_37] clearly understood that a third-party investor in the [[NAME_29]] would reasonably expect balanced governance” ([NAME_281], p. 8). [ 973 ] For the following reasons, I do not find [NAME_282]’s conclusion convincing, and I do not agree with the Respondent’s arguments. [ 974 ] I accept [NAME_119]’ opinion that “[a] third party investor would not require equal governance, but they would want to ensure there is sufficient/appropriate governance from that party’s perspective” ([NAME_47], p. 28). [ 975 ] Moreover, with respect to the [NAME_41], as informed by [NAME_40] Agreement, [NAME_119] stated ([NAME_47], p. 29): A third-party pipeline owner would find it very compelling to be part of a feasibility study where a critical commercially sophisticated stakeholder (U.S. portion pipeline owner and required credit worthy shipper) is sharing the relative minimal costs of a feasibility study with respect to a potential megaproject investment. [ 976 ] I also accept [NAME_119]’ opinion that the risk of material misalignment at the feasibility stage of a megaproject would be low as parties are seeking information to make an informed decision on the feasibility of [NAME_40], here a pipeline [NAME_29] ([NAME_47], p. 29). [ 977 ] I find these statements from [NAME_119] to be credible and persuasive. I find that an arm’s length party entering into the [NAME_41] would not require an entirely equal governance but instead would require appropriate governance, with protections. [ 978 ] Further, the evidence showed that the Appellant was not devoid of protections from the current governance structure under the [NAME_41], as the Appellant possessed: - Contractual rights to receive information regarding the feasibility study performed under [NAME_40] Agreement, and did receive copies of minutes of the Committees’ meetings; - The right to have its input heard and accounted for in the exercise of any vote; - The right to withdraw from [NAME_40] Agreement, as more fully discussed above; - An economic interest aligned with [NAME_37] in respect of pipeline ownership and toll revenues. [ 979 ] In that respect, I accept [NAME_133]’s testimony that he was aware of [NAME_40] development, was able to share any concern he may have with [NAME_40] and also had participated in reporting to senior management regarding [NAME_40]’s advancement. [ 980 ] [NAME_133] had access to representatives of various committees if need be. [NAME_133] testified that he primarily received updates on [NAME_40] from [NAME_159] and [NAME_135]. [NAME_133] did not recall any major concerns he may have raised with [NAME_135] or [NAME_159]. [ 981 ] The Respondent’s argument implicitly assumes that arm’s length investors would not incur significant costs absent equal control. However, the Appellant’s interests were not averse to those of [NAME_37] in respect of the feasibility study. The feasibility study’s purpose was to assess the viability of a pipeline in which both parties would ultimately hold an interest. [ 982 ] [NAME_282] further opined that the Appellant’s governance rights under the [NAME_41] are not comparable to [NAME_37]’s rights under section 4.3.1 of [NAME_40] Agreement which provides that: Unanimous consent of the [NAME_93] shall be required on all matters under the Agreement. There shall be no lead, operator, or managing Party. [ 983 ] [NAME_282] further stated that under paragraph 6 of the [NAME_41], the Appellant agreed that [NAME_37]’s representatives were authorised to bind [NAME_37] and the Appellant, in all meetings of [NAME_40]’s committees. [NAME_282] stated that he did not understand the meaning of [NAME_278]’s assertion that the Appellant “had the appropriate professional capability to select [NAME_37] as its representative” ([NAME_278], p. 48). [ 984 ] For the following reasons, [NAME_282]’s conclusion that the Appellant had no representative on the various committees of [NAME_40] under [NAME_40] Agreement is incorrect. [ 985 ] According to paragraph 6, the Appellant agreed that its vote (aggregated with [NAME_37]’s vote under [NAME_40] Agreement) would be exercised through a representative mutually agreed to by [NAME_37] and the Appellant, and until both parties agreed in writing, [NAME_128], [NAME_148] and [NAME_135] would be authorized to bind both [NAME_37] and the Appellant at the respective [NAME_29]’s committees. The Appellant therefore had a representative at [NAME_40]’s committees. [ 986 ] I also agree with [NAME_278]’s statement that the Appellant “had the appropriate professional capability to select [NAME_37] as its representative” , as the Appellant agreed to enter into the [NAME_41] and agreed to all its terms and conditions. Further, the Appellant had rights to give input into the exercise of the vote it had with [NAME_37] regarding [NAME_40] Agreement. [ 987 ] Because risks of material misalignment are minimal at the feasibility study stage of a megaproject and weighing the evidence, I find that an arm’s length party entering into the [NAME_41] would not require an entirely equal governance but instead would require appropriate governance, with protections, which the Appellant got under the [NAME_41]. [ 988 ] I further find that the absence of unilateral voting power by the Appellant does not, in itself, demonstrate that the Appellant’s agreeance to this term is not something arm’s length parties would not agree to. [ 989 ] For all these reasons, I find that the requirements of paragraph 247(2)(a) are not met in relation to paragraph 6 of the [NAME_41], which showed an appropriate governance that arm’s length parties would agree to at this stage of a feasibility study. c) Conclusion [ 990 ] Paragraph 247(2)(a) is concerned with whether the terms or conditions of a transaction differ from those that would have been made between arm’s length persons. Paragraph 247(2)(c) operates to permit an adjustment to the “quantum or nature” of an amount based on terms and conditions that arm’s length parties would have agreed to. [ 991 ] I agree with the [NAME_278]’s overall finding, which expert opinion was credible and persuasive. I find that there is no basis to conclude that an arm’s length pipeline investor would be unwilling to bear a comparable proportion of feasibility costs in exchange for toll revenues and ownership interests of a projected pipeline. Particularly, when the expected benefits would be calculated in proportion to the costs incurred under a regulated environment. [ 992 ] On the evidence, the Respondent has not established that the Appellant’s interests and cost contributions to the Feasibility Study fall outside an arm’s length range when measured against the expected benefits properly attributable to it under the [NAME_41]. The Respondent has also not provided any evidence with respect to [NAME_37]. [ 993 ] The evidence has shown that arm’s length investors routinely incur development costs on projects where the final scope of benefits is uncertain. The Respondent’s arguments effectively apply hindsight to reallocate costs based on outcomes that were not known at the time the [NAME_41] was entered into. [ 994 ] I have no evidence before me that either paragraphs 2, 4, or 6 of the [NAME_41] affects the price. The Respondent has not suggested alternative terms and conditions to the [NAME_41] so that it would be consistent with the arm’s length principle. [NAME_282] did not provide me with any alternate terms and conditions which would meet the arm’s length principle, other than asserting that a fee-for-services agreement would be an alternative arm’s length agreement. [ 995 ] Furthermore, there is no suggestion as to how alternative terms and condition would affect the “quantum or nature” of the amount underlying this appeal, other than suggesting that the Feasibility Study Costs be reduced to zero. [ 996 ] The only suggestion the Respondent makes as to what arm’s length parties should have done is to recharacterize the [NAME_41] as a fee-for-services arrangement. I find that it is not justifiable to entirely recharacterize the [NAME_41] as a fee-for-services arrangement under an entirely different agreement under the scheme of paragraph 247(2)(c) ( [NAME_268] , at para 688). [ 997 ] Having concluded that the requirements of paragraph 247(2)(a) are not met, paragraph 247(2)(c) does not apply to the [NAME_41].

