Date: 20021108
Dockets: T-28-02
T-31-02
Neutral citation: 2002 FCT 1158
OTTAWA, ONTARIO, THIS 8th DAY OF NOVEMBER, 2002
PRESENT: THE HONOURABLE MR . JUSTICE MARTINEAU
BETWEEN:
PACIFIC NETWORK SERVICES LTD.
and
LEADER DIRECT MARKETING LTD.
Applicants
- and -
THE MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR ORDER AND ORDER
MARTINEAU J.:
[1] On December 11, 2001, an officer of the Canada Customs and Revenue Agency, duly authorized pursuant to subsection 220(2.01) of the Income Tax Act, R.S.C. 1985, c. 1 (5th supp.) (the "Act"), to exercise the powers or perform the duties of the Minister of National Revenue (the "Minister") under section 231.2 of the Act, issued a requirement to compel Pacific Network Services Ltd., one of the applicants, to provide information and corporate documents pertaining to the nature of its business, and the names and addresses of its officers and shareholders, including the percentage of interest of each shareholder.
[2] On December 17, 2001, a similar request was made to Leader Direct Marketing Ltd., the other applicant.
[3] Both requirements were issued for the purposes of Article 26 of the Convention between Canada and France for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital (the "Canada-France Income Tax Convention") which provides:
Article 26
Exchange of Information
1. The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes covered by the Convention insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Article 1. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement in respect of, or the determination of appeals in relation to, the taxes covered by the Convention. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.
2. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation:
(a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;
(b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;
(c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (ordre public).
[4] The current text of Article 26 of the Canada-France Income Tax Convention, which is reproduced above, comes from Article 19 of the Protocol to the Tax Convention between the Government of Canada and the Government of the French Republic signed on May 2, 1975 and amended by the Protocol of January 16, 1987 (the "Second Protocol"). The Second Protocol was signed on November 29, 1995, and was brought into force by Order in Council P.C. 1999-138 of February 4, 1999 (SI/99-19, C. Gaz. 1999. II. 712), directing that a Proclamation be issued giving notice that the Second Protocol came into force on September 1, 1998. More particularly, the Order in Council was made pursuant to section 10 of An Act to implement conventions for the avoidance of double taxation with respect to income tax between Canada and France, Canada and Belgium and Canada and Israel, S.C. 1974-75-76, c. 104 (the "Income Tax Conventions Act, 1976"), which provides that a supplementary agreement has the force of law in Canada when the Order in Council comes into force.
[5] The applicants make an application for:
(i) A declaration that the requirements are invalid and unlawful;
(ii) In the alternative, the issuance, pursuant to paragraph 18(1)(a) of the Federal Court Act, R.S.C. 1985, c. F-7, of a writ of certiorari to quash, set aside, or set aside and refer back for determination in accordance with such directions as the Court considers appropriate, the demand for the production of information and documents specified in the requirements;
(iii) Costs; and,
(iv) Such further and other relief as this Court deems just.
[6] The applicants submit that the Minister or his authorized representative had no authority under either Article 26 of the Canada-France Income Tax Convention or section 231.2 of the Act to issue the requirements, and alternatively, that the parts of the requirements which require the applicants to divulge information pertaining to their shareholders and officers are invalid since no authorization was obtained from a judge pursuant to subsection 231.2(3) of the Act.
[7] I have concluded that the requirements are valid.
NO PURPOSE RELATED TO THE ADMINISTRATION OR ENFORCEMENT OF THE INCOME TAX ACT
[8] I will first dispose of the applicants' argument that the requirements would be invalid since they have not been issued for a purpose mentioned at subsection 231.2(1) of the Act, which reads as follows:
| 231.2 (1) Notwithstanding any other provision of this Act, the Minister may, subject to subsection (2), for any purpose related to the administration or enforcement of this Act, including the collection of any amount payable under this Act by any person, by notice served personally or by registered or certified mail, require that any person provide, within such reasonable time as is stipulated in the notice,
(a) any information or additional information, including a return of income or a supplementary return; or
(b) any document.
[my emphasis]
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231.2(1) Malgré les autres dispositions de la présente loi, le ministre peut, sous réserve du paragraphe (2) et, pour l'application et l'exécution de la présente loi, y compris la perception d'un montant payable par une personne en vertu de la présente loi, par avis signifié à personne ou envoyé par courrier recommandé ou certifié, exiger d'une personne, dans le délai raisonnable que précise l'avis:
a) qu'elle fournisse tout renseignement ou tout renseignement supplémentaire, y compris une déclaration de revenu ou une déclaration supplémentaire;
b) qu'elle produise des documents.
