4 December 2001 External T.I. 2001-0111465 - GAAR COMMITTEE TEI LIAISON 2001

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: TEI Liaison question 8 - The GAAR Committee.

Position: General information on the operation of the GAAR Committee provided

Reasons: General information already available to the public

TEI LIAISON
DECEMBER 2001

QUESTION 8
THE GAAR COMMITTEE

Question

In the interest of obtaining consistent and fair application of section 245 of the Act, the GAAR Committee was established in November 1988. One of the Committee's functions is to determine whether GAAR applies to specific transactions. We understand that the GAAR Committee is currently composed of senior members of CCRA Rulings Directorate and representatives from the Departments of Finance and Justice. We have the following comments, questions, and concerns about the GAAR Committee.

When conducting a review of specific taxpayer transactions, what is the role of the Department of Finance and under what statutory authority is taxpayer information provided to the Department of Finance? Subsection 241(1) of the Act generally prohibits disclosure of taxpayer information except for certain purposes and under specified circumstances. Subparagraph 241(4)(d)(i) states that taxpayer information may be provided "to an official of the Department of Finance solely for the purposes of the formulation or evaluation of fiscal policy." Would it be possible for the Committee to obtain input from the Department of Finance with respect to the policy and legislative intent of the Act on a "no names" basis for purposes of CCRA's administration and interpretation?

Similarly, what is the role of the representatives of the Department of Justice on the GAAR Committee? Are they legal advisers to the GAAR Committee or do they take an active part in the ruling decision itself? Are communications between Department of Justice representatives and CCRA privileged, even if Department of Finance personnel are present? Is there a way for the CCRA to obtain legal advice from the Department of Justice that would then permit the GAAR Committee to maintain minutes of their considerations for release to the taxpayer?

From a tax policy perspective, TEI is concerned that there be consistent and fair application of GAAR with an open process. The affected taxpayers should be permitted to present their cases to the GAAR Committee or obtain copies of CCRA Audit submissions before the GAAR Committee has ruled on the issue. If the GAAR Committee considers an issue submitted by CCRA Audit and rules that GAAR should be applied to recharacterize the transaction, how does the Minister of National Revenue comply with subsection 165(3) of the Act to "reconsider" the assessment following a taxpayer's objection? Following a GAAR Committee decision, does an appeals officer have discretion to "reconsider" whether GAAR applies?

TEI has a number of questions regarding the composition of the Committee and serious concerns about the Committee's operation. The stature and influence of the Committee, the secrecy of its deliberations, and its unwillingness to hear directly from taxpayers undermines taxpayer confidence in CCRA's administration of the GAAR regime, including by officials of the Appeals Branch. TEI invites CCRA's response.

Response

We will review for you the role of the GAAR Committee, the role of the members on the Committee and the practices and processes relating to the GAAR Committee and trust that this information provides comfort to you about the fair and transparent approach that the CCRA has with regard to the administration of the GAAR.

Background

CCRA established the GAAR Committee to provide advice on the application of section 245 to ensure that GAAR was applied in an equitable manner and to ensure national consistency.

The mandate of the GAAR Committee is to review the application, or non-application, of GAAR in rulings being considered and reassessments being proposed and to provide recommendations to the functions concerned.

Membership

The current membership of the GAAR Committee is:

Roy Shultis, Chairman, Deputy Assistant Commissioner, Income Tax Rulings Directorate

Paul Lynch, Secretary (replacing Ted Harris), Manager, Corporate Financing Section

Michael Hiltz, Brian Darling, Rick Biscaro and Marc Vanasse, Directors in the Income Tax Rulings Directorate, are members with respect to their specialty area

Ed Gauthier, Deputy Assistant Commissioner, GST Rulings Directorate

Wayne Adams, Director, Legislative Policy Division

Walter Szyc, Director, Tax Avoidance Division, Compliance Programs Branch (currently replaced by Ranjeet Nanner)

Sharon Gulliver and Peter Dunn, Managers, GAAR & Technical Support Sections, Tax Avoidance Division

Shaun Harrington, Counsel, Department of Justice (recently replacing John Bentley)

Gerard Lalonde, Assistant Director, Tax Legislation Division, Department of Finance

Patrick Boyle (Fraser Milner Casgrain), Tax Counsel Interchange

• Mr. Boyle was recently added to the Committee's membership as the CCRA was interested in obtaining a window to the practitioner's perspective and, conversely, to provide a window to the tax community that the operation and deliberation of the Committee is in fact open and fair. Conflict of interest guidelines guide his conduct as an external member of the Committee.

As noted above, the GAAR Committee's role is advisory. It was assumed that most, if not all, issues to be discussed at the GAAR Committee would be complex. As is the case generally with complex issues, CCRA officials consult with experts at the Department of Justice and Department of Finance. Thus, representatives from these areas were asked to be present at all GAAR Committee meetings.

The CCRA has no section 241 concerns in discussing GAAR files with the Department of Finance as, firstly, such consultations are regarded as necessary for the purposes of the administration and enforcement of the Act, and secondly, all GAAR files, by their nature, involve the evaluation of fiscal policy.

The role of tax counsel from the Department of Justice is as legal advisers as is the case on any file where we consult with them. We would note that there is no record of such legal advice and that the minutes of the Committee meetings are not solicitor-client privileged. The minutes of the GAAR Committee reflect, in summary form, the conclusions of the Committee.

Current process

The CCRA is not of the view that the application of the GAAR has become commonplace when we review the GAAR statistics. Up to June 30, 2001, 480 audit files had been referred to the GAAR Committee and the Committee did not recommend the application of the GAAR on 159 (33%) of those and did on 321 (67%). Based on current trends, the CCRA considers 35 - 40 GAAR reassessment files per year which is a very small fraction when viewed against the approximately 300,000 audits conducted each year by the CCRA.

The audit process for GAAR issues leading to a GAAR reassessment is essentially the same as for any audit issue except the requirement to obtain the advice of the GAAR Committee (i.e. auditors carry out their audit in consultation with their local supervisor or technical expert and can consult with subject-matter experts and Headquarters). Prior to issuing a GAAR reassessment, auditors are required to issue a proposal (i.e. 30 day) letter to the taxpayer. (If the GAAR issue is new the issue must first be reviewed with Headquarters. It should be noted that eventually Headquarters Tax Avoidance is involved in all GAAR files). The proposal letter forms the basis of the submission to the GAAR Committee for a GAAR reassessment. Taxpayer representations (or a confirmation that representations will not be made) must be provided to the GAAR Committee or the item will not be considered by the Committee.

Thus, taxpayers should be assured that when the GAAR Committee considers a file for which a GAAR reassessment has been proposed, the GAAR Committee will have had the opportunity to consider both sides.

CCRA officials are also prepared to meet with taxpayers to discuss GAAR files just as they would with regard to any other file. Such meetings are generally arranged through the audit function and the CCRA members of the GAAR Committee can attend such meetings.

The submissions to the GAAR Committee have been made following the approach outlined in OSFC and minutes of the meeting are also summarized in this format.

Subsequent to any advice provided by the Committee to approve the application of GAAR, a GAAR reassessment may be raised by Audit.

After a Notice of Objection to such an assessment is raised, the Appeals Branch has complete discretion to reconsider GAAR files and, in fact, has vacated GAAR assessments.

Summary

The CCRA is of the view that the audit process for issues involving GAAR are not extraordinary nor should they be viewed as such. The GAAR Committee's role is an add-on to general audit practices and then only functions to limit, rather than add to, GAAR reassessments within its overall mandate of ensuring national consistency and the equitable application of the GAAR.

We trust that this information addresses the concerns of the TEI membership.