V. Part XIII Tax Assessment [ 998 ] The Minister assessed an amount of $1,810,391 as tax under Part XIII of the Act, on the basis that the payment of the Feasibility Study Costs ($36,207,810) by the Appellant was deemed to be a dividend paid by the [NAME_316]. As such, the Minister is of the view that the Appellant was required to withhold and remit Part XIII tax on that amount by virtue of subsections 212(2) and 215(1). [ 999 ] The Minister relied on paragraphs 246(1)(b) and 214(3)(a), taking the view that the Appellant conferred a benefit on its ultimate shareholder, [NAME_43]., by paying the Feasibility Study Costs, and that said amount was deemed to be a dividend paid by the [NAME_316]. for purposes of Part XIII. [ 1000 ] The tax under Part XIII was calculated by the Minister at the rate of 5% under Article X of the Treaty, and not at the rate of 25% as provided for in subsection 212(2). [ 1001 ] However, at the hearing, the Respondent relied on the application of subsection 56(2) and paragraph 214(3)(a) as the basis for the Part XIII Tax Assessment.

1. The Law [ 1002 ] The relevant provisions of the Act read as follows. PART I 56(2) A payment or transfer of property made pursuant to the direction of, or with the concurrence of, a taxpayer to some other person for the benefit of the taxpayer or as a benefit that the taxpayer desired to have conferred on the other person … shall be included in computing the taxpayer’s income to the extent that it would be if the payment or transfer had been made to the taxpayer. … 152(9) The Minister may advance an alternative argument in support of an assessment at any time after the normal reassessment period unless, on an appeal under this Act (a) there is relevant evidence that the taxpayer is no longer able to adduce without the leave of the court; and (b) it is not appropriate in the circumstances for the court to order that the evidence be adduced. PART XIII 212 (2) Every non-resident person shall pay an income tax of 25% on every amount that a [NAME_317] pays or credits, or is deemed by Part I or Part XIV to pay or credit, to the non-resident person as, on account or in lieu of payment of, or in satisfaction of, (a) a taxable dividend (other than a capital gains dividend within the meaning assigned by subsection 130.1(4), 131(1) or 133(7.1)); or (b) a capital dividend. … 214(3) For the purposes of this Part, (a) where section 15 or subsection 56(2) would, if Part I were applicable, require an amount to be included in computing a taxpayer’s income, that amount shall be deemed to have been paid to the taxpayer as a dividend from a [NAME_317]; … 215(1) When a person pays, credits or provides, or is deemed to have paid, credited or provided, an amount on which an income tax is payable under this Part … the person shall, notwithstanding any agreement or law to the contrary, deduct or withhold therefrom the amount of the tax and forthwith remit that amount to the [NAME_318] on behalf of the non-resident person on account of the tax and shall submit with the remittance a statement in prescribed form. PART XVI 246(1) Where at any time a person confers a benefit, either directly or indirectly, by any means whatever, on a taxpayer, the amount of the benefit shall, to the extent that it is not otherwise included in the taxpayer’s income or taxable income earned in Canada under Part I and would be included in the taxpayer’s income if the amount of the benefit were a payment made directly by the person to the taxpayer and if the taxpayer were resident in Canada, be (a) included in computing the taxpayer’s income or taxable income earned in Canada under Part I for the taxation year that includes that time; or (b) where the taxpayer is a non-resident person, deemed for the purposes of Part XIII to be a payment made at that time to the taxpayer in respect of property, services or otherwise, depending on the nature of the benefit. (2) Where it is established that a transaction was entered into by persons dealing at arm’s length, bona fide and not pursuant to, or as part of, any other transaction and not to effect payment, in whole or in part, of an existing or future obligation, no party thereto shall be regarded, for the purpose of this section, as having conferred a benefit on a party with whom the first-mentioned party was so dealing. [NAME_170] I 56(2) Tout paiement ou transfert de biens fait, suivant les instructions ou avec l’accord d’un [NAME_187], à toute autre [NAME_171] au profit du [NAME_187] ou à titre d’avantage que le [NAME_187] désirait voir accorder à l’autre [NAME_171]… doit être inclus dans le calcul du revenu du [NAME_187] dans la mesure où il le serait si ce paiement ou transfert avait été fait au [NAME_187]. … 152(9) [NAME_189] peut avancer un nouvel argument à l’appui d’une cotisation après l’expiration de la période normale de nouvelle cotisation, sauf si, sur appel interjeté en vertu de la présente loi : a) d’une part, il existe des éléments de preuve que le [NAME_187] n’est plus en mesure de produire sans l’autorisation du tribunal; b) d’autre part, il ne convient pas que le tribunal ordonne la production des éléments de preuve dans les circonstances. [NAME_170] 212(2) [NAME_171] non-résidente paie un impôt sur le revenu de 25 % sur toute somme qu’une société résidant au Canada lui paie ou porte à son crédit ou est réputée, selon les parties I ou XIV, lui payer ou porter à son crédit, au titre ou en paiement intégral ou partiel : a) d’un dividende imposable (autre qu’un dividende sur les gains en capital, au sens que donne à cette expression le paragraphe 130.1(4), 131(1) ou 133(7.1)); b) d’un dividende en capital. … 214(3) Pour l’application de la présente [NAME_170] : a) le montant qui serait inclus dans le calcul du revenu d’un [NAME_187] selon l’article 15 ou le paragraphe 56(2), si la [NAME_170] I s’appliquait, est réputé avoir été versé au [NAME_187] à titre de dividende provenant d’une société résidant au Canada; … 215(1) La [NAME_171] qui verse, crédite ou fournit une somme sur laquelle un impôt sur le revenu est exigible en vertu de la présente [NAME_170]… ou qui est réputée avoir versé, crédité ou fourni une telle somme, doit, malgré toute disposition contraire d’une convention ou d’une loi, en déduire ou en retenir l’impôt applicable et le remettre sans délai au receveur général au nom de la [NAME_171] non-résidente, à valoir sur l’impôt, et l’accompagner d’un état selon le formulaire prescrit. [NAME_170] 246(1) La valeur de l’avantage qu’une [NAME_171] confère à un moment donné, directement ou indirectement, de quelque manière que ce soit à un [NAME_187] doit, dans la mesure où elle n’est pas par ailleurs incluse dans le calcul du revenu ou du revenu imposable gagné au Canada du [NAME_187] en vertu de la [NAME_170] I et dans la mesure où elle y serait incluse s’il s’agissait d’un paiement que cette [NAME_171] avait fait directement au [NAME_187] et si le [NAME_187] résidait au Canada, être : a) soit incluse dans le calcul du revenu ou du revenu imposable gagné au Canada, selon le cas, du [NAME_187] en vertu de la [NAME_170] I pour l’année d’imposition qui comprend ce moment; b) soit, si le [NAME_187] ne réside pas au Canada, considérée, pour l’application de la [NAME_170], comme un paiement fait à celui-ci à ce moment au titre de bien ou de services ou à un autre titre, selon la nature de l’avantage. (2) Lorsqu’il est établi qu’une opération conclue par des personnes sans aucun lien de dépendance est une opération véritable et non une opération conclue en conformité avec quelque autre opération ou comme [NAME_170] de celle-ci, non plus que pour effectuer le paiement, en totalité ou en [NAME_170], de quelque obligation existante ou future, aucune [NAME_170] à l’opération n’est considérée, pour l’application du présent article, conférer un avantage à l’autre [NAME_170] avec laquelle elle n’a aucun lien de dépendance.