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[9] As can be seen, this provision authorizes the Minister to serve a requirement for any
purpose relating to the administration or the enforcement of the Act.
[10] The parties agree that the requirements were issued for other purposes. More particularly, in the case as bar, they were issued for the purposes of Article 26 of the Canada-France Income Tax Convention.
[11] The proper question to be answered in the present case is not whether the purposes mentioned in Article 26 of the Canada-France Income Tax Convention are covered by subsection 231.2(1) of the Act, but whether, in order to satisfy a request for information made for any purpose mentioned in paragraph 1 of Article 26 of the Canada-France Income Tax Convention, Article 26 of the Canada-France Income Tax Convention contemplates the use by the Minister of administrative measures, such as the power conferred by subsection 231.2(1) of the Act, where the requested information is not already in possession of the Minister.
[12] In this respect, if there is any "inconsistency" between Article 26 of the Canada-France Income Tax Convention and the limitation to "any purpose related to the administration or enforcement of the [Income Tax] Act" found in subsection 231.2(1) of the Act, then the "purposes" mentioned in paragraph 1 of Article 26 of the Canada-France Income Tax Convention must "prevail to the extent of the inconsistency" as provided by subsections 2(2) of the Canada-France Income Tax Convention Act, 1976 and 10(2) of the Income Tax Conventions Act, 1976.
AUTHORITY TO ISSUE A REQUIREMENT UNDER THE CANADA-FRANCE INCOME TAX CONVENTION
[13] This brings us to the parties' main disagreement, which resides in the proper interpretation of Article 26 of the Canada-France Income Tax Convention. As the current text of Article 26 of the Canada-France Income Tax Convention, reproduced at paragraph 3 above, has force of law in Canada, the parties are in agreement that this Court need not apply or interpret the old Article XXVI of Canada-France Income Tax Convention set out in Schedule I of the Income Tax Conventions Act, 1976.
[14] Mr. Justice Iacobucci, writing the unanimous decision of the Supreme Court of Canada in Crown Forest Industries Ltd. v. Canada, [1995] 2 S.C.R. 802 ("Crown Forest"), set out at page 814 the method to be followed in addressing questions of tax convention interpretation:
In interpreting a treaty, the paramount goal is to find the meaning of the words in question. This process involves looking to the language used and the intentions of the parties. ...
[15] The Supreme Court of Canada also cited, with approval, the following statement from Gladden Estate (J.N.) v. The Queen, [1985] 1 C.T.C. 163 at pages 166-67 (F.C.T.D.):
Contrary to an ordinary taxing statute a tax treaty or convention must be given a liberal interpretation with a view to implementing the true intentions of the parties. A literal or legalistic interpretation must be avoided when the basic object of the treaty might be defeated or frustrated in so far as the particular item under consideration is concerned. [emphasis added]
(Crown Forest, supra, at para. 49)
[16] I take from the applicants' submissions, that on a plain reading of Article 26 of the Canada-France Income Tax Convention, the Minister would not have the authority to issue a requirement under subsection 231.2 of the Act. The plain words of Article 26 of the Canada-France Income Tax Convention would merely mandate the Contracting States to "exchange" information which, as suggested by the applicants, is already in their possession. I will come back to the applicants' submission in this regard after exposing their position as to the intentions of the contracting parties.
[17] In this respect, learned counsel for the applicants has argued strenuously that if the parties to the Canada-France Income Tax Convention had wished that an administrative measure, such as a requirement under section 231.2 of the Act, be used to compel a taxpayer to supply information or documents, they would have stated it in an express manner in Article 26 of the Canada-France Income Tax Convention.
[18] By comparison, counsel for the applicants referred the Court to Article XXVII of the Canada-United States Tax Convention (1980), as amended, which reads in full as follows:
Article XXVII
Exchange of Information
1. The competent authorities of the Contracting States shall exchange such information as is relevant for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes to which the Convention applies insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Article 1 (Personal Scope). Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the taxation laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the administration and enforcement in respect of, or the determination of appeals in relation to the taxes to which the Convention applies or, notwithstanding paragraph 4, in relation to taxes imposed by a political subdivision or local authority of a Contracting State that are substantially similar to the taxes covered by the Convention under Article II (Taxes Covered). Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. The competent authorities may release to an arbitration board established pursuant to paragraph 6 of Article XXVI (Mutual Agreement Procedure) such information as is necessary for carrying out the arbitration procedure; the members of the arbitration board shall be subject to the limitations on disclosure described in this Article.
2. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall endeavor to obtain the information to which the request relates in the same way as if its own taxation was involved notwithstanding the fact that the other State does not, at that time, need such information. If specifically requested by the competent authority of a Contracting State, the competent authority of the other Contracting State shall endeavor to provide information under this Article in the form requested, such as depositions of witnesses and copies of unedited original documents (including books, papers, statements, records, accounts or writings), to the same extent such depositions and documents can be obtained under the laws and administrative practices of that other State with respect to its own taxes.
3. In no case shall the provisions of paragraphs 1 and 2 be construed so as to impose on a Contracting State the obligation:
(a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;
(b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State; or
(c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy (ordre public).
4. For the purposes of this Article, the Convention shall apply, notwithstanding the provisions of Article 11 (Taxes Covered):
(a) to all taxes imposed by a Contracting State; and
(b) to other taxes to which any other provision of the Convention applies, but only to the extent that the information is relevant for the purposes of the application of that provision.
[my emphasis]
[19] Counsel for the applicants notes that Article 26 of the Canada-France Income Tax Convention does not contain a provision similar to paragraph 2 of Article XXVII of the Canada-United States Tax Convention (1980).
[20] Article XXVII of the Canada-United States Tax Convention (1980) was subject to judicial scrutiny by this Court in Montreal Aluminium Processing Inc. et al. v. Minister of National Revenue et al., (1992), 46 F.T.R. 177 ("Montreal Aluminium Processing Inc."). The Court found that section 231.2 of the Act, when read in conjunction with Article XXVII of the Canada-United States Tax Convention (1980) and section 3 of the Canada-United States Tax Convention Act, S.C. 1984, c. 20 (which is very similar to section 2 of the Canada-France Income Tax Convention Act, 1976), give the Minister the power to issue a requirement for information sought by U.S. authorities in connection with their own taxation matters.
[21] Joyal J., (as he then was) who rendered the Court's decision, gave the following reasons at pages 181-82:
Subsection 231.2(1) authorizes the Minister to serve a Requirement on any person for information or production of documents "for any purpose relating to the administration or enforcement of this Act". If our analysis were to stop here, then clearly the plaintiffs would have good cause to contest the validity of the Requirement issued to Philip Klein on March 4, 1991. On the face of it, the Requirement was for the purposes of the U.S. Internal Revenue Code, and not for the purposes of the Income Tax Act.
However, if we proceed to examine Article XXVII of the Convention, paragraph 2 makes it quite clear that if information is requested by a Contracting State (in this case the U.S.), then the other Contracting State (ie. Canada) "shall endeavour to obtain the information to which the request relates in the same way as if its own taxation was involved ..." In other words, if the U.S. Secretary of the Treasury requests information from Canadian authorities, then the Minister of National Revenue is to obtain the information in exactly the same manner as if taxes under the Canadian Income Tax Act were involved. In my view, then, Article XXVII clearly foresees that the Minister will exercise his power under s. 231.2 of the Income Tax Act to issue a Requirement in these circumstances.
However, as counsel for the plaintiff correctly pointed out, a treaty to which Canada is a signatory does not automatically become incorporated into our domestic law. Treaty obligations entailing an alteration of domestic law require legislative action: A.G. Canada v. A.G. Ontario (Labour Conventions), [1937] A.C. 326 at 347-8.
In this particular case, a statute was enacted. Section 3 of the Tax Convention Act clearly states that the Convention has the force of law in Canada. More than this, however, the Convention is even said to prevail over other domestic law to the extent of any inconsistencies. The result, to my mind, is that the Minister does have the power to issue a Requirement under s. 231.2 in respect of information and documents requested by U.S. authorities for tax purposes, in the same way he does with respect to information and documents required for Canadian tax purposes.
Essentially, the Convention provides that the Minister can take information otherwise obtainable for purposes of administration and enforcement of Canadian taxation law and pass that information along to American authorities for the additional purpose of administration and enforcement of U.S. taxation law. Article XXVII of the Convention broadens the purposes for which information and documents obtained under s. 231.2 of the Income Tax Act may be used. Since Article XXVII has the force of law in Canada by virtue of the Tax Convention Act, the Minister has express legal authority to issue a Requirement under s. 231.2 for purposes of the administration and enforcement of U.S. taxation law.
