International Access to Corporate Information on the Rise by vmarcelo


September 2006

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
                                                                                     The Pre-eminent
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-
                                          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 or
                                          obtained by the CRA will be made                Scott Wilkie at
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

To top