2. Positions of the parties 1) The Respondent [ 1003 ] In its Supplemental Written Trial Submissions filed on July 11, 2025, the Respondent relied on subsection 56(2), as contained in paragraph 214(3)(a) to support the Part XIII Tax Assessment. [ 1004 ] Although subsection 56(2) was not pleaded in the Reply, the Respondent argued that because subsection 56(2) is referenced in paragraph 214(3)(a), it can properly be addressed by the Court. The Respondent did not argue that subsection 214(3)(a) applies because of section 15. [ 1005 ] According to the Respondent, on the payment of the Feasibility Study Costs, subsection 56(2) would have applied to include an amount equal to the Feasibility Study Costs in computing the income of [NAME_43]. if [NAME_43]. had computed its income under Part I of the Act. [ 1006 ] Referring to Neuman v. MNR , [1998] SCJ No. 37, at para 32 (SCC) [ [NAME_319] ], the Respondent argued that the four pre-conditions for the application of subsection 56(2) were met in this case, by reference to paragraph 246(1)(b). The Respondent did not argue that subsection 246(1) applies on its own, but the Respondent used subsection 246(1) to meet the requirements of subsection 56(2). I will address that issue below. [ 1007 ] As a result, according to the Respondent, paragraph 214(3)(a) deems the payment of the Feasibility Study Costs to be a dividend paid to [NAME_43]. from a corporation resident of Canada. Thus, subsection 212(2) requires [NAME_43]. to pay a tax at the rate of 25% on the amount of the deemed dividend. As such, the Appellant was required to withhold the Part XIII tax and remit the tax to the [NAME_318] on behalf of [NAME_43]. [ 1008 ] However, according to the Respondent, Article X of the Treaty reduces the rate of the Part XIII tax to 5% of the amount of the benefit, namely $1,810,391. Therefore, the Respondent argues that the Part XIII Tax Assessment was validly made.

2) The Appellant [ 1009 ] According to the Appellant, paragraph 246(1)(b) does not apply because the Appellant did not confer a benefit on [NAME_43]. by paying the Feasibility Study Costs, either in its capacity as an indirect shareholder or at all. [ 1010 ] According to the Appellant, it paid the Feasibility Study Costs for its own benefit. The Feasibility Study Costs were valid expenses incurred by the Appellant in respect of a Feasibility Study carried out under [NAME_40] Agreement, pursuant to its obligations to pay the Feasibility Study Costs as provided for in the [NAME_41]. The Feasibility Study Costs were paid by the Appellant to obtain various benefits, as the evidence showed that the Appellant was to own the Canadian portion of the pipeline, if the projected pipeline would have been built and if the [COMPANY_48] would have owned an interest in the projected pipeline. Further, the Appellant obtained all the data and information produced by the Feasibility Study. The Appellant was billed by [NAME_111] accordingly. [ 1011 ] According to the Appellant, by entering into the [NAME_41], the Appellant became a party to [NAME_40] Agreement and was entitled to the “rights, duties, benefits, obligations, costs, rewards, risks and liabilities arising in connection with the performance of” [NAME_40] Agreement. [ 1012 ] Further, the Appellant asserts that the requirements of subsection 246(2) are met, which results in no benefit being conferred on [NAME_43]. under subsection 246(1). [ 1013 ] In addition, the Appellant takes issue with submissions of the Respondent on subsection 56(2), because subsection 56(2) was not raised in the pleadings, nor in the Respondent’s opening statement. Moreover, according to the Appellant, no evidence was advanced before the Court related to any reassessment of the Appellant on the basis of subsection 56(2). In addition, the Appellant asserts that the Respondent did not elaborate as to how subsection 56(2) applies to a Part XIII assessment raised on the basis of paragraph 246(1)(b). According to the Appellant, the Court should not consider this alternate argument pursuant to paragraphs 152(9)(a) and/or 152(9)(b).

