Date:
20130529
Docket:
T-788-11
Citation:
2013 FC 572
BETWEEN:
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TELETECH CANADA, INC.
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Applicant
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and
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MINISTER OF NATIONAL REVENUE
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Respondent
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REASONS FOR JUDGMENT
MACTAVISH
J.
[1]
TeleTech
Canada Inc. (TeleTech Canada) is seeking judicial review of what it says is the
continuing refusal of the Canada Revenue Agency [CRA] to provide it with relief
from double taxation, allegedly in breach of the CRA’s obligations under
articles IX and XXVI of the Convention between Canada and the United States
of America with respect to Taxes on Income and on Capital, 26 September
1980, Can. T.S. 1984 No. 15, as implemented by the Canada-United States Tax
Convention Act, 1984, S.C. 1984, c. 20.
[2]
In
its application, TeleTech Canada seeks an order of mandamus compelling
the CRA to accept its application for competent authority consideration and to
provide the company with relief from double taxation under Article IX of the
Treaty by submitting the matter to binding arbitration, pursuant to the
provisions of Article XXVI of the Treaty.
[3]
For
the reasons that follow, I have concluded that there has been no “continuing
refusal” on the part of the CRA. Rather, two discrete decisions were made by
the CRA in relation to TeleTech Canada’s requests for relief from
double-taxation, neither of which has been directly challenged by the company.
I have further concluded that TeleTech Canada has not established that it is
entitled to an order of mandamus, with the result that the application
will be dismissed.
The Canada-United
States Tax Convention
[4]
In
order to put this matter into context, it is necessary to first have some
understanding of the Canada-United States Tax Convention [the Treaty].
The Treaty aims to shield taxpayers in the United States and Canada from double taxation. Both countries have designated “competent authorities” to deal
with claims arising under the Treaty. In Canada, the competent authority is the
CRA, whereas in the United States it is the Internal Revenue Service [IRS].
[5]
When
a tax adjustment under the Treaty “is made or to be made” by either the CRA or
the IRS, the competent authority of the other contracting state is to make a
corresponding adjustment if it agrees with the first adjustment, and it was
notified of the first adjustment “within six years from the end of the taxable
year to which the first-mentioned adjustment relates” or, failing compliance
with the notification period, if the case is not statute-barred: Article IX
(3). The relevant provisions of the Treaty are attached as an appendix to this
decision.
[6]
In
the event that the six-year notification period lapses without the
above-mentioned notice being given, the competent authority of the state which
“made or is to make” the first adjustment may nevertheless provide relief from
double taxation: Article IX (4).
[7]
The
Treaty also provides for a Mutual Agreement Procedure [MAP] in situations where
the actions of Canada and/or the US result in taxation that is not in
accordance with the Treaty. The affected taxpayer is to present its case to the
competent authority of the State in which it resides. The taxpayer and the
competent authority then attempt to resolve the case by mutual agreement, if
the prerequisites for the MAP, including timely notification, are met: Article XXVI
(1) through (5).
[8]
If
the competent authorities are unable to reach a “complete agreement”, the case
will then be referred to arbitration: Article XXVI (6) and (7). Arbitration
will not, however, be available if a taxpayer’s request for competent authority
assistance has been denied by the CRA or IRS, or if either competent authority
ceases to provide assistance.
Background
[9]
TeleTech
Canada is a wholly owned subsidiary of an American company known as TeleTech
Holdings Inc. (TeleTech US). The two corporations will be referred to
collectively in these reasons as “the companies”.
[10]
The
companies are in the call-centre business. Following a corporate restructuring
in 2000, the companies reduced their Canadian client base, and TeleTech Canada became a subcontractor of TeleTech US, with TeleTech US providing administrative services to
its Canadian counterpart. The applicant and the respondent do not agree with
respect to the nature and value of these administrative services, and this
disagreement is at the root of the transfer pricing issue between the parties.
[11]
After
the restructuring, accounting staff at TeleTech US prepared financial records
for both companies for the 2000-02 taxation years. However, TeleTech Canada asserts that as a result of internal accounting errors, income and expenses were
improperly allocated as between the two companies, and the companies’ financial
records failed to properly reflect the new corporate structure.
[12]
TeleTech
Canada states that as a result of these errors, its profits for the 2000, 2001
and 2002 taxation years were “dramatically overstated” in its financial
statements and those of TeleTech US were “dramatically understated”. These
accounting errors were then incorporated into the companies’ respective filings
with the CRA and the IRS for the taxation years in question.
[13]
In
2003, TeleTech US commissioned an accounting firm (KPMG) to examine how the
companies should be reporting amounts earned under contracts for the companies’
services (the “transfer pricing study”). TeleTech Canada contends that the
transfer pricing study revealed that it had greatly over-reported its income
for Canadian taxation purposes, and that TeleTech US had correspondingly
under-reported its income for US tax purposes. The companies then took steps to
bring their past tax filings into compliance with Canadian and American tax
laws.
[14]
Before
reviewing the steps taken by the companies to revise their tax filings, it
should be noted that the respondent does not agree with the conclusions of the
transfer pricing study, nor does it accept that the companies’ original tax
filings for 2000-2002 did not comply with the applicable tax laws.
[15]
The
first step taken by the companies to rectify the situation was for KPMG to send
a letter to the CRA on May 5, 2004, on TeleTech Canada’s behalf, requesting a
downward adjustment to TeleTech Canada’s operating profits for the 2000-02
taxation years. In a similar vein, TeleTech US filed amended tax returns with
the IRS to increase its income for these tax years by the same amount as the
decrease sought by TeleTech Canada.
