Canada Customs and Revenue Agency (CCRA), in assessing taxpayer’s income tax liability, served it with Income Tax Act (ITA), s. 231.6(2) notice of requirement to produce for inspection all corporate records for fiscal years ending July 31, 1999 and 2000—Whether requirement so broad as to be unreasonable, can be set aside under ITA, s. 231.6(5)—Taxpayer, Luxembourg corporation, contracted to employ one of its vessels in installation of jackets, topsides for Sable Offshore Energy Project under contract with related UK company which had contract with project owner, Mobil Oil Canada Properties—Work done over 53-day period in September, October, 1998—Further work done in Canadian waters between August 15, September 16, 1999 though contract therefor dated December 14, 1998—This explains why requirement covered two fiscal years—Under CanadaLuxembourg Tax Convention, resident of one contracting state not liable to pay tax on business income earned in other contracting state, unless business carried out with permanent establishment—Minister wanting to make independent determination whether appellant had permanent establishment in Canada during relevant period—Not content just to see appellant’s documents relevant to Canadian operations, taking position this makes appellant judge of relevance of documents—Considering it necessary to conduct general audit of appellant’s affairs for 1999, 2000—Appellant offered to have Tax Court of Canada (T.C.C.) decide whether had permanent establishment here—Under ITA, s. 173, T.C.C. authorized to decide any question of fact, law, mixed fact and law as preliminary proceeding—CCRA rejected suggestion as lacking facts needed to submit question to Court—Under ITA, s. 231.6(5), Federal Court Judge empowered, upon application of person served with requirement, to set it aside if found unreasonable—Such application denied by Rouleau J.: Saipem Luxembourg S.A. v. Canada (Customs and Revenue Agency), 2004 FC 113, in reliance on Merko v. M.N.R., [1991] 1 F.C. 239 (T.D.)—Merko, found Parliament intended to give M.N.R. far-reaching powers under s. 231.6 to secure information outside Canada and need only show it to be relevant to administration or enforcement of ITA—Statutory context—Under s. 230(1) every person carrying on business in Canada must maintain books, records at place of business—CCRA can take advantage of this obligation by attending at taxpayer’s premises to inspect books, records and thereby verify income, expenses, income tax liability—Where non-resident taxpayer carries on business here, M.N.R. may require production of documents located outside Canada— Should s. 231.2 requirement be disobeyed, M.N.R. may apply to judge under s. 231.7 for compliance order and non- compliance with that could give rise to contempt proceedings —Statute itself defines review standard as reasonableness so F.C.A. may intervene only if judge below committed palpable, overriding error—Case law on s. 231.6(5) limited, provides little guidance as to basis on which Court might find requirement unreasonable—In Merko, Cullen J. held serving notice of requirement after taxpayer filed notice of objection was neither abuse of process nor unreasonable—But Cullen J. misunderstood the provision, was of view it did not compel information production—S. 231.6(2) clearly empowers M.N.R. to demand production of foreign-based documents— Also, contrary to what was written by Cullen J., notice of requirement recipient not free to choose which documents to produce—Should taxpayer partially comply with requirement, Court may order none of material covered by notice can be tendered, not even those documents produced—Thus, broader the demand, more drastic the consequences of non-compliance —Merko apparently applying case law on notice of requirement under s. 231.2, holding notice of requirement for information relevant to tax liability of specific person(s) whose liability under investigation is purpose related to administration or enforcement of ITA—S. 231.6 differs from s. 231.2 in allowing for judicial review on ground of unreasonableness—Such review lacking substance if notice reasonable just because information may be relevant to enforcement of ITA—Parliament must have intended requirement not be unreasonable—Test applied in lower Court herein that applied in s. 231.2 cases and reasonableness issue not addressed—If Judge meant to say notice of requirement reasonable if not otherwise abuse of process, he conflated two issues in Merko into single issue, failed to appreciate applicable test under s. 231.6(5) and, as result, fell into palpable, overriding error—As to what is “reasonable”, appropriate test found in Law Society of New Brunswick v. Ryan, [2003] 1 S.C.R. 247: asking, after somewhat probing examination, can reasons given, taken as a whole, support decision—To apply that standard herein, need to understand extent of demand, reasons for which made—In Merko, notices demanded production of records relating to specific transaction for which taxpayer claiming tax benefit, so link obvious, reasonable—Here, taxpayer required to produce all corporate documentation for two fiscal years—Link more remote but CCRA’s position all books, records relevant to audit even if some, upon examination, merely verify do not impact upon Canadian tax liability—Issue not reasonableness of CCRA’s intention to conduct audit but reasonableness of notice of requirement—Appellant’s argument CCRA could have obtained documents sought by issuing notice for specific classes of documents would question reasonableness of conducting audit, something outside Court’s mandate under s. 231.6(5)—Whether one can truly conduct audit solely on basis of material provided by person audited, without verification no further records exist—Likely that most businesses confronted with requirement notice accept CCRA’s offer to treat consent to on-site audit as sufficient compliance —CCRA has prerogative whether to conduct audit, form audit to take—Given records outside Canada, CCRA can only issue notice and, if audit result not up to CCRA’s usual standards, that is best it can do—Determination to conduct audit supports scope of notice served herein—Appeal dismissed, notice of requirement confirmed – Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, ss. 173, 230(1), 231.2 (as am. by S.C. 2000, c. 30, s. 176), 231.6 (as am. idem, s. 177), 231.7 (as enacted by S.C. 2001, c. 17, s. 183). SAIPEM LUXEMBOURG S.V. V. CANADA (CUSTOMS AND REVENUE AGENCY) (A-46-04, 2005 FCA 218, Pelletier J.A., judgment dated 9/6/05, 19 pp.)

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