3. Analysis [ 1014 ] For the following reasons, the Part XIII Tax Assessment must be vacated. [ 1015 ] Part XIII of the Act provides tax payable by a non-resident person on its income from various sources in Canada, including dividend. In the case at bar, the Respondent raised subsection 56(2) to support the Part XIII assessment, arguing that the Appellant conferred a benefit on [NAME_43]. by paying the Feasibility Study Costs, which amount is deemed a dividend (under paragraph 214(3)(a)), but the Respondent did not raise section 15. I will therefore not examine whether section 15 could have applied to the case at bar. [ 1016 ] For the following reasons, I find that, for purposes of subsection 56(2), the payment of the Feasibility Study Costs by the Appellant was not made for the benefit of [NAME_43]. I also find, for purposes of subsection 246(1), that the Appellant did not confer a benefit on [NAME_43]. by paying the Feasibility Study Costs. As a result, neither subsection 56(2) nor subsection 246(1) apply in the circumstances of this case. [ 1017 ] Having found that subsection 56(2) is not applicable, paragraph 214(3)(a) does not apply to deem that a dividend was paid to [NAME_43]. from a [NAME_317], and subsection 212(2) does not apply to require [NAME_43]. to pay a tax of 25% on the amount of the deemed dividend (as reduced under the Treaty). Hence, subsection 215(1) does not require the Appellant to withhold and remit any amount to the [NAME_318] on behalf of [NAME_320], on that basis, the Part XIII Tax Assessment must be vacated. [ 1018 ] Furthermore, because subsection 246(1) is not referenced in paragraph 214(3)(a), even if I had found that subsection 246(1) was applicable on the payment of the Feasibility Study Costs, which I did not, paragraph 214(3)(a) would not have applied to deem that a dividend was paid to [NAME_43]. from a [NAME_317]. [ 1019 ] Paragraph 246(1)(b) provides that the amount of the benefit under subsection 246(1) is deemed to be a payment made to the non-resident in respect of “property, services or otherwise, depending on the nature of the benefit” , without making any reference to dividend. Although the Respondent seems to assert that a benefit under paragraph 246(1)(b) contemplates a dividend, being a payment in respect of property, the Respondent did not refer to any authority in that respect. However, having found that no benefit was conferred by the Appellant on [NAME_43]. in the circumstances of this case under subsection 246(1), the Part XIII Tax Assessment must therefore also be vacated on that ground. [ 1020 ] Before analyzing both subsections 56(2) and 246(1), I want to reiterate that the Appellant was not involved in a sham or any artificial transaction. The pleadings from the Respondent did not make any reference to sham; further, the Respondent did not raise a sham or any artificial transaction arguments in the case at bar.

1) Paragraphs 152(9)(a) and (b): [ 1021 ] The Appellant argues that subsection 56(2) could not be raised for purposes of Part XIII as the Minister did not raise subsection 56(2) for reassessing the Appellant for its 2001 Taxation Year, as the 2009 Reassessment denies the deductibility of the Feasibility Study Costs based on paragraph 18(1)(a), or alternatively, on the basis of the application of the transfer pricing rules found in section 247. [ 1022 ] However, the fact that the Minister did not raise subsection 56(2) in reassessing the Appellant is not relevant for purposes of paragraph 214(3)(a) and Part XIII. Paragraph 214(3)(a) creates an assumption or supposition by stating the following: “where … subsection 56(2) would, if Part I were applicable, require an amount to be included in computing a taxpayer’s income , that amount shall be deemed to have been paid to the taxpayer as a dividend from a [NAME_317]...” (emphasis added). [ 1023 ] [ADDRESS] had the opportunity to interpret paragraph 214(3)(a), more specifically the words, “if Part I were applicable” in [COMPANY_321]. v. Minister of [NAME_28] , [1993] 1 C.T.C. 2453, 93 D.T.C. 852 at p. 2458 (D.T.C. 855-56): Knowing then that Part I is not applicable to non-residents in respect of [NAME_27] items relating to the provisions mentioned at the start of paragraph 214(3)(a), including section 15, the paragraph continues with the clause, “if Part I were applicable”. These words can express only one thing: an assumption or a supposition. Their meaning is thus equivalent to “supposing Part I were applicable” to non-residents in respect of items referred to in section 15 or subsection 56(2). It is thus only supposed that Part I applies to non-residents in respect of these items for the purposes of taxing them under Part XIII. [ 1024 ] The taxpayer referenced in paragraph 214(3)(a) is [NAME_43]., and not the Appellant. The analysis under subsection 56(2) for purposes of paragraph 214(3)(a) should therefore focus on [NAME_43]., as being the “reassessed taxpayer” , assuming that Part I applies to [NAME_43]. [ 1025 ] Further, because there is an assumption in the Reply providing that the payment of the Feasibility Study Costs by the Appellant conferred a benefit on [NAME_43]., I find that I can discuss the Respondent’s submissions on the application of subsection 56(2). I find that paragraph 152(9)(a) or (b) does not prevent me from doing such an analysis.