[16]
In
March of 2006, TeleTech Canada withdrew its request for the downward
adjustment. It says that it did so because it believed it would be unable to
pursue relief from double taxation under the Treaty as long as its adjustment
request remained outstanding.
[17]
At
the same time, TeleTech US filed a request under the Treaty with the IRS
seeking relief from alleged double taxation for the 2000-02 taxation years in
the amount of $38.3 million (USD). This request was based upon the filing of
TeleTech US’ amended tax returns. While it is not clear from the record what
the position of the IRS was with respect to this request, it does not appear
that the IRS accepted TeleTech US’ request for competent authority assistance
at this time.
TeleTech
Canada’s First Request & Denial Letter
[18]
By
letter dated May 11, 2006, TeleTech Canada filed a request with the CRA for
competent authority assistance, seeking relief from alleged double taxation
under the Treaty (the First Request). The amounts and tax years referenced in
this First Request corresponded to the amounts and tax years referred to in
TeleTech US’ March, 2006 request to the IRS. Had TeleTech Canada’s request been accepted, it says that it would have resulted in a refund being paid by the
CRA to TeleTech Canada in an amount somewhere between $10-12 million (USD).
[19]
The
respondent submits that, as of 2006, the companies had not been subject to
double taxation because neither the CRA nor the IRS had taken any action that
had resulted in double taxation. The respondent notes that in its request to
the IRS, TeleTech US had itself stated that it did not know whether its amended
tax returns had been processed, and that it had not been contacted by the IRS
for an audit of the amended returns.
[20]
By
letter dated November 10, 2006 (the First Denial Letter), the CRA advised
TeleTech Canada that it “was unable to accommodate your request for competent
authority consideration”. Referring to Information Circular 71-17R5, the CRA
stated that “one of the prerequisites that must exist to request competent
authority consideration is an action by one or both governments that will
result…in taxation not in accordance with the [Treaty]”. The letter goes on to
observe that “[i]n most cases, such an action is an adjustment to, or a formal
written proposal to adjust, income related to a transaction to which the
Canadian taxpayer is a party”.
[21]
Insofar
as TeleTech Canada’s situation was concerned, the CRA observed that “the tax
authorities in Canada and the United States have not taken any action that has
resulted in taxation not in accordance with the [Treaty]”, noting that “[t]he
only actions that [have] been taken have been initiated by TeleTech Canada Inc.
and TeleTech Holdings, Inc.” As a result, the CRA stated that it could not
accept TeleTech Canada’s request for competent authority consideration.
[22]
The
First Denial Letter concludes by stating that “We will reconsider our position
in the event of future compliance activity that may be initiated by either the
Canada Revenue Agency or the Internal Revenue Service”.
[23]
TeleTech
Canada did not seek judicial review of this decision, nor does the record
reveal any further communication between the company and the CRA at this time.
[24]
On
December 13, 2006, the CRA received a letter (dated November 7, 2006) from a
Deputy Commissioner at the IRS which advised that the IRS had “ultimately
assessed” the amended tax returns filed by TeleTech US for the 2000-02 taxation
years and concluded that “the actions taken by both [the IRS and the CRA] have
resulted in taxation that is not in accordance with … the Treaty”. The letter
invited the CRA to participate in a MAP pursuant to Article XXVI of the Treaty.
[25]
The
companies were not aware of this letter at the time that it was sent, and only
learned of its existence when it was produced in the context if this
application for judicial review.
[26]
No
response from the CRA to the IRS’ November 7, 2006 letter has been produced,
and it does not appear that there was any further consideration of TeleTech Canada’s request for competent authority assistance at that time. Indeed, it appears that
the CRA closed its file with respect to this matter.
[27]
In
July of 2008, following an audit of TeleTech US’ amended tax returns, the IRS
made adjustments to TeleTech US’ 2001 and 2002 tax returns. TeleTech US’ gross
income was increased by $6,682,092 (USD) for 2001 and by $4,557,138 (USD) for
2002, for a total increase of $11,239,230 (USD). The IRS disallowed TeleTech
US’ claim for unreported gross income in the amount of $19,772,389 (USD) for
2001, and its claims for the 2000 tax year were disallowed in their entirety.
The 2000 tax year is not in issue in this application.
[28]
In
the wake of the conclusion of the audit, TeleTech US submitted another request
for competent authority assistance with the IRS. This request took the form of
a letter dated August 27, 2009.
[29]
However,
neither TeleTech US nor TeleTech Canada informed the CRA of the results of the
IRS audit at this time, nor did TeleTech Canada renew its request for competent
authority assistance. Indeed, it was only some 18 months later that TeleTech
Canada finally advised the CRA of the results of the IRS audit of TeleTech US, making submissions as to the implications that this allegedly had for potential double
taxation.
[30]
The
respondent states that even if TeleTech Canada had acted promptly to inform the
CRA of the results of the IRS audit, by the summer of 2008, it was already too
late for TeleTech Canada to give notice under the Treaty with respect to its
2001 tax year as the six-year notice period provided for under Article IX
(3)(b) of the Treaty had expired. The respondent further notes that no real
explanation has been provided for TeleTech Canada’s failure to provide notice
of the alleged double taxation for its 2002 taxation year in the summer of
2008.
