The resident applicants (principally Messrs. Levett and Baazov and a corporation owned by one of them) brought an application to have CRA requests for information (“RFIs”) to the Swiss federal tax administration for information pursuant to Art. 25 of the Canada-Swiss Treaty declared invalid on the grounds that “the CRA did not exhaust all domestic avenues of compliance and did not provide full and frank disclosure to the Swiss authorities.” CRA had received information from a partner country regarding a British Virgin Islands corporation, and the CRA auditor also gathered information regarding two of the individuals on online discussion forums, that led her to a belief that they could have unreported foreign assets.
Before confirming the decision below to dismiss the application, LeBlanc JA found:
- Regarding the stipulation in Art. 25, para 1 of the Canada-Switzerland Treaty that “an exchange of information will only be requested once the requesting Contracting State has pursued all reasonable means available under its internal taxation procedure to obtain the information,” he stated that “[t]he true intentions of the parties, as they emerge from extrinsic materials when it comes to Article 25 (namely to promote the exchange of information to the maximum extent possible with a view, notably, of preventing tax evasion and avoidance), are reflected … in the actual language of that provision, coupled with that of the Interpretative Protocol" which, in Art. 2(c) thereof, "stated that the notion of 'foreseeable relevance' is intended 'to provide for exchange of information in tax matters to the widest possible extent', provided the requesting State does not engage in 'fishing expeditions' or request information 'unlikely to be relevant to the tax affairs of a given taxpayer'" (para. 28).
- Furthermore, “it was reasonably open to the CRA … to proceed with the … RFIs at the time it did in view of the fact that Messrs. Levett and Baazov had, to that point, denied, on more than one occasion, having any such [foreign] assets, revenues or activities in the taxation years at issue” (para. 22).
- Although the RFIs extended to the 2014 and 2015 taxation years notwithstanding that audits had only been performed up to the 2013 year (causing the taxpayers to argue, at para. 30, “that the CRA simply cannot have exhausted all reasonable domestic avenues with respect to the 2014 and 2015 taxation years”), the auditor had reasonably explained that she “anticipated that no other results would have been expected than what was obtained from them when they were questioned with respect to the 2010/2011-2013 taxation years” (para. 32).
- The information sought of the corporate applicant was in the possession of a foreign corporation (“Socimbal”), as to which LeBlanc JA, after noting that the CRA auditor had not approached the Socimbal contact person in Switzerland, indicated that the issuance of the RFI to the Swiss authorities was “the result of a reasonable exercise of discretion” (para. 38) given inter alia that “Socimbal is a Swiss entity” and the taxpayers had “not explained how the CRA could resort to section 231.1, 231.2 or 231.6 of the Act in order to obtain that information on Socimbal or its representatives in Switzerland” (para. 36).
- Regarding the applicants’ submission that the specific listing in the Protocol, of types of information that could be requested, established a “ceiling” for such requests, LeBlanc JA stated (at paras. 47, 49) that “paragraph 2(b) of the Interpretative Protocol establishes a threshold, not an upper limit” and that “on a reasonableness analysis … there is no issue with the fact that the CRA provided the Swiss Authorities with more information—essentially background information—than what was minimally required by paragraph 2(b) of the Interpretative Protocol.”
Art. 26(1) of the Canada-France Convention provided inter alia:
The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant for carrying out the provisions of this Convention or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States, insofar as the taxation thereunder is not contrary to the Convention.
CRA issued requests for information (RFIs) to the appellant (“Blue Bridge”), which was the trustee of some trust as a result of a request made by the French tax authorities pursuant to Art. 26 for information as to the identity of the beneficiaries, details regarding the assets, income, distributions by and terms of the trusts, along with balance sheets and the T3 returns.
Blue Bridge argued that it was the Minister’s responsibility to ensure that the “taxation … not contrary to the Convention” condition in Art. 26 was met before transmitting the requested information to France, whereas here, France was seeking to impose tax under a French wealth-tax statute which attributed all foreign trust assets to a French settlor or beneficiary in order to subject them to the tax, which in its view raised the possibility of the information being used to levy tax contrary to the Convention.
In rejecting this argument, Rivoalen JA determined that the Federal Court did not have expert evidence of French law so as to be able to conclusively address this argument, and that this argument was based on facts that had not been verified, and could not be verified at this stage, by the Minister. She stated (at para. 47, TaxInterpretations translation):
The judge rightly concluded that a requirement for thorough research and analysis of the facts and the law of the requesting State would impede the proper and effective operation of the Convention’s provisions … .