[22] The Federal Court of Appeal (92 D.T.C. 6567) allowed the appeal made by the taxpayer and set aside the decision rendered by Joyal J., but on the limited ground that the requirement contained a false or misleading statement of purpose. Moreover, Hugessen J.A., who gave the Federal Court of Appeal's reasons, added that he did not "consider it necessary or ... desirable ... [to] comment on the motion judge's view of the law". In the present case, the applicants were served with requirements pursuant to subsection 231.2(1) of the Act which both stated that it was being issued "[For] the purposes of Article 26 of the Canada-France Tax Convention ...". Therefore, the applicants were not misled as to the purposes for which the requirements were being issued, and the concern of the Federal Court of Appeal in Montreal Aluminium Processing Inc., supra, does not arise in the present case.
[23] Moreover, counsel for the applicants submits that it was the express presence of the language in paragraph 2 of Article XXVII of the Canada-United States Tax Convention (1980) that led Joyal J. to conclude in Montreal Aluminium Processing Inc., supra, that the Canada-United States Tax Convention (1980) allowed the Minister to compel the production of information from a Canadian taxpayer for purposes not relating to domestic Canadian tax laws.
[24] The applicants' assertions must be rejected for the following reasons.
[25] First, I conclude that the plain words used in Article 26 of the Canada-France Income Tax Convention infer that when faced with a request for information from the other State, the requesting State is required not only to exchange information already gathered, but also to obtain information by use of administrative measures, such as a requirement under subsection 231.2(1) of the Act. In this respect, the only permitted grounds to refuse such a request are the specific grounds enumerated in paragraph 2 of Article 26 of the Canada-France Income Tax Convention. This broad interpretation concords with the purposes and object of the "Exchange of Information" provision, with the general coverage of the Canada-France Income Tax Convention, as well as with the interpretation of the model provision upon which Article 26 of the Canada-France Income Tax Convention is based. I should add here that the applicants have not argued before me at the hearing or presented in their written material any convincing argument that the Minister's representative should have refused the request on one of the grounds mentioned in paragraph 2 of Article 26 of the Canada-France Income Tax Convention.
[26] Second, with respect to the able arguments of counsel for the applicants, I do not consider that the absence in Article 26 of the Canada-France Income Tax Convention of a provision similar to paragraph 2 of Article XXVII of the Canada-United States Tax Convention (1980) is fatal in the present case, for it is clear that the contracting parties' intention is to consider that the existing wording of Article 26 of the Canada-France Income Tax Convention has the same effect. The Minister is to obtain the requested information in exactly the same manner as if taxes under the Act were involved. However, I am not asked here to interpret or apply Article XXVII of the Canada-United States Tax Convention (1980) but Article 26 of the Canada-France Income Tax Convention. As we will see later on, Article 26 of the OECD Model Tax Convention on Income on Income and on Capital, OECD Committee on Fiscal Affairs (Paris: OECD, 1977, 1996, 2000) (the "OECD Model Tax Convention") and the Commentaries thereon are a better tool than Article XXVII of the Canada-United States Tax Convention to ascertain the intentions of the drafters of Article 26 of the Canada-France Income Tax Convention.
[27] Third, any implied suggestion on the part of the applicants that "taxpayers" may be somewhat excluded by the coverage of the Canada-France Income Tax Convention must be forthwith discarded in view of the dual legal status of this treaty and the express words used in the Canada-France Income Tax Convention. As Richardson and Welkoff note in The Interpretation of Tax Conventions in Canada (1995) 43 Can. Tax J., 1759 at page 1762, regarding the dual legal status of bilateral tax conventions:
In most contracting states, including Canada, a bilateral tax convention has a dual legal status: it is an international agreement binding the two sovereign states to its terms under international law; and it is a part of domestic law in each of the states, establishing, within the terms of that law, certain rights and obligations both of private persons within the state's jurisdiction and of the state itself. As a practical matter, the formal interpretation of tax conventions has been limited almost exclusively to domestic legal forums dealing only with the relationship of taxpayer and state.