2) Subsections 56(2) and 246(1): [ 1026 ] The four pre-conditions to apply subsection 56(2) were described as follows by the Supreme Court in [NAME_319] (at para 32): (1) the payment must be to a person other than the reassessed taxpayer; (2) the allocation must be at the direction or with the concurrence of the reassessed taxpayer; (3) the payment must be for the benefit of the reassessed taxpayer or for the benefit of another person whom the reassessed taxpayer wished to benefit; and (4) the payment would have been included in the reassessed taxpayer’s income if it had been received by him or her. [ 1027 ] In [NAME_319] (at para 46), the Supreme Court confirmed the purposes of subsection 56(2), by quoting its own decision in Mcclurg v. Canada , [1990] 3 SCR 1020 [ [NAME_322] ] (at p. 1051): The subsection obviously is designed to prevent avoidance by the taxpayer, through the direction to a third party, of receipts which he or she otherwise would have obtained . …. the section reasonably cannot have been intended to cover benefits conferred for adequate consideration in the context of a legitimate business relationship. [Emphasis added.] [ 1028 ] The application of subsection 56(2) to any given set of circumstances must therefore be reviewed by keeping in mind its purpose, as described above by the Supreme Court in [NAME_322] . [ 1029 ] For the following reasons, I find that the Respondent’s interpretation of subsection 56(2) was not made in accordance with its purpose, and further, that all pre-conditions for the application of subsection 56(2) were not met in the present case. [ 1030 ] According to the Respondent, the four pre-conditions for the application of subsection 56(2) are met as follows: 1- The Feasibility Study Costs were paid to a person other than [NAME_43]., as they were paid to third-party service providers under [NAME_40] Agreement, as billed from time to time by [NAME_111]; 2- The Feasibility Study Costs were paid at the direction of or with the concurrence of [NAME_43]. because [NAME_37], a division of [NAME_43]., signed the [NAME_41] by which the Feasibility Study Costs were paid; 3- The Feasibility Study Costs were paid for the benefit of [NAME_43]., because the Appellant conferred a benefit on [NAME_43]. by paying 68% of [NAME_43].’s share of the feasibility study costs under [NAME_40] Agreement; and 4- By virtue of paragraph 246(1)(b), the payment of the Feasibility Study Costs would have been included in [NAME_43].’s income, if [NAME_43]. had received the Feasibility Study Costs directly. [ 1031 ] Although the first and second pre-conditions were likely met in the present case, I find that the third and fourth pre-conditions were not met. [ 1032 ] For the following reasons, I find that the payment of the Feasibility Study Costs by the Appellant was not made for the benefit of [NAME_43]., and consequently, the third pre-condition of subsection 56(2) is not met. [ 1033 ] The term “benefit” is not defined in subsection 56(2). The case law has established that the word “benefit” can be aimed at payments, distributions, benefits and advantages that flow from a corporation to a shareholder by some route other than the more orthodox dividend route ( Minister of National Revenue v. Pillsbury Holdings Ltd. , [1964] C.T.C. 294 (Ex. Ct.) [ Pillsbury ], at para 18). That determination is purely factual. In Pillsbury , the Court found that the word “confer” means “grant” or “bestow” . [ 1034 ] In the context of subsection 15(1) (which uses similar wording: “a benefit is conferred by a corporation on a shareholder…” ), the case law indicates that no benefit or advantage is conferred where a corporation enters into a bona fide transaction with a shareholder ( Pillsbury , at para 20; reiterated recently by the Federal Court of Appeal in [NAME_323] v. Canada , 2020 FCA 97 [ [NAME_323] ], at para 33). [ 1035 ] Further, case law held that shareholder benefits do not exist where the benefit arises as a result of an ordinary business transaction, instead only devices or arrangements for conferring benefits or advantages on shareholders qua shareholders qualify as a benefit for that purpose ( Pillsbury , at para 21; [NAME_323] , at para 34). The analysis will often focus on whether the transaction in question was made for a business or personal purpose ( [NAME_323] , at para 36). [ 1036 ] For the reasons detailed previously, I agree with the Appellant that the Feasibility Study Costs were paid for the Appellant’s own benefit, and not for the benefit of [NAME_43]. In the case at bar, I found that the Appellant had a source of business income related to the Feasibility Study. I also found that the Feasibility Study Costs were properly deductible expenses for the Appellant, and that the limitation found in paragraph 18(1)(a) was not applicable. The Feasibility Study Costs were valid expenses incurred by the Appellant in respect of a Feasibility Study carried out under [NAME_40] Agreement, pursuant to its obligations to pay them as provided for in the [NAME_41]. [ 1037 ] The Appellant expected various benefits for entering into the [NAME_41] and paying the Feasibility Study Costs. By entering into the [NAME_41], the Appellant was entitled to the “rights, duties, benefits, obligations, costs, rewards, risks and liabilities arising in connection with the performance of” [NAME_40] Agreement. [ 1038 ] Further, the evidence showed that the Appellant was to own the Canadian portion of the pipeline, if the projected pipeline were to be built and if the [COMPANY_48] owned an interest in the projected pipeline. The Appellant also obtained all the data and information produced by the Feasibility Study and was able to license the data and information obtained under [NAME_40] Agreement to the [NAME_113] in 2003 and to contribute the data in 2009-2010 under the [NAME_116]. The Appellant was billed by [NAME_111], and the Appellant paid the Feasibility Study Costs to obtain these benefits. [ 1039 ] In addition, I find that the Feasibility Study Costs were the result of valid and legitimate business operations and were made for business purposes, which indicate that the payment of the Feasibility Study Costs by the Appellant were not made for the benefit of [NAME_43]. [ 1040 ] For the following reasons, I also find that the fourth pre-condition for the application of subsection 56(2) is not met. [ 1041 ] I do not agree with the Respondent that paragraph 246(1)(b) or subsection 246(1) can be used for the purposes of meeting the fourth pre-condition for the application of subsection 56(2). [ 1042 ] Subsection 56(2) is a standalone provision for determining whether a benefit was conferred on a taxpayer, as is subsection 246(1). It is not possible to interpret the fourth pre-condition of subsection 56(2) by referring to the benefit provision found in subsection 246(1). If I was to conclude that subsection 246(1) could be used to meet the fourth pre-condition for the application of subsection 56(2), that interpretation would run afoul of the wording of subsection 246(1) itself as well as the purpose of subsection 246(1). [ 1043 ] Subsection 246(1) is meant to capture benefits that are not otherwise included in the income of a taxpayer under Part I. The wording of subsection 246(1) is clear and provides that the value of a benefit will be caught by this provision “to the extent that it is not otherwise included in the taxpayer’s income or taxable income earned in Canada under Part I...” . Subsection 56(2) is found under Part I, but subsection 246(1) is found under Part XVI. Therefore, it is not appropriate to use a provision, namely subsection 246(1), which is designed to catch the value of benefits conferred on a taxpayer not otherwise included in the taxpayer’s income under Part I, to satisfy requirements of a provision found under Part I, namely subsection 56(2). [ 1044 ] The purpose of subsection 246(1) was well described by this Court in 943372 [COMPANY_324]. v. R. , 2007 [NAME_35] 294 (at para 25), and makes it clear that subsection 246(1) applies to amounts not previously caught by any other provision of the Act: [25] ….Section 246 does not create a separate head of taxation. Taxpayers are subjected to tax on a variety of bases — business income, employment income, interest, dividends, shareholder benefits under subsection 15(1), a variety of sources specified in section 56 and income from trusts to the extent required by section 104 are examples. Section 246 is not an addition to the other heads of taxation. Its purpose is to translate benefits that might not otherwise be caught in the tax net into their appropriate monetary value as if they were direct payments and require that the amount thereof should be included in the income of the recipient if it were to be included as a direct payment. The Canada Tax Service has put it succinctly as follows: The purpose of section 246 is to require that the monetary value of certain benefits conferred on a taxpayer by another person by one or more sales, exchanges or other means whatever be accounted for by the taxpayer for the purposes of Part I or Part XIII tax, as the case may be, to the extent that the amount of the benefit has not otherwise been included in the taxpayer’s income or taxable income earned in Canada and would have been included in the taxpayer’s income if the taxpayer were resident in Canada and the amount of the benefit were a payment made to the taxpayer. The section does not apply where a transaction was entered into by arm’s length persons, bona fide, and not as part of any other transaction and not as payment of an existing or future obligation. [Emphasis added.] [ 1045 ] For these reasons, I find that the Respondent cannot rely on subsection 246(1) to meet the fourth pre-condition for the application of subsection 56(2). [ 1046 ] Moreover, for the following reasons, if I was to conclude that subsection 246(1) can be used to meet the fourth pre-condition for the application of subsection 56(2), that interpretation would be inconsistent with the scheme of the Act as it relates to Part XIII. [ 1047 ] Paragraph 214(3)(a) provides that where subsection 56(2) would have applied if Part I was applicable to a non-resident and would result in an income inclusion, that amount is deemed to be a dividend under Part XIII and is subject to tax under Part XIII pursuant to subsection 212(2). [ 1048 ] However, an amount included in the income of a non-resident under subsection 246(1) is deemed for purposes of Part XIII to be some kind of payment “in respect of property, services or otherwise, depending on the nature of the benefit” (para 246(1)(b)). Under paragraph 246(1)(b), a non-resident may be subject to Part XIII tax depending on the nature of the benefit, which benefit does not include a dividend. It would be inconsistent with the scheme of the Act as it relates to Part XIII to use subsection 246(1) to get into subsection 214(3) via subsection 56(2), where subsection 246(1) provides for its own cross-border consequences without any need to rely on subsection 214(3). [ 1049 ] For all these reasons, in respect of the payment by the Appellant of the Feasibility Study Costs, I find that subsection 56(2) does not apply to include any amount in computing [NAME_43].’s income. Therefore, paragraph 214(3)(a) does not apply to deem a dividend having been paid to [NAME_43]. by a corporation resident of Canada for Part XIII tax purposes. [ 1050 ] Further, for the following reasons, I find that subsection 246(1) does not apply to the payment of the Feasibility Study Costs by the Appellant. [ 1051 ] One of the requirements for the application of subsection 246(1) would be to find that the Appellant conferred a benefit, directly or indirectly, by any means whatsoever, on [NAME_43]. by paying the Feasibility Study Costs. [ 1052 ] For the same reasons as outlined above regarding subsection 56(2), I find that no benefit was conferred by the [NAME_316]. by paying the Feasibility Study Costs. Therefore, in the case at bar, subsection 246(1) does not apply. Signed this 6 th day of March 2026. “[NAME_6]” [NAME_8] J. APPENDIX A: CONSENT TO