She concluded that the Federal Court had not erred in finding that the requirements for issuing a compliance order under ITA s. 231.7(1) had been met.
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|Tax Topics - Income Tax Act - Section 231.7 - Subsection 231.7(1)||Minister obtained compliance order re French request for trust details re French wealth tax||313|
The applicants (two couples and a corporation owned by one of them) brought an application to have CRA requests to the Swiss federal tax administration for information pursuant to Art. 25 of the Canada-Swiss Treaty declared invalid on the grounds that “the CRA did not exhaust all domestic avenues of compliance and did not provide full and frank disclosure to the Swiss authorities” (para. 6). CRA had received information from a partner country regarding a British Virgin Islands corporation, and also gathered information regarding two of the individuals on online discussion forums, that led her to a belief that they could have unreported foreign assets.
Before dismissing the application, St-Louis J found:
- Regarding the stipulation in Art. 25, para 1 that “an exchange of information will only be requested once the requesting Contracting State has pursued all reasonable means available under its internal taxation procedure to obtain the information,” she stated (citing Blue Bridge, 2020 FC 893) that the “purpose of the ‘foreseeably relevant’ standard is to maximise the extent of the information that can be exchanged” (para. 93).
- It was not improper for CRA to forward to the Swiss authorities a copy of a decision from the Quebec Tribunal administratif des marchés financiers (which CRA had obtained from the AMF) that reproduced allegations raised by the AMF, notably regarding the potential existence of two bank accounts in Switzerland, as CRA had not presented “mere suspicions as facts” and, as it had been provided to them in full, “the Swiss authorities … could appreciate the nature and reliability of the allegations [therein]” (para. 115).
- “[N]othing prevented the CRA auditor from faithfully presenting unconfirmed information or suspicions” to the Swiss authorities (para. 122).
- Regarding the requirement in s. 2(a) of the Interpretative Protocol to the Treaty that, before sending a request for exchange of information pursuant to Art. 25 of the Convention, the CRA must have pursued “all reasonable means available under its internal taxation procedure to obtain the information” she found (at para. 162) that she was “satisfied that the CRA pursued all reasonable domestic means available” in light of the various roadblocks faced by CRA (e.g., the individual applicants claimed to have no foreign assets and to have no relationship with the corporations named by the AMF).
- Furthermore, the information sought of the corporate applicant was in the possession of a foreign corporation (“Socimbal”), as to which St-Louis J stated (at para. 166) that the “auditor had no legal authority to require information from the contact person at Socimbal, as he was not a Canadian resident or a person carrying on business in Canada” and that “the Applicants have not convinced me that the CRA had a legal obligation to contact the person abroad simply because it was provided with the contact information.”
- Regarding the applicants’ submission that the specific listing in the protocol of types of information that could be requested established a “ceiling” for such requests, she stated (at para. 179) that “the list of information that is provided in the Interpretative Protocol is not limitative, and did not prevent the CRA from sharing additional information” and that “the exception of subparagraph 241(4)(e)(xii) of the Income Tax Act applied to such information.”
Ginny Hillis, who was born in the U.S. to Canadian-citizen parents and came to Canada when she was five, brought an action for a declaration that the Canadian FATCA legislation (i.e., the Canada-United States Enhanced Tax Information Exchange Agreement Implementation Act (enacting an intergovernaental agreement) and ss. 263 to 269 of the Income Tax Act) was void as unconstitutional and that the disclosure of taxpayer information under such legislation should be restricted rather than automatic in light of the provisions of the Canada U.S. Income Tax Convention (the "Convention") and s. 241 of the ITA. A summary trial was held dealing only with the latter non-constitutional petition. Before dismissing the motion, Martineau J rejected a submissions that "the account holder information collected by the reporting institutions on US persons… must… be shown to 'be relevant' for carrying out the provisions of the [Convention]…[as] the ‘may be relevant' test mentioned in Article XXVII of the [Convention] must be satisfied on a case by case basis" (para. 59) and, in particular, "since most US persons resident in Canada do not owe taxes to the US…their account holder information is of no relevance… and therefore does not fall within the scope of information that may be disclosed pursuant to Article XXVII" (para. 60), stating (at paras. 70-71) that:
It is…unreasonable to conclude that the governments of Canada and the US entered into an Intergovernmental Agreement which should be interpreted in a way that renders it practically impossible to perform.
