Suppose Air Canada collects a US travel tax on your plane fare, should you be able to get it back by suing Air Canada in Ontario?
Canadian Courts, as a general rule, won’t enforce US tax laws in Canada. In this case, Air Canada passengers sued Air Canada for improperly collecting US travel taxes on their plane fares. The Ontario Court of Appeal put the class action on hold until the passengers exhausted their rights in the US by first applying to the IRS for a refund and, if it refuses, appealing to the US Courts.
“[71] In this case, where the intrusion on Canadian sovereignty is not self-evident, we should operate from a presumption that a foreign state does not intend to infringe upon Canadian sovereignty by attempting to regulate persons or conduct within our territory. Before we engage in the interpretation of foreign revenue law which is said to have that effect, we ought to require the party alleging infringement to raise the issue in the appropriate forum in the foreign state. This achieves the goals of order, fairness, efficiency and comity, which are the bedrock of the forum non conveniens analysis.
“[72] As a matter of comity, the interpretation of this U.S. statute, including its intended scope, should be undertaken by agencies and courts in the U.S. I would therefore stay this proceeding pending pursuit of the appellants’ remedies in the United States. They should be required to apply to the IRS for a refund of the taxes in question. This will require the IRS to determine whether, in the factual circumstances of these cases, Air Canada over-reached the intended scope of the Code. If the answer is “yes”, the appellants may recover the taxes and there may be means to ensure that other class members obtain redress, either in the U.S. or by moving to lift the stay in this action.
“[73] If the answer is “no”, they will have the right to challenge the IRS decision in the U.S. Federal Court or the U.S. Court of Federal Claims, which are, and should be, the arbiters of U.S. law. Again, if one of those courts determines they are entitled to recover some or all of the taxes, they will have their remedies.
“[74] If the U.S. court affirms the decision of the IRS that some or all of the taxes are payable, the Ontario court will have the benefit of those determinations, and the reasons for them, should it be called upon to decide whether the collection of the taxes is a violation of the principles governing the conduct of sovereign states and an extra-territorial application of U.S. law in Canada.”
See Prince v. ACE Aviation Holdings Inc., (2014 ONCA Strathy)