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www.lexpert.ca/usguide-corporate/ | LEXPERT • June 2016 | 15 dinated initiatives by individual countries that were implemented by bureaucrats far from the public view," Boidman says. "There has never been such an intense international consultation – one that could reasonably be labeled as a crusade – aimed at stamping out international tax planning, and it's being played out on the front page with the politicians supporting the bureaucrats." Indeed, McCue believes that BEPS's greatest impact will occur outside their actual implementation in individual countries. "The talk about cooperation is already putting a considerable chill on tax planners," McCue says. "The situation is akin to that when the general anti-avoidance rule was proposed in Canada: the greatest effect occurred while the proposals were looming." Stephen Ruby of Davies Ward Phillips & Vineberg in Toronto concurs. "Any responsible tax practitioner in Canada is already taking BEPS into account," he says. "When doing cross-border tax planning, for example, they're trying to build in flexibility or an escape route so they can bail out of the plan or pull the strings without inducing adverse tax consequences if a BEPS measure that upsets the plan is implemented." DOES CRA OWE TAXPAYERS A DUTY OF CARE? The Québec Court of Appeal's recent award of $2.4 million, including $1 million in punitive damages, in favor of a company destroyed by Revenu Québec's abuse of its powers has gone a long way to imposing a duty of care on Canadian fiscal authorities. "It will now be easier for businesses and individuals to argue that the Canada Revenue Agency and other tax authorities must administer the law in good faith and refrain from behavior that is abusive or irrational," says Martin Sorensen of Bennett Jones in Toronto. To be sure, Agence du revenu du Québec c. Groupe Enico inc. turned on the duty of good faith enshrined in Québec's Civil Code. But the decision is in line with two common-law rulings on the point: both the Federal Court of Appeal's decision in Canada v. Scheuer, released just weeks before Enico, and the BC Supreme Court's 2014 judgment in Leroux v. Canada Revenue Agency, af- firmed that the CRA has a duty of care to taxpayers. "Generally speaking, the duty of care is well known to the com- mon law and the principles discussed in Enico are similar to those dealt with in Leroux," Sorensen says. The decisions might make the CRA and other tax author- ities somewhat easier to deal with because they suggest that the Agency is not at liberty to intimidate and threaten taxpayers as it chooses and has a responsibility to take appropriate care in decid- ing to take steps against them. "These decisions should over time result in a difference in the way the CRA treats taxpayers and their rights," says tax lawyer David Rotfleisch of Rotfleisch & Samulovitch Professional Cor- poration in Toronto. Still, Sorensen is careful to point out that Enico featured "out- rageous" facts, including information withheld from the taxpay- er, destroyed notes, lost evidence, auditors operating under false pretenses, fraudulent entries in Revenu Québec working papers and revelations about "quotas" imposed on tax personnel. "The evidence also showed that Revenu Québec continued to seize assets even after it knew that the assessments against Enico were grossly inflated," Sorensen says. "It was a perfect storm of facts in favor of a duty of care." Indeed, both Scheuer and Leroux demonstrate that winning in principle doesn't mean winning in substance. In Scheuer, the tax- payers, who had purchased tax shelters, had their case dismissed because the FCA held that the duty of care does not extend to warning investors about the potential dangers of tax shelters even when the CRA has cause for concern about particular schemes. The court did, however, give the investors leave to change their pleadings so as to assert a lawful basis for their claims. The BC case involved Irvin Leroux, a Prince George business- man, who fought a 19-year battle seeking compensation against the CRA for wrongfully imposing tax assessments that exceeded $1 million. During its audit, the CRA took original documents without authorization, shredded them accidentally, and then asked Leroux to provide further documentation. Even after the CRA reduced the assessment, Leroux continued his claim for compensation, alleging that the Agency's actions had caused him to lose his business. The Canadian Taxpayers Federation supported Leroux in his fight. Leroux won the battle but lost the war. Tax professionals called the BC court's ruling a milestone for taxpayers seeking to hold the CRA accountable for its actions. The hard facts, however, are that not only did Leroux fail in his drive to receive compensation, but the court ordered him to pay the CRA's legal fees as well. The case has now settled on appeal with Leroux paying $10 for fees. The key difference between the results in Leroux and Enico is that the BC court found that the CRA's actions did not cause Le- roux's losses. By contrast, the Québec Court of Appeal found a di- rect link between the CRA's conduct and the collapse of Enico's business, which had grown substantially and enjoyed more than $5 million in sales before the CRA came along. The lessons to be learned? "Enico opens a small window in egregious cases and perhaps cases in which CRA assessments and conduct run contrary to its own internal policies," Sorensen says. "The key principle [in the BEPS recommendations] is that profits should be located where value is created and where economic activity actually takes place." Carrie Smit Goodmans LLP TAX

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