…[T]he FATCA reporting requirements are similar in principle to certain Canadian reporting requirements …[f]or example, section 233.3… .
Before so concluding, he noted (at para. 55) that the Crown took the position before him "that the IRS cannot use such [FATCA] information to administer non-tax laws (such as the US Bank Secrecy Act) or in its dealings with federal entities (such as the Financial Crimes Enforcement Network of the US Treasury Department) who are involved in money laundering repression" and "that the Canadian authorities will not assist the US authorities in collecting a US tax liability if the person was a Canadian citizen when the liability arose… ."
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|Tax Topics - Statutory Interpretation - Hansard, explanatory notes, etc.||regard to object rather than political statements||55|
|Tax Topics - Treaties - Income Tax Conventions - Article 25||FATCA requirements were reciprocal and were primarily imposed on financial institutions||182|
|Tax Topics - Treaties - Income Tax Conventions - Article 26A||Art. 26 of US Convention did not prohibit FATCA information exchanges||174|
Pacific Network Services Ltd. v. MNR, 2002 DTC 7585 (FCTD)
Although Article 26 of the Canada-France Income Tax Convention did not specifically provide (as did paragraph 2 of Article 27 of the Canada-U.S. Income Tax Convention) that the requested state was required to endeavour to obtain the requested information in the same way as if its own taxation was involved, it nonetheless was clear, in light of the wording of Article 26 and in light of the Commentary to the OECD Model Convention that the requested state was required not only to exchange information already gathered by it, but also to obtain information by use of administrative measures, such as issuing a requirement under s. 231.2(1) of the Act.
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|Tax Topics - Income Tax Act - Section 231.2 - Subsection 231.2(1)||98|
|Tax Topics - Treaties - Income Tax Conventions||116|
Derrin Brothers Properties Ltd & Ors, R (on the application of) v A Judge of the First Tier Tribunal (Tax Chamber) & Ors,  BTC 10,  EWCA Civ 15
The Australian Tax Office, which suspected that a UK accounting firm was providing nominee directors and shareholders to UK-incorporated companies to make them look like they were factually resident outside Australia, made a request to the UK Revenue (HMRC) pursuant to Art. 27 of the UK-Australia Treaty (somewhat similar to Art. 24 of the Canada-U.K. Treaty). HMRC, in turn (following permission granted in a First Tier Tribunal hearing) sent demands for documents respecting these services of the accounting firm and the movement of fund to the accounting firm and three banks under a U.K version of ITA s. 231.2 containing somewhat more elaborate procedural safeguards.
Sir Terence Etherton rejected arguments that the various companies named in these demands had to be told prior to the FTT hearing who the taxpayers being investigated were and why the documents were reasonably required to establish the taxpayers' tax position,
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|Tax Topics - Income Tax Act - Section 231.2 - Subsection 231.2(3)||third party notices to UK accounting firm and banks did not require them to be given explanation why information required||932|
5 April 2015 CRA Press Release (respecting Panama Papers)
Recent media coverage raises questions about leaked documents from a Panama law firm relating to the offshore financial affairs of numerous individuals worldwide.
...The Agency is actively pursuing the cooperation of its tax treaty partners and the International Consortium of Investigative Journalists to obtain all of the leaked records that pertain to Canadian residents.
…The Minister of National Revenue has instructed CRA officials to obtain the data leaked through the Panama Papers in order to cross-reference this information with the data already obtained through the Agency’s existing investigation tools. The CRA will be communicating with its treaty partners to obtain any further information that may not currently be in its possession
In the context of Canada’s BEPS commitment to exchange information with other countries on certain tax rulings, effective April 1, 2016 IC 70-6 will be revised to indicate that summaries of the contents of the following categories of rulings may be exchanged with the countries of residence of the immediate and ultimate parent and certain other parties (which countries may then ask to receive relevant portions in more detail) - re:
a) preferential regimes (for Canada, including international shipping and certain foreign life insurance operations of a Canadian company);
b) cross-border transfer pricing;
c) downward adjustment not directly reflected in the taxpayers’ accounts;
d) permanent establishments; and
e) related party conduits.
88 C.R. - F.Q.16
The taxes covered under the Convention do not include provincial taxes, and RC cannot ask for information on behalf of the province.
88 C.R. - F.Q.18
RC routinely provides copies of NR4 forms to the U.S.