ExxonMobil Wins Tax Court Case in Transfer Pricing Dispute

Landmark ruling allows deduction of $36 million in feasibility study costs

Mar. 21, 2026 at 6:10am

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The Tax Court of Canada issued a judgment allowing ExxonMobil Canada Resources Company's appeal from reassessments related to its 2001 taxation year. The case centered around the deductibility of $36.2 million in feasibility study costs incurred for a pipeline project, as well as the applicability of Part XIII tax. The Tax Court ruled in favor of ExxonMobil on both issues, finding the costs were deductible and that Part XIII tax did not apply.

Why it matters

This case represents the first major transfer pricing dispute in Canada since 2020 and provides important guidance on the application of the transfer pricing rules in the Income Tax Act. The ruling highlights the weight given to expert evidence and the OECD Transfer Pricing Guidelines in such disputes, as well as the separate analyses required for determining a source of income and the applicability of the paragraph 18(1)(a) deductibility limitation.

The details

The case concerned feasibility study costs incurred by ExxonMobil Canada Resources Company (EMCRC) related to evaluating a pipeline project to transport natural gas from Alaska's North Slope to Western Canada and US market hubs. The Canada Revenue Agency had reassessed EMCRC to disallow the $36.2 million deduction, arguing the costs were not incurred for the purpose of gaining or producing income, and that the transfer pricing rules applied to limit or deny the deduction. The Tax Court rejected these arguments, finding EMCRC had a valid business source of income related to the pipeline project and that the transfer pricing provisions did not apply based on the expert evidence presented.

  • The Tax Court issued its judgment on March 6, 2026.
  • The hearing of the appeal took place over 22 days in 2025.

The players

ExxonMobil Canada Resources Company

A subsidiary of Exxon Mobil Corporation that was assigned a 22.67% participating interest in an Alaskan gas pipeline project.

Canada Revenue Agency

The federal tax authority that reassessed ExxonMobil Canada Resources Company and sought to disallow the deduction of the feasibility study costs.

Tax Court of Canada

The court that issued the judgment allowing ExxonMobil Canada Resources Company's appeal.

Bennett Jones LLP

The law firm that advised ExxonMobil Canada Resources Company, including lawyers Jehad Haymour, Sophie Virji, and Anna Lekach.

Exxon Mobil Corporation

The parent company of ExxonMobil Canada Resources Company.

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What they’re saying

“The Judgment provides a well-reasoned analysis of the transfer pricing legislation in the Income Tax Act (Canada) as well as its interplay with the OECD Guidelines. The Judgment highlights the importance of the OECD transactional recognition principle, the building blocks that make up a transfer pricing analysis, and the weight that may be afforded to expert evidence in Tax Court transfer pricing disputes in light of these two factors.”

— Jehad Haymour, Partner, Bennett Jones LLP

What’s next

The judge in the case will decide on Tuesday whether or not to allow Walker Reed Quinn out on bail.

The takeaway

This case highlights the importance of expert evidence and adherence to OECD transfer pricing principles in resolving complex tax disputes in Canada. It also underscores the separate analyses required for determining deductibility and the application of the transfer pricing rules.