Bayer Inc, is a Canadian subsidiary of Bayer AG Germany. Bayer is a multinational group of companies in the pharmaceutical and life sciences industry .
Since 2016, the Canada Revenue Agency has been auditing Bayer Inc. 2013-2015 taxation years.
Between December 2017 and August 2018, the CRA made a series of requests to Bayer Canada for copies of agreements that had been negotiated at arm’s length with respect to the activities that are being examined in the audit.
On August 21, 2018, the CRA issued Query No 17 to Bayer Canada, in which it revised its previous requests as follows:
Pursuant to our discussion on July 18, 2018, we would like to audit agreements made between any member of the Bayer Group with third party(s) in force during the 2013 and 2014 taxation years that perform some or all of the following activities in regards to pharmaceutical products:
‐ Are located in an Organization for Economic Cooperation and Development (“OECD”) member nation;
‐ Perform research and development (clinical trial level stage II, III and/or IV, inclusive);
‐ Perform regulatory compliance activities (notice of compliance, product labelling verification, etc.);
‐ Perform client and corporate product support;
‐ Perform quality control and assurance activities;
‐ Regional marketing and sales activities (e.g. detailing, medical affairs);
‐ Chain supply management activities (e.g. purchasing. distribution);
‐ Price negotiations with local regulatory bodies;
‐ Price negotiations with the public (e.g. provincial formularies) and private (e.g. insurance companies) funding bodies.
Please provide a matrix of no less than 50 contracts that meet some or all of the criterion [sic] listed above, and make sure activities contemplated in the agreements are highlighted, so that CRA can select contracts for further review.
On November 14, 2018, the Minister of National Revenue issued a Requirement to provide foreign-based information or documents pursuant to 231.6(2) of the ITA. The Requirement was significantly broader in scope than the previous requests.
Bayer Inc took the position that the requested documents were irrelevant to the audit and applied for a judicial review of the requirement pursuant to s 231.6(4) of the ITA.
Judgement of the Court
The application for judicial review was allowed. The court concluded that Bayer was required to provide the documentation identified in Query No 17 dated August 21, 2018. But, the scope of the Requirement was limited to the agreements with the 21 named pharmaceutical and life sciences companies that operate at arm’s length from the Bayer Group.
The court clarified that the sole constraint placed on the Minister of National Revenue was that a rational connection must exist between the information sought and the administration and enforcement of the ITA (Saipem at para 26)
“Parliament intended to give the Minister far‑reaching powers under section 231.6 to obtain information available outside of Canada. The Minister need only show that it is relevant to the administration or enforcement of the Act. The taxpayer is protected from abusive use of the provision through the power of a judge to review the requirement. The respondent’s requirement was not an abuse of the process nor was the request unreasonable.”