LEXPERT MAGAZINE
|
JUNE 2016 57
| TAX LITIGATION |
quently at this level," says Claire Kennedy
of Bennett Jones in Toronto. "Increasingly,
the CRA is leaving it to taxpayers to resolve
matters on appeal as opposed to coming up
with something fair and reasonable at the
audit stage."
Michael Lubetsky of Davies Ward in
Toronto says that the growth in tax dis-
putes is partly the result of a double-edged
sword. "On the one hand, there's certainly
a perception that the CRA has become
increasingly aggressive and offering a lot
of incentives for auditors to step up their
assessments," he says. "At the same time,
there have been cutbacks on the availability
of technical advisors to assist auditors who
are trying to apply what is essentially an in-
comprehensible statute."
e CRA's current structure has also
made it difficult to engage directly.
"Audits are done virtually by remote, ob-
jections are assigned to intake centres on a
random basis as a way of balancing work-
loads and there's more of an emphasis on
written submissions in the appeals protocol
and less face-to-face discussion," says Car-
man McNary, who practises with Dentons
Canada LLP in Edmonton.
At the same time, requests for docu-
mentation from the CRA are becoming
more onerous and probing. "We are seeing
tax authorities, with increasing frequency,
making far-reaching requests where the
burden to the taxpayer outweighs the ben-
efits to the auditors," Suarez says. "Many
of these are of questionable relevance and
need to be pared back."
CRA is also turning its attention to in-
formation traditionally regarded as con-
fidential. A recent decision of the Federal
Court, for example, requiring public com-
panies to disclose the reserves they take for
contingent tax liabilities, has the business
community and its advisors up in arms.
What Minister of National Revenue v.
BP Canada Energy Company does, crit-
ics argue, is requires businesses to provide
CRA with the very ammunition it requires
to challenge a company's tax returns.
"e reason we find the decision so
disturbing is that CRA is looking under
taxpayers' skirts," Rotfleisch says. "It's es-
pecially offensive because the documents
in questions are not being prepared in the
usual course of business as company re-
cords, but as audit requirements."
BP is under appeal, but it's precise-
ly this kind of infighting and the increasing
number of large cases that
has turned the growth of in-
terlocutory proceedings into
one of the more disturbing
developments at the TCC.
"Large cases are a growth
area, so much so that 10 per
cent of the cases we hear in-
volve 90 per cent of the mon-
ey," Rossiter says. "When
you get cases of that size, you
start to get a lot of litigation
at the motions stage."
e court is not happy
about it. "Historically the
TCC has not been a forum
for the procedural wrangling
we see in provincial courts," Brown says.
"So there's a definite trend to judges being
critical of parties who are perceived to en-
gage in obstructionist tactics."
Still, the procedural wrangling is taking
a toll on the traditional collegiality of the
tax litigation Bar.
"ere's a real concern that when pro-
ceedings become as procedurally oriented
as they are substantively oriented, some of
that collegiality gets lost," Robertson says.
For its part, the
TCC is doing its best to
encourage settlement with incentivizing
new costs rules, introduced some two years
ago, and a proactive approach to settlement
conferences. e new rules award 80 per
cent of post-offer actual costs to a party
who makes a settlement offer that the other
party rejects, and the result at trial is better
than the offer.
In an effort to give the rules some teeth,
the Bench has taken a liberal approach to
awarding costs, one based largely on the
principle that the tariff is only a starting
point. e upshot is that costs awards are
beginning to spiral.
"ere's a recent case in which the
Crown asked for $535,000 in costs and the
court awarded $475,000," Kepes says. "But
for the longest time costs were a secondary
consideration because the tariff was so low."
e expectation is that the TCC will see
an increase in settlements and settlements
at an earlier stage.
"Previously, it was hard to get the atten-
tion of Justice Department lawyers, who
are overworked, when we sent in settlement
offers," says Robert McCue, who practises
with Bennett Jones in Calgary. "What the
new rules do is create an incentive to take
a very close look at an earlier stage. Settle-
ment will be discussed much more oen
before the eve of trial, which is when they
tended to happen."
Hopefully, that's what will happen.
Because the rules are changing, and uncer-
tainty abounds.
e main culprit going forward is likely
to be BEPS. e March 2016 federal bud-
get includes various measures aimed at
advancing Canada's commitment to the
OECD initiative. e measures include
limiting treaty benefits by expanding the
application of "back-to-back" interest rules
to apply to payments of rents and royalties,
to limiting "economically similar" arrange-
ments notwithstanding the form of those
arrangements, and to arrangements involv-
ing multiple intermediaries. As well, the
budget has tightened up the "control excep-
tion" to the surplus stripping rules.
Canada will also implement country-
by-country reporting, revise its transfer-
pricing guidance to ensure it meets the
"We are seeing tax authorities,
with increasing frequency, making
far-reaching requests where the
burden to the taxpayer outweighs
the benefits to the auditors.
Many of these are of questionable
relevance and need to be pared back."
STEVE SUAREZ
>
BORDEN LADNER
GERVAIS LLP