JUDGMENT APPENDIX B: ALASKAN GAS PIPELINE AGREEMENT APPENDIX C: PARTIAL ASSIGNMENT AND COST ALLOCATION AGREEMENT APPENDIX D: PARTIAL AGREED STATEMENT OF FACTS APPENDIX E: READ-INS The Rules provide as follows: 100(1) At the hearing, a party may read into evidence as part of that party’s own case, after that party has adduced all of that party’s other evidence in chief, any part of the evidence given on the examination for discovery of (a) the adverse party, or (b) a person examined for discovery on behalf of or in place of, or in addition to the adverse party, unless the judge directs otherwise, if the evidence is otherwise admissible , whether the party or person has already given evidence or not. … (3) Where only part of the evidence given on an examination for discovery is read into or used in evidence, at the request of an adverse party the judge may direct the introduction of any other part of the evidence that qualifies or explains the part first introduced. (3.1) A party who seeks to read into evidence under subsection (1) or who requests the judge to direct the introduction of evidence under subsection (3) may, with leave of the judge, instead of reading into evidence, file with the Court a photocopy or other copy of the relevant extracts from the transcripts of the examination for discovery, and when the copy is filed such extracts shall form part of the record. 100(1) [NAME_170] peut, à l’audience, consigner comme élément de sa preuve, après avoir présenté toute sa preuve principale, un extrait de l’interrogatoire préalable : a) de la [NAME_170] opposée; b) d’une [NAME_171] interrogée au préalable au nom, à la place ou en plus de la [NAME_170] opposée, sauf directive contraire du juge, si la preuve est par ailleurs admissible et indépendamment du fait que cette [NAME_170] ou que cette [NAME_171] ait déjà témoigné. … (3) Si un extrait seulement d’une déposition recueillie à l’interrogatoire préalable est consigné ou utilisé en preuve, le juge peut, à la demande d’une [NAME_170] opposée, ordonner la présentation d’autres extraits qui la nuancent ou l’expliquent. (3.1) Au lieu de consigner en preuve des extraits de l’interrogatoire préalable en vertu du paragraphe (1) ou de demander au juge d’ordonner la présentation d’autres extraits en vertu du paragraphe (3), la [NAME_170] intéressée peut, avec l’autorisation du juge, déposer auprès de la [NAME_172] une copie ou une photocopie des extraits pertinents de la transcription de cet interrogatoire; les extraits de copies ou de photocopies ainsi déposés font [NAME_170] du dossier. [Emphasis added.] I propose to use the broad categories identified by the Respondent in its written trial submissions dated June 27, 2025 (pp. 53 and following), to discuss the arguments raised by the Respondent and the Appellant. As indicated by the Court in [COMPANY_325]. v. The Queen , 2019 [NAME_35] 157, even if I accept these read-ins as evidence, that does not mean that I accept the evidence as provided in the read-ins: [53] Generally, when a party reads into evidence extracts of an examination for discovery of the other side, those extracts become evidence which the party reading them in adopts. The trial judge is not bound to accept these admissions, and may assess all the evidence at trial in determining what use to make of the read-ins. Analysis:

