Bayer Canada – CRA is ordered to pare back a s. 231.6(2) requirement for foreign-based information in the absence of any real explanation as to why it needed this much

Bayer Canada, in the course of a transfer-pricing audit, received audit requests for copies of agreements between members of the Bayer group and third parties that were in force during the two years under audit and that satisfied various listed criteria. Bayer Canada resisted. CRA then arranged for the issuance of a requirement pursuant to s. 231.6(2) that was significantly broader in scope than the previous requests, including not having any time limitations, and not containing any qualitative limitations other than that the agreements relate to the purchase or sale of pharmaceuticals.

After referencing the Saipem test of “a rational connection … between the information sought and the administration and enforcement of the ITA,” Fothergill J pared back the terms of the requirement to something roughly comparable to what CRA had previously asked for, and with a further limitation that Bayer Canada was only required to produce Bayer-Group agreements with 21 pharmaceutical companies that had been specifically named by CRA. Before so ordering, he stated:

The CRA has offered no explanation for the dramatic increase in the scope of the information sought in the Requirement. No reasons or rationale may be discerned from the record. The CRA’s failure to explain its abandonment of the pragmatic limits placed on the scope of the preceding requests renders the Requirement unreasonable.

This decision can be seen as an application of the Vavilov test that (as articulated by Fothergill J) the administrative decision under review must “exhibit the requisite degree of justification, intelligibility and transparency.”

Neal Armstrong. Summary of Bayer Inc. v. Attorney General of Canada, 2020 FC 750 under s. 231.6(5)(c).