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FEDERAL INCOME TAX - Administration and enforcement - Audit - Requirement to provide documents or information - Compliance order - Appeals

Wednesday, May 10, 2017 @ 9:13 AM  


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Appeal by BP Canada Energy Company (BP) from an order compelling the production of internal accounting documents. The Minister was conducting ongoing audits of BP. It sought production of certain tax accrual or tax reserve working papers and Issues Lists for the purpose of the audit. The records were prepared by BP's in-house staff and listed uncertain tax positions that could potentially give rise to contingent liabilities. The Minister issued a demand pursuant to s. 231.1(1) of the Income Tax Act requiring BP to provide the records. BP objected to the request, producing the documents with the list of uncertain tax positions redacted. The Minister applied for a compliance order pursuant to s. 231.7(1) of the Income Tax Act requiring BP to produce the documents as requested. BP opposed the request and argued that it constituted a bad faith fishing expedition, and that the production of its working records would fundamentally offend the principles of a self-reporting tax system. The judge allowed the application, finding that the working records and issues listed were compellable. He concluded that it was within the Minister's purview to determine that the records sought were required to expedite the audit process and for use in its continuing and future auditing of BP. He found that the request for production of working records that had already been prepared did not offend Canada's self-reporting tax system by instituting self-audit and that the working records were relevant to the payment of tax under the Act and taxation accountability. He concluded that they were an important record in BP's possession that fell within the scope of s. 231.1(1), as they were relevant to BP's intention in creating reserves. He further found that there was no basis for exercising discretion to refuse production and that the audit was not an expedition, as the Minister's request focused on a specific issue.

HELD: Appeal allowed. The documents ordered to be produced, given the purpose for which they were sought, were beyond the reach of the Minister. The Federal Court judge committed a number of legal and factual errors in ordering their production. Properly interpreted, s. 231.1(1) did not make papers such as these compellable “without restriction”. Parliament intended that the broad power set out in s. 231.1(1) be used with restraint when dealing with tax accrual working papers.

Canada (Minister of National Revenue - M.N.R.) v. BP Canada Energy Co., [2017] F.C.J. No. 318, Federal Court of Appeal, M. Noël C.J., D.W. Stratas and R. Boivin JJ.A., March 30, 2017. TLD-May82017007