1) Reassessment timing and the Minister’s positions under the Act : Exhibit A‑21, tabs 4, 5, 6, 8, 9, 10, 13, 14, 15, 16, 17, 18, 19, 20, 21, 90, 163, 164, 165 and 168 According to the Respondent, these read-ins are of negligible value because the Partial Agreed Statement of Facts already sets out the relevant assessment history in this appeal. Further, as indicated by the Respondent, the issue in an appeal to this Court is the validity and correctness of an assessment and not of the process by which the Minister came to an assessment ( [NAME_326]. , 2004 FCA 403, at paras 7-8; [NAME_327] v. Canada , 2013 FCA 20, at paras 31-33). However, the Appellant argues that these read-ins provide important context to their statute-barred arguments under subsection 152(4). For this reason, and because the above-listed read-ins are otherwise admissible evidence, they will form part of the evidential record, together with the contextual read-ins of the Respondent under tab 1 of Exhibit R-24, for read-ins under tabs 8, 9 and 10 of Exhibit A-21. 2) [NAME_328] : Exhibit A-21, tabs 41, 42, 43, 46, 47, 48, 68, 88, 92, 114, 121, 122, 140, 143, 145, 150, 151, 152, 153, 154, 160, 161, 167, 175, 176, 234 According to the Respondent, these read-ins relate to whether inquiries were made to the Appellant, whether documents were provided to the Canada [NAME_27] ( “[NAME_302]” ), and whether these were exchanged between various [NAME_302] groups. Given that the above-listed read-ins are otherwise admissible evidence, they will form part of the evidential record.

3) Nominee Review and Minister’s Assumptions : Exhibit A-21, tabs 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 45, 50, 60, 61, 62, 63, 65, 66, 67, 97, 98, 99, 100, 103, 104, 105, 106, 107, 108, 109, 110, 115, 117, 118, 119, 123, 124, 125, 126, 128, 129, 130, 131, 132, 134, 135, 136, 137, 138, 141, 142, 144, 146, 149, 159, 166, 192, 257, 264, 266, 267, 269 These read-ins relate to the personal understanding of the Respondent’s nominee, and the general understanding and assumptions of the Minister throughout the audit and appeal process. The Respondent asserts again that the process by which the Minister came to an assessment is not within the jurisdiction of this Court and furthermore, the assumptions of facts relied upon by the Minister to make the reassessment and assessment under appeal are set out in the Reply. Because the above-listed read-ins are otherwise admissible evidence, they will form part of the evidential record, together with the contextual read-ins of the Respondent under tab 2 of Exhibit R-24, for read-ins under tab 30 of Exhibit A‑21.

4) Redundant Confirmation Regarding Assertions of Facts : Exhibit A-21, tabs 34, 35, 36, 37, 38, 148, 270 and 291 According to the Respondent, these read-ins are of negligible relevance and should be given no weight as they confirm the Respondent or the Minister is not making assertions of facts which contradict facts that have been agreed upon between the parties. Because the above-listed read-ins are otherwise admissible evidence, they will form part of the evidential record.

5) August 2009 Report : Exhibit A-21, tabs 54, 55, 56, 57, 58, 59, 64, 169, 170, 171, 172, 173, 174, 181, 182, 184, 185, 186, 187, 189, 195, 196, 197, 198, 199, 200, 201, 202, 203, 204, 205, 206, 207, 208, 210, 211, 212, 213, 214, 215, 216, 217, 218, 219, 220, 221, 222, 223, 224, 225, 226, 227, 228, 229, 230, 235, 236, 237, 239, 240, 241, 242, 243, 244, 245, 246, 247, 248, 249, 250, 251, 256, 257, 258, 259, 260, 261, 262, 264, 267, 269, 271 and 272 These read-ins relate to a report marked as evidence under [NAME_39], tab 154, as the “August 2009 Report” . The August 2009 Report is a transfer pricing analysis authored by [NAME_329] and [NAME_331], being [NAME_302] officers. [NAME_329] and [NAME_331] are economists. The August 2009 Report formed the basis of several of the Minister’s assumptions found in the Reply. The read-ins relate more specifically to the economists’ understanding of the facts, the qualifications of the authors, and give details as to the assumptions. However, at the hearing, although the August 2009 Report was adduced in evidence, the Respondent acknowledged that it did not rely on this report for evidence. Rather, the Respondent retained an independent transfer pricing expert, namely [NAME_282], to give an opinion to the Court on the transfer pricing rules. According to the Respondent, the August 2009 Report is of little relevance given that the Respondent did not rely on it and should be given no weight by the Court. However, the Appellant’s transfer pricing experts relied on the August 2009 Report. Further, the August 2009 Report forms the basis of several assumptions of fact made by the Minister found in the Reply. The Respondent acknowledged the connection the August 2009 Report has with many assumptions.