[my emphasis]
[28] That being said, Article 1 of the Canada-France Income Tax Convention states that it "shall apply to persons who are residents of one or both of the Contracting States". Moreover, Article 26 of the Canada-France Income Tax Convention, paragraph 1, provides that "[t]he exchange of information is not restricted by Article 1". The text of Article 26 makes it clear then that general information on residents and non residents for any of the purposes mentioned in paragraph 1 of Article 26 of the Canada-France Income Tax Convention may be exchanged. Certainly, the nature of the corporate activities of a company and the names and addresses of its officers and shareholders come within the ambit of paragraph 1 of Article 26 of the Canada-France Income Tax Convention.
[29] Furthermore, Article 26 of the Canada-France Income Tax Convention covers the exchange of information "as is necessary for carrying out the provisions of [the] Convention" and for carrying "of the domestic laws of the Contracting States concerning taxes covered by the Convention insofar as the taxation thereunder is not contrary to the Convention". Again, it is hard to imagine that the competent authorities to which a request is made will, in all cases, have already in their possession all the information the requesting State may need for the purpose of implementing a particular domestic taxation statute. Therefore, it is necessary to ascertain what the intentions of the contracting parties were if the requested information is not already in possession of a contracting party.
[30] It must be inferred, where one considers the broad scope of paragraph 1 and the restrictions imposed by paragraph 2 of Article 26 of the Canada-France Income Tax Convention, that if some of the information requested is not already in possession of the competent authorities to whom such a request is made, the latter will have recourse to any available administrative measures to obtain it.
[31] In this respect, the applicants' assertion has no basis, given the provisions of paragraph 2 of Article 26 of the Canada-France Income Tax Convention, which clearly contemplates not only the providing of information, but also the gathering of information. Paragraph 2 states as follows:
2. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation:
(a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;
(b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;
(c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (ordre public).
[my emphasis]
[32] Paragraph 2 of Article 26 of the Canada-France Income Tax Convention would not need to refer to "carry[ing] out administrative measures" or information "obtainable" if the contracting parties were merely obligating themselves to provide information already gathered. Furthermore, such an implication is confirmed by the examples and the nature of the information that are mentioned in the 1977 Commentary, the 1996 Commentary and the 2000 Commentary to Article 26 of the OECD Model Tax Convention, and more particularly with regard to paragraph 1 of that Article.
[33] In narrative terms, Article 26 of the Canada-France Income Tax Convention requires Canada (the word "shall" being used in the first line of paragraph 1) to exchange any information necessary for purposes of the Convention or the domestic income tax laws of France. In gathering the information, Canada need only use the administrative measures available in the normal course of administering its own Act. Reciprocal obligations are placed on France.
[34] Clearly, paragraph 2 of Article 26 of the Canada-France Income Tax Convention anticipates that a treaty partner, when faced with a request under this provision, will use the normal administrative tools at its disposal when enforcing its own tax laws.
[35] The applicants' assertion that Article 26 of the Canada-France Income Tax Convention should receive a strict and literal interpretation must be rejected. The basis for the principle that bilateral tax conventions should be given a liberal interpretation in light of their object and purpose, rather than a more strict and literal interpretation that may be applicable with respect to domestic tax legislation is twofold: first, it recognizes that a tax convention is an international agreement between two states rather than a purely domestic legislation; second, it recognizes that tax conventions are not drafted in the precise and detailed form in which domestic legislation is drafted, but in a more general language (see: Stephen R. Richardson and James W. Welkoff, The Interpretation of Tax Conventions in Canada, supra, at p. 1779; and Brian J. Arnold and Jacques Sasseville, Special Seminar on Canadian Tax Treaties: Policy and Practice, International Fiscal Association (Toronto: 2000 p. 1:5)).
[36] By way of comparison, Article 26 of the OECD Model Tax Convention entitled "Exchange of Information" and the Commentaries thereon, provide a useful tool to interpret Article 26 of the Canada-France Income Tax Convention. The OECD Model Tax Convention is the template from which drafters of international tax conventions work. Canada was a founding member and is a signatory of the OECD Model Tax Convention which came into force in 1961. Canada models its tax conventions on the OECD Model Tax Convention (see Special Seminar on Canadian Tax Treaties: Policy and Practice, International Fiscal Association, supra, pp. 1:3-1:4; David A. Ward, Canada's Tax Treaties, (1995), 43 Can. Tax J. 1719 at p. 1726; and Sumner v. The Queen, [2000] 2 C.T.C. 2359, 2000 D.T.C. 1667 (T.C.C.) at para. 37).