TeleTech
Canada’s Second Request & Denial Letter
[31]
By
letter dated December 17, 2009, the companies sent the CRA a “Supplemental
Request for Competent Authority Assistance under the U.S.-Canada Income Tax
Treaty” (the Second Request). This document advised the CRA of the outcome of
the 2008 IRS audit of TeleTech US, and sought relief from the double taxation
allegedly resulting from the adjustments that had been made to TeleTech US’ income
by the IRS for the 2001 and 2002 taxation years. This was the first time that
the companies had contacted the CRA after the 2008 IRS audit, although it
appears that the IRS was itself in contact with the CRA in this regard in
October of 2009.
[32]
After
receiving TeleTech Canada’s Second Request, the CRA opened a new file and
assigned a new analyst to the case.
[33]
After
months had passed without a response to its December 17, 2009 letter, and
believing that the CRA was refusing to consider its Second Request, TeleTech
Canada commenced this application for judicial review on May 11, 2011, seeking
an order of mandamus to compel the CRA to accept its application for
competent authority consideration pursuant to Article IX of the Treaty.
However, on the consent of the parties, the application was held in abeyance
pending the CRA’s determination of the Second Request.
[34]
By
letter dated June 9, 2011 (the “Second Denial Letter”), the CRA noted that “one
of the prerequisites” that had to exist in order for a taxpayer to seek
competent authority consideration was government action that resulted or would
result in double taxation. The letter goes on to state that the absence of such
action had led the CRA to inform TeleTech Canada in 2006 that its First Request
for competent authority assistance had not been accepted, that the CRA had not
acknowledged receipt of a competent authority request at that time, and that it
had not acknowledged receipt of notice for the purposes of the Treaty.
[35]
The
Second Denial Letter also stated that the CRA had first received notification
of the government action in this case through the IRS’ October 5, 2009 letter.
As such, the CRA was unable to provide TeleTech Canada with “correlative
relief” as it had not received notification of the “U.S. initiated adjustments”
within the six-year period provided for under Articles XI or XXVI of the Treaty
(that is, within six years from the end of the taxation years in issue, namely
2001 and 2002).
[36]
Finally,
the Second Denial Letter stated that TeleTech Canada’s tax returns were “also
statute barred from reassessment”.
[37]
The
Letter concluded by advising TeleTech Canada that it considered the case to be
closed. The receipt of this letter by TeleTech Canada then led to the
reactivation of this application for judicial review.
The
Subject-Matter of this Application
[38]
It
should be noted that TeleTech Canada’s Notice of Application does not seek
judicial review of either the First or Second Denial Letters. Rather, it refers
to the CRA’s “continuing refusal” to accept its application for competent
authority consideration and to provide it with relief from double taxation
under Article IX of the Treaty.
[39]
The
Notice of Application further states that TeleTech Canada is seeking an order
of mandamus to compel the CRA to accept its application for competent
authority consideration pursuant to Article IX of the Treaty. It also seeks an
order compelling the CRA to provide relief from double taxation by submitting
the matter to binding arbitration, pursuant to the provisions of Article XXVI
of the Treaty.
Issues
[40]
TeleTech
Canada and the respondent frame the issues raised by the application for
judicial review differently. In my view, the dispositive issues can be
summarized as follows:
1. Did
the CRA engage in a continuing course of conduct or does the application for
judicial review relate to discrete decisions?
2. Is it
now open to TeleTech Canada to argue that the CRA erred in requiring, as a
prerequisite to relief, government action resulting in taxation not in
accordance with the Treaty, and in finding that there had been no such action?
3. Is mandamus
available to TeleTech Canada in the circumstances of this case?
4. What
is the effect of the IRS’ November 7, 2006 letter?
1. Did
the CRA engage in a Continuing Course of Conduct or does the Application for
Judicial Review Relate to Discrete Decisions?
[41]
In
examining TeleTech Canada’s application for judicial review, the first issue to
consider is the respondent’s contention that the application does not involve a
continuing course of action on the part of the CRA. According to the
respondent, what is in issue are two discrete decisions, neither of which have
been challenged, and both of which were subject to the 30-day time limit for
judicial review of a decision set out in subsection 18.1 (2) of the Federal
Courts Act, R.S.C. 1985, c. F-7.
[42]
TeleTech
Canada does not accept that the CRA has made two decisions (in 2006 and again
in 2011) rejecting its requests for Treaty assistance. Instead, it describes
the CRA’s actions as a “continuing refusal to consider” its request. As such,
it seeks to have this Court issue a mandamus order to force the CRA to
accept its application for competent authority consideration and to provide it
with relief from double taxation by submitting the matter to binding
arbitration.
[43]
TeleTech
Canada argues that it does not seek to attack any specific “decisions” of the
CRA, but, rather, to compel the performance of a public duty owed to it through
an order of mandamus. I do not accept this argument.
[44]
In
Krause v. Canada, [1999] 2 F.C. 476, [1999] F.C.J. No. 179, the Federal
Court of Appeal had to consider whether the governmental actions in issue in
that case were “decisions” within the meaning of the Federal Courts Act,
and thus subject to the 30-day limitation, or whether they constituted a
continuing course of conduct to which the 30-day rule did not apply.
[45]
The
applicants in Krause took issue with the fact that in certain fiscal
years, the responsible Ministers had failed to credit the Public Service and
Canadian Forces superannuation accounts with amounts allegedly required to be
credited pursuant to pension legislation.
[46]
The
Federal Court of Appeal held that the 30 day time limit only applied where an
application for judicial review was “in respect of a decision or order”. Subsection
18.1(1) of the Federal Court Act
(the predecessor to the current Federal Courts Act), permitted “anyone directly affected by the matter in
respect of which relief is sought” to bring an application for judicial review
(my emphasis). The Court went on to observe that the term ‘matter’ “embraces
not only a ‘decision or order’, but any matter in respect of which a remedy may
be available under Federal Court Act, section 18”.
