Paletta et al v. The Queen, Case
Study1
In a recent case, the Tax Court of Canada was faced with
deciding if the taxpayer's investment in a Hollywood film was
"make believe" or real. In other words, did the complex
series of transactions reflect the true intentions of the parties
or were they a "sham".
Angelo Paletta and a family-owned corporation, Paletta
International Corporation, (respectively, the individual and
corporate "Taxpayers") claimed approximately CDN$200
million in business losses from investing in two limited
partnerships (the "LPs") established to acquire, exploit
and monetize two feature films produced by Twentieth Century Fox
Film Corporation ("Fox"). The LPs purchased the copyright
in the two films through capital contributions by the Taxpayers of
about CAD$8 million with the balance funded by loans arranged
through a complicated series of circular transactions. Fox agreed
to distribute the films and the LPs agreed to incur the costs of
over