[37] In reviewing the purpose and intentions of the Canada-United States Tax Convention, (1980), the Supreme Court of Canada in Crown Forest, supra, made extensive use of extrinsic materials, stating at page 822 that:
... in ascertaining these goals and intentions, a court may refer to extrinsic materials which form part of the legal context (these include accepted model conventions and official commentaries thereon) without the need first to find an ambiguity before turning to such materials.
[38] The Supreme Court of Canada in Crown Forest, supra, specifically authorized reference to the OECD Model Tax Convention at pages 827-28:
I now turn to another set of extrinsic materials, other international taxation conventions and general models thereof, in order to help illustrate and illuminate the intentions of the parties to the Canada - United States Income Tax Convention (1980). Articles 31 and 32 of the Vienna Convention on the Law of Treaties (Can. T.S. 1980 No. 37) indicate that reference may be made to these types of extrinsic materials when interpreting international documents such as taxation conventions; see also Hunter Douglas Ltd. v. The Queen, 79 D.T.C. 5340, (F.C.T.D.), at pp. 5344-45, and Thiel v. Federal Commissioner of Taxation, 90 A.T.C. 4717 (H.C. Aus.), at p. 4722.
Of high persuasive value in terms of defining the parameters of the Canada-United States Income Tax Convention (1980) is the OECD Model Double Taxation Convention on Income and on Capital (1963, re-enacted in 1977): Arnold and Edgar, eds., Materials on Canadian Income Tax (9th ed. 1990), at page 208. As noted by the Court of Appeal, it served as the basis for the Canada-U.S. Income Tax Convention (1980) and also has world-wide recognition as a basic document of reference in the negotiation, application and interpretation of multilateral or bilateral tax conventions ...
[my emphasis]
[39] Moreover, in the Crown Forest, supra, case, the Supreme Court of Canada refused to imply that the omission to include a certain provision in the Canada-United States Tax Convention (1980) which was in the OECD Model Tax Convention was indicative of the intention of the drafters. One would think that such an omission would be an indication that the Contracting States intended to deviate from the model. The Supreme Court of Canada rejected such an inference after having considered extrinsic materials which showed otherwise. It went on to consider not only the OECD Model Tax Convention but the Commentary to the Model Convention as well (see paragraphs 63, 64, 66, 70 and 75).
[40] The Commentaries to the Model Convention have been drafted and agreed upon by the experts appointed to the Committee on Fiscal Affairs by the Governments of Member countries and are intended to illustrate or interpret its provisions. Following Canada's membership to the OECD effective in 1961, Canadian representatives actively participated in the Committee and its various working parties in drafting the 1977 OECD Model Tax Convention and the current OECD Model Tax Convention first released in 1992. The participation has extended not only to the models themselves but also to the Commentary on the models and the preparation by the OECD of its published and unpublished studies relating to the various models.
[41] Article 26 of the OECD Model Tax Convention has remained virtually unchanged from the 1977 to the 2000 Model Convention. Paragraph 2 of Article 26 of the OECD Model Tax Convention has remained the same in all four versions - 1977, 1992, 1996, 2000.
[42] Article 26 of the OECD Model Tax Convention (1992 version) reads as follows:
Article 26: Exchange of Information
1. The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws of the Contracting State concerning taxes covered by the Convention insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Article 1. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by the Convention. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.
2. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation:
(a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;
(b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;
(c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (ordre public).
[43] Article 26 of the Canada-France Income Tax Convention in its current form came about as a result of Article 19 of the Second Protocol to amend the Canada-France Income Tax Convention, which was signed on November 29, 1995. Paragraph 1 of Article 26 of the Canada-France Income Tax Convention is identical in all material aspects to Article 26 of the OECD Model Tax Convention. As for paragraph 2 of Article 26 of the Canada-France Income Tax Convention it is identical to paragraph 2 of Article 26 in the OECD Model Tax Convention.
[44] As stated by Richardson and Welkoff in their article, supra, at pages 1784-85:
... the interpretive value of the OECD model convention and commentary should be greatest where the text of a convention or a particular provision of a convention has been adopted from the OECD model, because it should be reasonable to conclude that, in adopting the OECD text, the contracting parties intended also to adopt the interpretation of that text as contemplated by the OECD model convention and commentary.
[45] The 1977 Commentary (that was in existence when the current version of Article 26 of the Canada-France Income Tax Convention was adopted), the 1996 Commentary and the 2000 Commentary to Article 26 of the OECD Model Tax Convention are identical with respect to the portions relevant to this application. They all make it clear that the Contracting States are to use administrative measures, such as requirements under subsection 231.2(1) of the Act, in order to deal with a request for information under Article 26 of the Canada-France Income Tax Convention from the other Contracting State.