[47]
The
Court agreed that the applicants in Krause were not attacking a
“decision”, but rather that they were seeking “to compel performance of public
duties [and] prevent continued failure to perform such duties”. The Court
observed that while a policy decision had been made years before not to follow
certain recommendations of the Canadian Institute of Chartered Accountants,
what the applicants were challenging was the ongoing implementation of that
decision in each successive fiscal year. As such, the Court held that there was
no 30 day limit preventing the applicants from seeking relief.
[48]
In
this case, the First Denial Letter issued on November 10, 2006 was clearly an
identifiable “decision” based upon the facts as they stood in 2006: contrast
with Truehope Nutritional Support v. Canada (Attorney General), 2004 FC
658, [2004] F.C.J. No. 806; see also Servier Canada Inc. v. Canada (Minister
of Health),
2007 FC 196, [2007] F.C.J. No. 277 at para. 17. As such, it was
subject to the 30 day time limit for the commencement of an application for
judicial review set
out in subsection 18.1 (2) of the Federal Courts Act.
[49]
The
fact that the First
Denial Letter concludes
with the statement that “[w]e will reconsider our position in the
event of future compliance activity that may be initiated by either the Canada
Revenue Agency or the Internal Revenue Service” does not make the First Denial
Letter any less a “decision” subject to the 30 day time limit.
[50]
Indeed,
the jurisprudence is clear that where a decision is reconsidered based upon new
facts and submissions and a fresh exercise of discretion, it will result in a
new decision which will itself be subject to timely judicial review: Dumbrava v.
Canada (Minister of Citizenship and Immigration), [1995] F.C.J.
No. 1238, 101 F.T.R. 230 at para. 15. The possibility of reconsideration does
not, however, extend
the time in which to challenge the original decision: Didone v. Sakno, 2003 FC 1530, [2003
] F.C.J. No. 1945, aff'd 2005 FCA 62, [2005] F.C.J. No. 296;
Pomfret v.
Canada (Attorney General), 2008 FC 1219, [2008] F.C.J. No. 1535; Moresby
Explorers Ltd. v. Gwaii Haanas National Park Reserve, [2000] F.C.J. No.
1944, 101 A.C.W.S. (3d) 664.
[51]
The
CRA clearly considered TeleTech Canada’s First Request, and rejected it. As a
consequence, I am satisfied
that the
CRA’s First Denial Letter was a final decision in relation to the First
Request, and not merely a step in a continuing course of conduct. If TeleTech Canada was not happy with this decision, it was open to the company to commence an
application for judicial review of the decision. It chose not to do so.
2. Is
it Now Open to TeleTech Canada to Argue that the CRA Erred in Requiring
Government Action Resulting in Taxation not in Accordance with the Treaty and
in Finding that there had been no Such Action?
[52]
TeleTech Canada argues before me that the CRA erred in requiring, as a prerequisite to
competent authority consideration, that there be government action resulting in
taxation not in accordance with the Treaty.
[53]
TeleTech
Canada contends that the CRA also erred in finding that there
had been no government action resulting in taxation not in accordance with the
Treaty at the time of the company’s May, 2006 request for competent authority
consideration. According to TeleTech Canada, adjustments
initiated by a taxpayer, such as the filing of amended tax returns in the United States, should suffice to trigger an obligation on the part of the CRA to
accept a request for competent authority consideration.
[54]
Having
failed to seek
timely judicial review of CRA’s First Denial Letter, that decision
is now final, and TeleTech Canada should not now be permitted to launch a
collateral attack on the CRA’s 2006 determination that an action by one
or both governments that will result in taxation not in accordance with the
Treaty is
a
prerequisite for a request for competent authority consideration.
[55]
A
‘collateral attack’ is “an attack made in proceedings other than those whose
specific object is the reversal, variation, or nullification of the order or
judgment”: R. v. Wilson, [1983] 2 S.C.R. 594, [1983] S.C.J. No. 88 at
599. In accordance with the prohibition on collateral attacks, parties will not
be permitted to question an order made by a court of competent jurisdiction in
any proceeding other than the appeal process applicable to the order: Wilson at 599. See also Danyluk v Ainsworth Technologies Inc., 2001 SCC 44
at para 20; British Colombia Workers' Compensation Board v British Columbia
(Human Rights Tribunal), 2011 SCC 52 at para. 28.
[56]
For
the same reason, having failed to challenge the First Denial Letter, TeleTech Canada should not now be permitted to challenge the CRA’s finding that, as
of November, 2006, neither the Canadian nor the American tax authorities had
taken any action that had resulted in taxation not in accordance with the
Treaty, with the result that the CRA was unable to accept TeleTech Canada’s
request for competent authority consideration.
3. Is
Mandamus Available to TeleTech Canada in the Circumstances of this Case?
[57]
In
considering whether it would be appropriate for this Court to make an order of mandamus
compelling the CRA to accept TeleTech Canada’s application for competent
authority consideration and submit the matter to binding arbitration, it is
important to keep in mind the sequence of events leading up to, and following
the commencement of this application.
[58]
This
application for judicial review was commenced on May 5, 2011, after TeleTech Canada submitted its Second Request on December 17, 2009, and before the CRA issued its
Second Denial Letter on June 9, 2011.
[59]
To
the extent that TeleTech Canada seeks to compel the CRA to make a decision in
relation to its Second Request, the application is now clearly moot. TeleTech Canada received a decision from the CRA in relation to its Second Request, and it was open
to the company to challenge that decision by way of judicial review if it was
not satisfied with the result. It did not do so, nor did TeleTech Canada apply to amend its Notice of Application in this case to seek judicial review of the
Second Denial Letter.
