Canada vs Cameco Corp, Aug 2017, Federal Court, Case No T-856-15

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In relation to ongoing audits regarding transfer payments, the tax authorities asked the Court to order approximately 25 personnel from Cameco Corporation and its wholly owned subsidiaries to be made available for interview regarding Cameco’s 2010, 2011, and 2012 income tax years.

It was confirmed in Court that Cameco has complied with all audit requests related to the relevant years except the refused request for oral interviews. Cameco has agreed to written questioning by the Minister, but not oral interviews.

The Court dismissed the application.

A compliance order…can only be issued if the Minister proves that Cameco did not comply with section 231.1 of the ITA. Cameco has provided the Minister with every opportunity to inspect, audit and examine their books, records and documents and to inspect their property. The Minister confirmed that Cameco has allowed such access, save the requested oral interviews. Cameco has not allowed the oral interviews that they had done in previous years given the numbers requested and the fact that the subject matter of the audit is similar, if not identical as the ongoing litigation before the Tax Court of Canada.

Chief Justice Noël, writing for the Federal Court of Appeal in BP Canada Energy Company v Canada (National Revenue), 2017 FCA 61 [BP], agreed that the Minister is not vested with unlimited audit powers. The issue in BP was a request by the Minister for production of tax accruing working papers. Chief Justice Noël found at paragraph 80 that when subsection 231.1(1) of the ITA is interpreted, it does not make the TAWPs compellable without restriction as it was “…clear that Parliament intended that the broad power set out in subsection 231.1 (1) be used with restraint when dealing with TAWPs…” He went on to explain that the context of subsection 231.1(1) “is the notion of self-assessment which is at the root of the compliance system put in place under the Act. The system is one of self-assessment because the person who generates income is best positioned to identify compute and report the amounts that are subject to tax under the Act.” However, he then concluded that this self-assessment does not “require taxpayers to tax themselves on amounts which they believe not to be taxable” (BP at paras 81 and 82). He held that in conducting audits the Minister is to be provided with “all reasonable assistance” in performing their audits (paragraph 231.1(1)(d) of the ITA), and that they cannot compel taxpayers to reveal their “soft spots” (BP at para 82). In the context of obligations on publically traded corporations under provincial securities legislation that “Parliament could not have intended to vest the Minister with a power so sweeping that it would undermine those obligations” (BP at para 86). Chief Justice Noël found that the Minister cannot use subsection “231.1(1) for the purpose of obtaining general and unrestricted access to those parts of BP Canada’s tax reserve papers which reveal its uncertain tax positions” (BP at para 99).

I acknowledge the difference between access to TAWPs and a right to orally interview a large number of employees. However, the Minister puts forward here a wide interpretation of an already powerful tool similar to that suggested in BP. Chief Justice Noël did not find in BP that the section was so wide as to compel a taxpayer to show its “soft spots” when being audited. In this case I find that that subsection 231.1(1) of the ITA is not so wide as to compel an indeterminate number of people for oral interviews.

paragraph 231.1(1)(d) of the ITA does not provide the Minister with an unlimited right to conduct oral interviews of Cameco employees. To do so would ignore the mid-amble of the section which expressly restricts assistance for the purposes of allowing the Minister to “inspect, audit or examine” the books, records, documents and property of Cameco.”

“In order to avoid redundancy, the Court must attribute a meaning and function to the words “and for those purposes” over and above what is expressed in the balance of the provision. Those purposes are the inspection, audit or examination of books, records, documents or property. The Minister’s argument that “inspect, audit and examine” in paragraph 231.1(1)(a) necessarily includes the authority to ask questions of a taxpayer would render paragraph 231.1(1)(d) redundant. If the Minister were correct, there would be no need for a provision like paragraph 231.1(1)(d). The presumption against tautology militates against this interpretation (Placer Dome Canada Ltd v Ontario (Minister of Finance), 2006 SCC 20 at paras 45 and 46).

“Parliament could not have intended for there to be no restraint on how the Minister questions employees of a corporation. The unique and compelling facts of this case include: a) the same issue (transfer pricing) spanning numerous years; b) Cameco coming to court with clean hands having complied with all requests including a number of oral interviews in previous years; c) the number of interviews proposed and the compromise position that Cameco presented; d) the Tax Court of Canada currently hearing the transfer pricing case for other years”

“The order the Minister seeks does not meet the principle of proportionality. The related litigation before the Tax Court of Canada will likely resolve most of the issues that would form the basis of the requested interviews. The time and cost involved in allowing the Minister to interview more than 25 Cameco personnel scattered across the world is not proportional to the information being sought since the Tax Court of Canada will determine the issues that are the focus of the requested interviews.”

The decision of the Federal Court has been appealed by the tax authorities to the Federal Court of Appeal.

Canada vs Cameco Corp, 10 Aug 2017, FCC, Case No T-856-15

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