[46] Paragraphs 14 to 19 of the 1977, 1996 and 2000 Commentary are commentaries on paragraph 2 of Article 26 of the Model Convention. Paragraphs 14 to 16 are particularly relevant. The portions of paragraphs 14 to 16, common to all three versions of the Commentary, read as follows:
14. This paragraph contains certain limitations to the main rule in favour of the requested State. In the first place, the paragraph contains the clarification that a Contracting State is not bound to go beyond its own internal laws and administrative practice in putting information at the disposal of the other Contracting State. However, types of administrative measures authorised for the purpose of the requested State's tax must be utilised, even though invoked solely to provide information to the other Contracting State. Likewise, internal provisions concerning tax secrecy should not be interpreted as constituting an obstacle to the exchange of information under the present Article. As mentioned above, the authorities of the requesting State are obliged to observe secrecy with regard to information received under this Article...
15. Furthermore, the requested State does not need to go so far as to carry out administrative measures that are not permitted under the laws or practice of the requesting State or to supply items of information that are not obtainable under the laws or in the normal course of administration of the requesting State. It follows that a Contracting State cannot take advantage of the information system of the other Contracting State if it is wider than its own system.
16. Information is deemed to be obtainable in the normal course of administration if it is in the possession of the tax authorities or can be obtained by them in the normal procedure of tax determination, which may include special investigations or special examination of the business accounts kept by the taxpayer or other persons, provided that the tax authorities would make similar investigations or examination for their own purposes. This means that the requested State has to collect the information the other State needs in the same way as if its own taxation was involved, under the proviso mentioned in paragraph 15 above.
[my emphasis]
[47] This confirms the inference from the wording of Article 26 of the Canada-France Income Tax Convention, in particular paragraphs 2(a) and (b), that a requested State is required not only to exchange information already gathered, but also to obtain information by use of administrative measures, such as the requirements of subsection 231.2(1) of the Act, when faced with a request for information from the other State.
[48] In summary, I find the requirements are valid under Article 26 of the Canada-France Income Tax Convention, section 2 of the Canada-France Income Tax Convention Act, 1976 and section 10 of the Income Tax Conventions Act, 1976, as well as subsection 231.2(1) of the Act. This leaves the determination of the alternate proposition made by the applicants, which is, that the parts of the requirements which mandate the applicants to divulge information pertaining to their shareholders and officers would be invalid since no authorization was obtained from a judge pursuant to subsection 231.2(3) of the Act.
PARTS OF THE REQUIREMENTS RELATING TO SHAREHOLDERS AND OFFICERS
[49] The applicants contend that the Minister has not been authorized by a judge, pursuant to subsection 231.2(3) of the Act, to require the applicants to divulge information relating to unnamed persons. Accordingly, the applicants conclude that the parts of the requirements which require them to divulge information pertaining to its shareholders and officers are invalid.
[50] Subsection 231.2(3) of the Act reads as follows:
| (3) On ex parte application by the Minister, a judge may, subject to such conditions as the judge considers appropriate, authorize the Minister to impose on a third party a requirement under subsection (1) relating to an unnamed person or more than one unnamed person (in this section referred to as the "group") where the judge is satisfied by information on oath that
(a) the person or group is ascertainable; and
(b) the requirement is made to verify compliance by the person or persons in the group with any duty or obligation under this Act.
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(3) Sur requête ex parte du ministre, un juge peut, aux conditions qu'il estime indiquées, autoriser le ministre à exiger d'un tiers la fourniture de renseignements ou production de documents prévue au paragraphe (1) concernant une personne non désignée nommément ou plus d'une personne non désignée nommément - appelée "groupe" au présent article -, s'il est convaincu, sur dénonciation sous serment, de ce qui suit:
a) cette personne ou ce groupe est identifiable;
b) la fourniture ou la production est exigée pour vérifier si cette personne ou les personnes de ce groupe ont respecté quelque devoir ou obligation prévu par la présente loi;
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[51] I respectfully disagree with the applicants' counsel's suggestion that subsection 231.2(3) of the Act applies in the present case.
[52] First, the requirements do not relate to unnamed persons but rather relate to the applicants. It would have been entirely proper for the Minister to request the register of shareholders and officers of the applicants, documents which are in the applicants' possession and control. Therefore, I fail to see how subsection 231.2(3) of the Act can oblige the Minister to obtain the authorization of a judge where the information asked is purely of a corporate nature and relates to the names and addresses of its shareholders and officers.