[60]
However,
TeleTech Canada was not just seeking a decision with respect to its
Second Request in its Notice of Application, it was seeking a specific
decision in that regard. That is, what TeleTech Canada was seeking was an
order compelling the CRA to accept its request for competent authority
consideration and submit the case to arbitration.
[61]
First
of all, the
Courts will not generally make an order of mandamus to compel a decision
maker to make a particular decision where the decision-making power is
discretionary in nature: Re O'Grady and Whyte, [1983] 1 F.C. 719; 138
D.L.R. (3d) 167 at 169 (FCA); Herzig v. Canada (Industry), 2002 FCA 36,
[2002] F.C.J. No. 127 at para. 17; Schwarz Hospitality Group Ltd. v. Canada (Minister of Canadian Heritage), 2001 FCT 112, [2001] F.C.J. No. 263 at paras.
33-34. Such is the case here: see Articles IX (1) and (3) of the Treaty, and
paragraph 64 of the CRA Information Circular which specifically provides that
“[t]he granting of relief is at the discretion of the competent authority”.
[62]
It
is, moreover, evident that TeleTech Canada does not have a clear right to have
its case referred to arbitration under Article XXVI of the Treaty as it has not
met a number of the preconditions for arbitration.
[63]
As
a consequence, TeleTech Canada’s application for an order of mandamus is
dismissed.
4. What
is the Effect of the IRS’ November 7, 2006 Letter?
[64]
The
final issue to be addressed is what, if any, effect should be given to the IRS’
November 7, 2006 Letter. This issue was not addressed by TeleTech Canada in its Notice of Application, as the company was not aware of the existence of the
letter at the time that this proceeding was commenced. It was, however,
addressed in TeleTech Canada’s memorandum of fact and law and was argued at
some length by both sides during the course of the hearing. As a consequence, I
am prepared to exercise my discretion and deal with the issue.
[65]
It
will be recalled that in its November 10, 2006 First Denial Letter, the CRA
concluded its decision by informing TeleTech Canada that it would “reconsider
our position in the event of future compliance activity that may be initiated
by either the Canada Revenue Agency or the Internal Revenue Service”. It is
noteworthy that the CRA did not specify how it was to be provided with notice
of “future compliance activity” on the part of the Internal Revenue Service, or
who was to provide the CRA with such notice.
[66]
It
will also be recalled that within approximately one month of having issued its
First Denial Letter, the CRA received the letter from a Deputy Commissioner at
the IRS (which was dated November 7, 2006 but was not received until December
13, 2006). This letter informed the CRA that the IRS had “ultimately assessed”
the amended tax returns filed by TeleTech US for the 2000-02 taxation years,
and that it had concluded that “the actions taken by both [the IRS and the CRA]
have resulted in taxation that is not in accordance with … the Treaty”. The
letter also invited the CRA to participate in a MAP pursuant to Article XXVI of
the Treaty.
[67]
The
IRS letter was not provided to either of the companies, and it appears that
they were not aware that the letter had been sent by the IRS to the CRA. Nor
were the companies aware of the contents of the letter until the record was
produced in connection with this Application.
[68]
Despite
the fact that the CRA had informed TeleTech Canada that it would reconsider its
position in the event that there was future compliance activity on the part of
the IRS, it does not appear that there was any further consideration of
TeleTech Canada’s request for competent authority assistance at that time. No
response to the IRS’ November 7, 2006 letter has been produced, and it appears
that the CRA simply closed its file with respect to this matter.
[69]
Counsel
for the respondent speculated as to possible reasons for the CRA’s failure to
act on the information provided by the IRS in 2006, pointing to what she says
were factual errors in the letter. However, counsel fairly conceded that no
evidence has been provided to explain why the CRA did not reconsider its position
in light of the new information received from the IRS.
[70]
TeleTech
Canada has not argued that there was a breach of procedural fairness in this
matter, or that the CRA’s November 6, 2006 First Denial Letter created a
legitimate expectation on its part as to the process that would be followed in
relation to its request for competent authority consideration.
[71]
Rather,
what TeleTech Canada argues is that even if it was not entitled to competent
authority consideration at the time of the CRA’s First Denial Letter in
November of 2006, the CRA had clearly been made aware that there had been
government action that has resulted in taxation not in accordance with the
Treaty by the time it received the IRS letter in December of that year. As a
result, that the CRA’s finding that there had not been timely notice as set out
in its Second Denial Letter on June 9, 2011 was clearly unreasonable.
[72]
However,
once again, TeleTech Canada is attempting to collaterally attack a CRA decision
that it has not directly challenged by way of judicial review. As a
consequence, I am not prepared to give effect to this argument.
[73]
Before
concluding, I would note that the companies are not necessarily left without a
remedy for the alleged double taxation in this case. It may still be open to TeleTech
US to seek relief from the IRS under the provisions of Article IX (4) of the
Treaty. This provides that “In the event that the six-year notification period
lapses without the above-mentioned notice being given, the competent authority
of the state which ‘made or is to make’ the first adjustment may nevertheless
provide relief from double taxation”.
Conclusion
[74]
For
these reasons, TeleTech Canada’s application is dismissed. In
accordance with the agreement of counsel, the parties shall have 30 days in
which to provide brief written submissions on the question of costs, following
which an order shall issue.