For these reasons, and because the above-listed read-ins are otherwise admissible evidence, they will form part of the evidential record.

6) Positions Taken by the Respondent on Truth of Contents and in Law : Exhibit A-21, tabs 71, 101, 110, 112, 113, 120, 127, 133, 139, 147, 155 and 191 These read-ins relate to whether the Respondent takes issue with the truth of the content of some research documents, some of which were adduced in evidence under [NAME_39], and to whether the Respondent alleges a sham in this appeal. Because the above-listed read-ins are otherwise admissible evidence, they will form part of the evidential record. However, I am not giving any weight to these read-ins. As indicated by the Respondent, the issues were defined by the pleadings, and no sham argument was made by the Respondent.

7) Answers Primarily Entering Documents : Exhibit A-21, tabs 75, 86, 96, 178, 291, 324 and 325 These read-ins relate to answers by which various documents were produced at discovery (tabs 75, 86, 96, 149 and 178), and also include requests to admit the authenticity of some documents (tabs 324 and 325) and one request to admit the truth of certain facts (tab 291). As indicated by this Court in 4145356 [COMPANY_333] v. The Queen , 2010 [NAME_35] 613, it would not be appropriate to enter documents by way of read-ins without a witness testifying on them: [15] …. As noted by Justice Quinn in 1224948 [COMPANY_334]. v. 448332 [COMPANY_334]. , supra , the documents introduced at the discovery (the transcript and the two affidavits in that case) would be “properly the subject of read-ins under that rule provided, however, that they are ‘otherwise admissible’ pursuant to the rules of evidence governing trials”. Therefore the documents must be admissible documents pursuant to the rules of evidence governing trials in order to be introduced as documents at the hearing. … [33] A party may only read into evidence “any part of the evidence given on the examination for discovery”. Only evidence may be read in at the hearing. In Black’s Law Dictionary, Ninth Edition, “evidence” is defined as: Something (including testimony, documents and tangible objects) that tends to prove or disprove the existence of an alleged fact. [34] In a dissenting judgment in R. v. Schwartz , [1988] 2 S.C.R. 443, then Chief Justice Dickson stated certain general principles. There is no indication that the majority of the Justices of the Supreme Court of Canada disagreed with the general principles as expressed by then Chief Justice Dickson. In his judgment, then Chief Justice Dickson stated that: 59 One of the hallmarks of the common law of evidence is that it relies on witnesses as the means by which evidence is produced in court. As a general rule, nothing can be admitted as evidence before the court unless it is vouched for viva voce by a witness. Even real evidence, which exists independently of any statement by any witness, cannot be considered by the court unless a witness identifies it and establishes its connection to the events under consideration. Unlike other legal systems, the common law does not usually provide for self-authenticating documentary evidence. 60 Parliament has provided several statutory exceptions to the hearsay rule for documents, but it less frequently makes exception to the requirement that a witness vouch for a document. For example, the Canada Evidence Act provides for the admission of financial and business records as evidence of the statements they contain, but it is still necessary for a witness to explain to the court how the records were made before the court can conclude that the documents can be admitted under the statutory provisions (see ss. 29(2) and 30(6)). Those explanations can be made by the witness by affidavit, but it is still necessary to have a witness....

For these reasons, the read-ins found at tabs 75 and 86 with the attached documents should not form part of the evidential record. Further, read-ins found at tabs 291, 324 and 325 will also not form part of the evidential record. However, the documents attached to the read-ins are already part of the evidential record, having been marked as [NAME_39], Joint Book of Documents, tabs 125, 131 and 133 respectively. In addition, read-ins found at tabs 96 and 178 shall not form part of the evidential record, as the documents referred to in these read-ins were already marked as evidence under [NAME_39], Joint Book of Documents, tabs 108, 128, 129, 130, 134 as well as tab 126, respectively. Finally, the T401 Income Tax Report on objection ([NAME_39], Joint Book of Documents, tab 155) was also already marked as evidence.

8) Other [NAME_302] : Exhibit A-21, tabs 76, 81, 82, 83, 87, 89, 102, 156, 157, 158, 162, 190, 263 and 264 These read-ins relate to statements or work products of [NAME_302] appeal officers or of [NAME_302] auditors other than the Respondent’s nominee for purposes of discovery. Although the issue for the Court does not include the process by which the Minister came to an assessment or reassessment, because the above-listed read-ins are otherwise admissible evidence, they will form part of the evidential record. However, I am not giving any weight to these read-ins. CITATION: 2026 [NAME_35] 42 COURT FILE NO.: 2017-5069(IT)G STYLE OF CAUSE: [COMPANY_2] v. HIS [NAME_5] OF HEARING: Calgary, Alberta and Montreal, Quebec DATES OF HEARING: April 7, 8, 9, 10, 11, 14, 15 and 16, May 26, 27, 28, and 29, June 2, 3, 4, 5, 6, 9, 10 and 11, and July 3 and 4, 2025

REASONS FOR

JUDGMENT BY: The [NAME_6] DATE OF

JUDGMENT: March 6, 2026 APPEARANCES: Counsel for the Appellant: [redacted] [NAME_340] Counsel for the Respondent: [redacted] [NAME_21] [NAME_24] COUNSEL OF RECORD: For the Appellant: [redacted] [NAME_9] [NAME_340]: [NAME_335]. For the Respondent: [redacted]