International Access to Corporate
Information on the Rise
Recent developments make it essential context, and extends to information
that general counsel understand how shared with non-legal advisors in the
tax authorities may obtain and use cor- course of a statutory audit. In some
porate information and, consequently, countries, simply adopting a reporting Canadian Tax Advisor
how counsel should manage corporate position in a tax return in reliance Taxation is a critical component of
information ﬂows and documentation. on legal advice may dissolve legal virtually every business transaction.
privilege for the underlying advice. This is especially true in the cross-
TAX AS A GATEWAY TO DISCLOSURE
Even information thought to be border context, where tax structuring
General counsel responsible for the protected from disclosure by legal oftentimes is the single most important
disclosure of corporate information privilege may be more available to legal challenge.
are facing increasingly hard decisions. tax and other authorities. With one of the largest law ﬁrm tax
Even though there is no international groups in Canada, Osler is the Canadian
tax order or authority, a company’s As part of the planning process for
tax law advisor of choice for many
documentation of its corporate trans- transactions and related documenta- major foreign and domestic businesses.
actions and its supporting communica- tion, general counsel should thorough- Working in our ofﬁces in Toronto,
tions may be accessible by both local ly consider how tax (and other regula- Montréal, Calgary, Ottawa and New York,
and international tax authorities via tory) authorities might access this our tax team has the in-depth expertise
treaty information and informal information. Any overarching issues and diversiﬁed experience to provide our
exchanges. More and more, tax author- about the protection of legal privilege clients seamless, value-added service on a
ities around the world are cooperating, would need to be addressed early on. broad range of cross-border transactions.
both informally and systematically, to with unparalleled expertise
TRANSFER PRICING AND
support each other in the administra- DEMANDS FOR INFORMATION Our tax group has advised many major
tion of their tax systems and even in Two recent Canadian tax cases uphold- foreign and domestic corporations on
collecting tax debts. ing the broad information-gathering a broad range of cross-border and
domestic matters, including:
Legal Privilege power of the Canada Revenue Agency
The corporate picture created by this (CRA) under the Canadian Income Tax • Inco Limited in its take-over bid for
documentation may have a profound Act (the Act) underscore the extent to Falconbridge Limited, in its response to
the unsolicited offer by Teck Cominco
impact on whether intended corporate which tax authorities in different
Limited and in the subsequent proposed
objectives withstand the scrutiny of countries may share information, par-
3 way combination with Phelps Dodge.
tax (and other regulatory) authorities. ticularly in the transfer pricing area.
• Placer Dome Inc. in its merger with
In addition, a lack of care in docu- The cases also establish a low thresh-
Barrick Gold Corporation.
menting and communicating about old for satisfying the relevance and
transactions may negate the legal reasonableness requirement underly-
privilege attached to the information. ing a request for foreign information.
The scope of legal privilege is not the In Fidelity Investments Canada Limited
same in all countries. Canadian law v. The Canada Revenue Agency, 2006
reﬂects a healthy respect for advisory FC 551; 2006 DTC 6360 (FCTD)
privilege, even outside the litigation (Fidelity), a Canadian member of the
Oslernorthsouth Toronto Montréal Ottawa Calgary New York
Fidelity investment group had Canadian tax authorities, who are
subcontracted certain aspects of its entitled to make reasonable inquiries,
portfolio advisory and administration even if only to determine whether any
obligations to a U.S. group member possible relevant information exists.
• Constellation Brands, Inc. in its
and paid fees for the subcontracted As in Fidelity, the standard is that of acquisition of Vincor International Inc.
services. Despite Canadian and U.S. relevance to the administration of the
• Alcatel Canada Inc. at the Tax Court of
transfer pricing studies prepared by Act, and not its actual application to
Canada on a successful appeal from a
qualiﬁed professional advisors and a particular determination of a tax- federal income tax reassessment regard-
supporting the transactional pricing, payer’s tax liability. ing the treatment of employee stock
the CRA asserted that information option beneﬁts as eligible expenditures
TREATY EXCHANGE OF INFORMATION
about the proﬁtability of non- in calculating investment tax credits.
Increasingly, tax authorities are shar-
Canadian members of the group was • China National Petroleum Corporation
ing information about the internation-
necessary to properly evaluate the International in its acquisition of
al business and tax affairs of multina-
Canadian taxpayer’s income. PetroKazakhstan Inc.
tional corporations, primarily through
Reasonableness and Relevance • Toronto-Dominion Bank in the sale of its
the information exchange provision of
The Federal Court concluded that the U.S. brokerage business, TD Waterhouse
bilateral income tax treaties. Such
U.S.A., and in its acquisition of
requested information should be pro- sharing is consistent with recent
Ameritrade’s Canadian brokerage busi-
vided. It held that the standard to be changes to the Model Tax Convention ness, Ameritrade Canada Inc., through
applied in testing a demand for for- of the Organisation for Economic TD Waterhouse Canada.
eign-based information under § 231.6 Cooperation and Development (OECD)
• Canada Trustco at the Tax Court of
of the Act is that of “reasonableness.” that support broad information shar- Canada, Federal Court of Appeal and
The Court afﬁrmed that such standard ing by tax authorities. Many of Supreme Court of Canada on a successful
is established merely by demonstrat- Canada’s tax treaties are primarily appeal from a federal income tax
ing that rational reasons support the based on the OECD model. Canada is reassessment under the general anti-
request. The information requested also a signatory to Part I of the OECD’s avoidance rule (GAAR) regarding a
need only be relevant to the adminis- Convention on Mutual Assistance in sale-leaseback transaction.
tration of the Act, whether or not it Tax Matters. • Imperial Oil at the Tax Court of Canada
has a direct bearing on a taxpayer’s and Federal Court of Appeal on a success-
actual reported income tax liability. SIGNIFICANCE
ful appeal dealing with the deductibility
The CRA’s wide-ranging, information- of foreign exchange losses incurred on
In Saipem Luxemborg S.A. v. The gathering powers are consistent with the repayment of debentures denominat-
Canada Revenue Agency, 2005 FCA more broadly-based international ed in foreign currency. A Supreme Court
218; 2005 D.T.C. 5348 (FCA), the puta- initiatives affecting other tax authori- of Canada decision is pending.
tive taxpayer (a Luxemburg corpora- ties. Such powers, in the context of
tion), chartered heavy equipment to existing formal and informal informa-
unrelated parties engaged in eastern tion-sharing arrangements, increase
For more information on this topic,
Canadian offshore oil exploration. the likelihood that information
please contact the authors:
The CRA requested Saipem’s general Blake Murray at firstname.lastname@example.org or
obtained by the CRA will be made Scott Wilkie at email@example.com.
worldwide ﬁnancial information to available to tax administrations (and
help it evaluate the extent to which possibly regulatory authorities) else-
the company had a taxable Canadian where in the world. Tax directors
branch and to determine the income and general counsel who have general
attributable to that branch. authority over the information of
The Federal Court of Appeal held multinationals need to carefully evalu-
that the relevance of the information ate how that information is created,
requested can be determined by the documented, stored, and disseminated.
Osler, Hoskin & Harcourt llp