“Anne
L. Mactavish”
Ottawa, Ontario
May 29, 2013
APPENDIX
Convention between
Canada and the United States of America with respect to Taxes on Income and on
Capital,
26 September 1980, Can. T.S. 1984 No. 15
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ARTICLE III
General Definitions
1. For the
purposes of this Convention, unless the context otherwise requires: […]
(g) the term "competent
authority" means:
(i) in the case of Canada, the Minister of National Revenue or his authorized representative; and
(ii) in the case of the United States, the Secretary of the Treasury or his delegate;
[…]
ARTICLE IX
Related Persons
1. Where
a person in a Contracting State and a person in the other Contracting State
are related and where the arrangements between them differ from those which
would be made between unrelated persons, each State may adjust the amount of
the income, loss or tax payable to reflect the income, deductions, credits or
allowances which would, but for those arrangements, have been taken into
account in computing such income, loss or tax.
2. For
the purposes of this Article, a person shall be deemed to be related to
another person if either person participates directly or indirectly in the
management or control of the other, or if any third person or persons
participate directly or indirectly in the management or control of both.
3. Where
an adjustment is made or to be made by a Contracting State in accordance with
paragraph 1, the other Contracting State shall (notwithstanding any time or
procedural limitations in the domestic law of that other State) make a
corresponding adjustment to the income, loss or tax of the related person in
that other State if:
(a) it agrees with the
first-mentioned adjustment; and
(b) within six years from the end of
the taxable year to which the first-mentioned adjustment relates, the
competent authority of the other State has been notified of the
first-mentioned adjustment. The competent authorities, however, may agree to
consider cases where the corresponding adjustment would not otherwise be
barred by any time or procedural limitations in the other State, even if the
notification is not made within the six-year period.
4. In the
event that the notification referred to in paragraph 3 is not given within
the time period referred to therein, and the competent authorities have not
agreed to otherwise consider the case in accordance with paragraph 3(b), the
competent authority of the Contracting State which has made or is to make the
first-mentioned adjustment may provide relief from double taxation where
appropriate.
5. The
provisions of paragraphs 3 and 4 shall not apply in the case of fraud,
willful default or neglect or gross negligence.
[…]
ARTICLE XXVI
Mutual Agreement Procedure
1. Where
a person considers that the actions of one or both of the Contracting States
result or will result for him in taxation not in accordance with the
provisions of this Convention, he may, irrespective of the remedies provided
by the domestic law of those States, present his case in writing to the
competent authority of the Contracting State of which he is a resident or, if
he is a resident of neither Contracting State, of which he is a national.
2. The
competent authority of the Contracting State to which the case has been
presented shall endeavor, if the objection appears to it to be justified and
if it is not itself able to arrive at a satisfactory solution, to resolve the
case by mutual agreement with the competent authority of the other
Contracting State, with a view to the avoidance of taxation which is not in
accordance with the Convention. Except where the provisions of
Article IX (Related Persons) apply, any agreement reached shall be implemented
notwithstanding any time or other procedural limitations in the domestic law
of the Contracting States, provided that the competent authority of the other
Contracting State has received notification that such a case exists within
six years from the end of the taxable year to which the case relates.
3. The
competent authorities of the Contracting States shall endeavor to resolve by
mutual agreement any difficulties or doubts arising as to the interpretation
or application of the Convention. In particular, the competent authorities of
the Contracting States may agree:
(a) to the same attribution of
profits to a resident of a Contracting State and its permanent establishment
situated in the other Contracting State;
(b) to the same allocation of income,
deductions, credits or allowances between persons;
(c) to the same determination of the
source, and the same characterization, of particular items of income;
(d) to a common meaning of any term
used in the Convention;
(e) to the elimination of double
taxation with respect to income distributed by an estate or trust;
(f) to the elimination of double
taxation with respect to a partnership;
(g) to provide relief from double
taxation resulting from the application of the estate tax imposed by the
United States or the Canadian tax as a result of a distribution or
disposition of property by a trust that is a qualified domestic trust within
the meaning of section 2056A of the Internal
Revenue Code, or is described in subsection 70(6) of the Income Tax Act or is treated as such under
paragraph 5 of Article XXIX B (Taxes Imposed by Reason of Death), in cases
where no relief is otherwise available; or
(h) to increases in any dollar
amounts referred to in the Convention to reflect monetary or economic
developments.
They may also
consult together for the elimination of double taxation in cases not provided
for in the Convention.
4. Each
of the Contracting States will endeavor to collect on behalf of the other Contracting State such amounts as may be necessary to ensure that relief granted by the
Convention from taxation imposed by that other State does not enure to the
benefit of persons not entitled thereto. However, nothing in this paragraph
shall be construed as imposing on either of the Contracting States the
obligation to carry out administrative measures of a different nature from
those used in the collection of its own tax or which would be contrary to its
public policy (ordre public).
5. The
competent authorities of the Contracting States may communicate with each
other directly for the purpose of reaching an agreement in the sense of the
preceding paragraphs.
6. Where, pursuant to a mutual
agreement procedure under this Article, the competent authorities have
endeavored but are unable to reach a complete agreement in a case, the case
shall be resolved through arbitration conducted in the manner prescribed by,
and subject to, the requirements of paragraph 7 and any rules or procedures
agreed upon by the Contracting States by notes to be exchanged through
diplomatic channels, if:
(a)
Tax returns have been filed with at least one of the Contracting States with
respect to the taxable years at issue in the case;
(b)
The case:
(i)
Is a case that:
(A)
Involves the application of one or more Articles that the competent
authorities have agreed in an exchange of notes shall be the subject of
arbitration; and
(B)
Is not a particular case that the competent authorities agree, before the
date on which arbitration proceedings would otherwise have begun, is not
suitable for determination by arbitration; or
(ii)
Is a particular case that the competent authorities agree is suitable for
determination by arbitration; and
(c)
All concerned persons agree according to the provisions of subparagraph 7(d).