[53] Second, I note that the authorization mentioned in subsection 231.2(3) of the Act applies to a requirement issued for a purpose related to the administration or the enforcement of the Act. This is not the case here. It is apparent that any information relating to unnamed persons cannot and will not be used by the Minister under the Act, but will simply be transmitted to the competent authorities of France pursuant to a request made under Article 26 of the Canada-France Income Tax Convention and for the purposes stated at paragraph 1 of said Article 26.
[54] Third, the concerns behind the necessity to obtain the authorization of a judge under subsection 231.2(3) of the Act relate to the gathering of information and documents without revealing whose tax liability is under scrutiny. This is confirmed by the Supreme Court of Canada in [1984] 1 S.C.R. 614">James Richardson & Sons Ltd. v. Minister of National Revenue, [1984] 1 S.C.R. 614 ("James Richardson") and by other decisions of our Court as well (see T.G. Andison v. Minister of National Revenue (1995), 90 F.T.R. 74 (F.C.T.D.); and Paquette (A.A.) v. Minister of National Revenue (1992), 55 F.T.R. 152 (F.C.T.D.).
[55] The decision of the Supreme Court of Canada in James Richardson, supra, is most often cited for the proposition that subsection 231.2(1) of the Act cannot be used by the Minister to obtain information regarding unnamed persons. However, in that case, no taxpayers were named in the requirement at issue and the Minister conceded that neither the appellant in that case nor any of its customers were people whose tax liability was under investigation. Wilson J. (as she then was) for the Court therefore stated as follows at paragraph 18:
Accordingly, while I agree with Le Dain, J that the court in the Canadian Bank of Commerce case did not say that the purpose in that case, namely the obtaining of information relevant to someone's tax liability, was the only purpose for which a Requirement could validly be made under subsection 231(3), it did nevertheless insist on a prerequisite to that particular purpose, namely that the someone's tax liability be the subject of investigation, and it is that prerequisite which the appellant submits is missing in this case.
[my emphasis]
[56] In Canadian Forest Products Ltd. v. Minister of National Revenue (1996), 119 F.T.R. 152, this Court stated at paragraphs 8 and 10:
Subsection 231.2(2) requires that the Minister obtain judicial authorization before issuing a requirement pursuant to subsection 231.2(1) with respect to unnamed persons. The respondent contends that the information sought is with respect to the applicants' own operations and that the provisions regarding unnamed persons are not applicable. However, the request for information was made in the context of an investigation into the tax liability of five other companies, not the applicants. As a result, the applicant should be afforded greater protection against revealing potentially damaging information.
...
The Minister in this case is not seeking information about compliance by the applicants with the Income Tax Act. Rather, she is seeking information relating to the tax returns of unidentified taxpayers. As these taxpayers under investigation are not named, the Minister must proceed by way of subsection 231.2(3) in order to issue a requirement pursuant to subsection 231.2(1). These applications for judicial review of the requirements issued by the respondent pursuant to subsection 231.2(1) of the Income Tax Act are granted with costs.
[my emphasis]
[57] Certainly, the concerns expressed above do not exist in the present case as there is no proof that the Minister is seeking information relating to the tax returns or the liability of unidentified Canadian taxpayers.
[58] In conclusion, for all of the foregoing reasons, the applications made by the applicants must fail.
ORDER
The applications for judicial review, made by the applicants Pacific Network Services Ltd. and Leader Direct Marketing Ltd., in Court files T-28-02 and T-31-02, are dismissed with costs in favour of the respondent.
Judge
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKETS: T-28-02, T-31-02
STYLE OF CAUSE: Pacific Network Ltd. v. Minister of National Revenue
Leader Direct Marketing Ltd. v. Minister of National Revenue
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: October 15, 2002
REASONS FOR ORDER : The Honourable Mr. Justice Martineau
DATED: November 8, 2002
APPEARANCES:
Mr. Steve M. Cook
Mr. Sergio Rodriguez FOR PLAINTIFF/APPLICANT
Mr. Robert Carvalho FOR DEFENDANT/RESPONDENT
SOLICITORS OF RECORD:
Thorsteinssons
Vancouver, B.C. FOR PLAINTIFF/APPLICANT
Morris Rosenberg, Deputy
Attorney General of Canada FOR DEFENDANT/ RESPONDENT
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