7. For the purposes of paragraph
6 and this paragraph, the following rules and definitions shall apply:
(a)
The term “concerned person” means the presenter of a case to a competent
authority for consideration under this Article and all other persons, if any,
whose tax liability to either Contracting State may be directly affected by a
mutual agreement arising from that consideration;
(b)
The “commencement date” for a case is the earliest date on which the
information necessary to undertake substantive consideration for a mutual
agreement has been received by both competent authorities;
(c)
Arbitration proceedings in a case shall begin on the later of:
(i)
Two years after the commencement date of that case, unless both competent
authorities have previously agreed to a different date, and
(ii)
The earliest date upon which the agreement required by subparagraph (d)
has been received by both competent authorities;
(d)
The concerned person(s), and their authorized representatives or agents, must
agree prior to the beginning of arbitration proceedings not to disclose to
any other person any information received during the course of the
arbitration proceeding from either Contracting State or the arbitration
board, other than the determination of such board;
(e)
Unless a concerned person does not accept the determination of an arbitration
board, the determination shall constitute a resolution by mutual agreement
under this Article and shall be binding on both Contracting States with
respect to that case; and
(f)
For purposes of an arbitration proceeding under paragraph 6 and this
paragraph, the members of the arbitration board and their staffs shall be
considered “persons or authorities” to whom information may be disclosed
under Article XXVII (Exchange of Information) of this Convention.
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ARTICLE III
Définitions générales
1.
Au sens de la présente Convention, à moins que le contexte n'exige une
interprétation différente: […]
g) L'expression «
autorité compétente » désigne:
(i) en ce qui concerne le
Canada, le ministre du Revenu national ou son représentant autorisé; et
(ii) en ce qui concerne
les États-Unis, le secrétaire au Trésor ou son représentant;
[…]
ARTICLE IX
Personnes liées
1. Lorsqu'une personne dans un État
contractant et une personne dans l'autre État contractant sont liées et
lorsque les arrangements entre elles diffèrent de ceux qui seraient convenus
entre des personnes non liées, chaque État peut ajuster le montant des
revenus, pertes ou impôts exigibles de façon à refléter les revenus,
déductions, crédits ou allégements qui, sans ces arrangements, auraient été
pris en considération dans le calcul de ces revenus, pertes ou impôts.
2. Au sens du présent article, une personne
est considérée comme liée à une autre personne si elle participe directement
ou indirectement à la direction ou au contrôle de l'autre ou si une ou
plusieurs tierces personnes participent directement ou indirectement à la
direction ou au contrôle des deux personnes.
3. Lorsqu'un ajustement est fait, ou est à faire,
par un État contractant conformément au paragraphe 1, l'autre État
contractant procède (nonobstant toute restriction relative aux délais ou à la
procédure du droit interne de cet autre État) à un ajustement correspondant
des revenus, pertes ou impôts de la personne liée dans cet autre État si:
a) Il est d'accord avec
le premier ajustement; et
b) L'autorité
compétente de l'autre État a été avisée du premier ajustement dans un délai
de six ans à compter de la fin de l'année d'imposition à laquelle le premier
ajustement est relié. Toutefois, l'autorité compétente peut accepter
d'examiner les cas où l'ajustement correspondant ne serait pas autrement
prescrit en vertu des délais ou empêché par la procédure du droit interne
dans l'autre État, même si l'avis n'a pas été donné dans le délai de six ans.
4. Si l'avis visé au paragraphe 3 n'est pas
donné dans les délais visés audit paragraphe et si l'autorité compétente n'a
pas accepté d'examiner le cas conformément au paragraphe 3b), l'autorité
compétente de l'État contractant qui a fait, ou va faire, le premier
ajustement peut éviter la double imposition lorsque le cas s'y prête.
5. Les
dispositions des paragraphes 3 et 4 ne s'appliquent pas en cas de fraude,
d'omission volontaire ou de négligence ou de faute lourde.
[…]
ARTICLE XXVI
Procédure amiable
1. Lorsqu'une personne estime que les
mesures prises par un État contractant ou par les deux États contractants
entraînent ou entraîneront pour elle une imposition non conforme aux
dispositions de la présente Convention, elle peut, indépendamment des recours
prévus par le droit interne de ces États, soumettre son cas par écrit à
l'autorité compétente de l'État contractant dont elle est un résident ou, si
elle n'est pas un résident d'aucun des États contractants, à celle de l'État
contractant dont elle possède la nationalité.
2. L'autorité compétente de l'État
contractant à qui le cas a été soumis s'efforce, si la réclamation lui paraît
fondée et si elle n'est pas elle-même en mesure d'y apporter une solution
satisfaisante, de résoudre le cas par voie d'accord amiable avec l'autorité
compétente de l'autre État contractant, en vue d'éviter une imposition non
conforme à la Convention. Sauf lorsque les dispositions de l'article IX
(Personnes liées) s'appliquent, l'accord est appliqué quels que soient les
restrictions relatives au temps ou à la procédure prévues par le droit
interne des États contractants pourvu que l'autorité compétente de l'autre
État contractant ait reçu, dans un délai de six ans à compter de la fin de
l'année d'imposition à laquelle le cas s'applique, avis q'un tel cas existe.
3. Les autorités compétentes des États
contractants s'efforcent, par voie d'accord amiable, de résoudre les
difficultés ou de dissiper les doutes auxquels peuvent donner lieu
l'interprétation ou l'application de la Convention. En particulier, les
autorités compétentes des États contractants peuvent parvenir à un accord:
a) Pour que les
bénéfices revenant à un résident d'un État contractant et à son établissement
stable situé dans l'autre État contractant soient imputés d'une manière
identique;
b) Pour que les
revenus, déductions, crédits ou allocations revenant à des personnes soient
attribués d'une manière identique;
c) Pour que la source
d'éléments spécifiques de revenu et la nature de ces éléments soient
déterminées d'une manière identique;
d) Pour que tout terme
utilisé dans la Convention ait un sens commun;
e) Pour l'élimination
de la double imposition à l'égard des revenus distribués par une succession
ou une fiducie;
f) Pour l'élimination
de la double imposition à l'égard d'une société de personnes;
g) Pour l'élimination
de la double imposition résultant de l'application de l'impôt sur les
successions perçu par les États-Unis ou de l'impôt canadien en raison d'une
distribution ou disposition de biens par une fiducie qui est une fiducie
américaine admissible (qualified domestic trust) au sens de l'article 2056A
de l'Internal Revenue Code ou une fiducie visée par le paragraphe 70(6) de la
Loi de l'impôt sur le revenu, ou qui est traitée comme telle en vertu du
paragraphe 5 de l'article XXIX B (Impôts perçus en cas de décès), dans
le cas où aucun allégement n'est par ailleurs disponible; ou
h) Pour augmenter tout
montant exprimé en dollars visé dans la Convention de façon à refléter
l'évolution économique ou monétaire.
Elles
peuvent aussi se concerter en vue d'éliminer la double imposition dans les
cas non prévus par la Convention.
4. Chacun des États contractants s'efforcera
de percevoir pour le compte de l'autre État contractant les montants
nécessaires afin d'assurer que les allégements d'impôt accordés dans cet
autre État conformément à la Convention ne s'appliquent pas au bénéfice de
personnes qui n'y ont pas droit. Toutefois, aucune disposition du présent paragraphe
ne peut être interprétée comme imposant à l'un ou l'autre État contractant
l'obligation de prendre des dispositions administratives de nature différente
de celles utilisées pour la perception de ses propres impôts ou contraires à
l'ordre public dans cet État.
5. Les autorités compétentes des États
contractants peuvent communiquer directement entre elles en vue de parvenir à
un accord comme il est indiqué aux paragraphes précédents.
6. Lorsque, conformément
à une procédure amiable aux termes du présent article, les autorités
compétentes ont tenté, sans succès, d’en arriver à un accord complet dans une
affaire, cette affaire est résolue par arbitrage de la manière indiquée au
paragraphe 7, et sous réserve des exigences de ce paragraphe, et aux règles
ou aux procédures convenues entre les États contractants par échanges de
notes diplomatiques si
a) Des déclarations de revenus
ont été produites dans au moins un État contractant à l’égard des années
d’imposition en cause;
b) L’affaire est, selon le cas :
(i) une affaire qui
(A) concerne l’application d’au
moins un article qui est soumis à l’arbitrage conformément à des notes
échangées entre les autorités compétentes, et
(B) n’est pas, comme le
déterminent les autorités compétentes avant la date à laquelle des procédures
d’arbitrage auraient autrement débuté, une affaire qui ne peut être
déterminée par arbitrage,
(ii) une affaire particulière
qui peut être déterminée par arbitrage selon les autorités compétentes;
c) Toutes les personnes
concernées s’entendent selon les dispositions de l’alinéa d) du
paragraphe 7.
7. Aux fins du paragraphe
6 et du présent paragraphe, les règles et les définitions suivantes
s’appliquent :
a) L’expression « personne
concernée » désigne la personne qui présente une affaire à une autorité
compétente aux fins d’examen aux termes du présent article et toutes les
autres personnes, le cas échéant, dont l’impôt à payer à l’un ou l’autre des
États contractants peut être directement touché par un accord amiable
découlant de cet examen;
b) La « date de début » d’une
affaire est la date la plus rapprochée à laquelle les renseignements requis
pour lancer un examen approfondi en vue d’un accord amiable ont été reçus par
les autorités compétentes des deux États contractants;
c) Les procédures d’arbitrage
dans une affaire commencent à la plus éloignée des dates suivantes :
(i) la date qui suit de deux
ans la date de début de cette affaire, sauf si les autorités compétentes des
deux États contractants se sont déjà entendues sur une autre date;
(ii) la date la plus rapprochée
à laquelle l’entente exigée à l’alinéa d) a été reçue par les
autorités compétentes des deux États contractants;
d) Les personnes concernées,
ainsi que leurs mandataires ou représentants autorisés, doivent s’entendre
avant le début des procédures d’arbitrage pour ne divulguer à personne les
renseignements reçus dans le cadre des procédures d’arbitrage de l’un ou
l’autre des États contractants ou de la commission d’arbitrage, sauf la
détermination de cette commission;
e) Sauf si une personne
concernée n’accepte pas la détermination d’une commission d’arbitrage, la
détermination constitue une résolution par accord amiable aux termes du
présent article et elle lie les deux États contractants à l’égard de cette
affaire;
f) Aux fins d’une procédure
d’arbitrage menée aux termes du paragraphe 6 et du présent paragraphe, les
membres de la commission d’arbitrage et les membres de leur personnel sont
considérés comme des « personnes ou des autorités » à qui des renseignements
peuvent être divulgués aux termes de l’article XXVII (Échange de
renseignements) de la présente Convention.
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