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iv International tax disputes Canada Where a dispute involves issues covered by one of Canada’s international tax conventions, taxpayers may also have the option of seeking relief through dispute resolution procedures provided under a tax treaty. These may include seeking relief through the contracting states’ mutual agreement procedures or entering into an advance pricing arrangement on transfer pricing matters. Furthermore, certain of Canada’s bilateral treaties also allow (or require) contracting states to refer unresolved disagreements to binding arbitration. For example, Canada’s treaties with the United States and Switzerland 64 provide for mandatory arbitration where the countries’ competent authorities are unable to resolve a dispute covered by the treaties. Taxpayers often stand to benefit from pursuing these international dispute resolution avenues in parallel with domestic dispute resolution strategies, but it may be necessary to hold one proceeding in abeyance pending the completion of the other. v Alternative forms of litigation As discussed in Section V.ii, supra, taxpayers also enjoy a general right to bring judicial proceedings to challenge administrative decisions, practices or failures to act. In a similar vein, where a taxpayer has been subjected to particularly egregious conduct, the taxpayer has the option of initiating a civil lawsuit against the relevant tax authority or against particular tax officials. Although taxpayers regularly succeed in judicial review proceedings in respect of administrative activities in the tax sphere, successful civil actions against Canadian tax authorities or officials are exceedingly rare. vi Remission orders Finally, where they have been unable to obtain relief against civil tax assessments through any of the traditional or alternative dispute resolution procedures, taxpayers may seek a tax remission order from the particular taxing jurisdiction. Remission orders are formal, discretionary decisions made by the executive branch of government that excuse taxpayers from debts considered to be unreasonable, unjust or where forgiveness is otherwise in the public interest. To illustrate, the CRA tends to recommend remission in only four situations: a in cases of extreme hardship; b where CRA officials have acted incorrectly or given incorrect advice; c where financial setback is coupled with extenuating factors beyond the taxpayer’s control; or d where the tax debt was not intended by the relevant legislation. VIII ANTI-AVOIDANCE Although federal and provincial tax statutes contain numerous discrete anti-avoidance provisions, the ‘general anti-avoidance rule’ (‘the GAAR’) found in most of these statutes 64 The mandatory arbitration provisions in the Canada–Switzerland treaty are not yet in force. 34
Canada stands at the forefront of tax avoidance law in Canada. 65 The GAAR draws a line between legislative compliance that achieves legitimate tax minimisation and a level of compliance that frustrates the rationale of the provisions relied upon. The latter constitutes abusive tax avoidance. 66 Under the GAAR, the taxpayer has the burden of demonstrating that its activities did not give rise to the particular tax benefit identified by the CRA, or that it engaged in those activities primarily for bona fide non-tax reasons. If the taxpayer fails to establish either point, the tax authority has the burden of demonstrating that the resulting tax benefit is inconsistent with the object, spirit or purpose of the provisions that give rise to that benefit. It is this ‘abuse analysis’ that forms the crux of the GAAR test. Where the tax authority succeeds in establishing an abuse of the statutory provisions, the GAAR operates to deny the benefit in question. Conceptually, the GAAR will apply only where the abusive nature of a transaction or series of transactions is clear; where the existence of abusive tax avoidance is unclear, the taxpayer receives the benefit of the doubt. This structure preserves consistency, predictability and fairness, and reflects the longstanding principle that taxpayers have the right to arrange their affairs so as to attract the least amount of tax. 67 IX DOUBLE TAXATION TREATIES Canada has one of the world’s most robust bilateral tax treaty networks, comprising approximately 90 double taxation conventions that are currently in force. 68 Having been considered in numerous court cases, it is now well established that Canadian tax treaties are to be read in good faith, with a view to giving their text meaning based upon the language used and the intentions of the parties. 69 Implementing statutes often make clear that a particular treaty takes precedence over domestic laws, 70 and judicial precedent, official commentaries and other extrinsic evidence of the parties’ intentions further assist in the interpretive exercise. Although most tax treaties are entered into and made law by the federal government, provincial tax authorities will normally follow the CRA in giving effect to such treaties by mirroring the resulting federal tax assessments. It is also notable that the GAAR applies to the provisions of Canadian tax treaties. 71 The CRA has advanced GAAR arguments in a number of treaty-related disputes, including ‘treaty-shopping’ cases where taxpayers structure their affairs in an attempt to use a particular treaty to obtain benefits not available under the domestic laws 65 See, e.g., s. 245. 66 See generally Canada Trustco Mortgage Co v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601. 67 Commissioners of Inland Revenue v. Duke of Westminster, [1936] A.C. 1 (House of Lords). 68 Canada uses the OECD Model Double Taxation Convention on Income and Capital as the basis for its tax treaties. 69 See, e.g., Crown Forest Industries Ltd v. Canada, [1995] 2 S.C.R. 802. 70 See, e.g., Canada–United States Tax Convention Act, 1984, S.C. 1984, c. 20, s. 3(2). 71 See, e.g., s. 245(4)(a)(iv). 35
- Page 1 and 2: The Tax Disputes and Litigation Rev
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- Page 5 and 6: Publisher Gideon Roberton business
- Page 7 and 8: Acknowledgements MORAIS LEITÃO, GA
- Page 9 and 10: Contents Chapter 9 INDIA ..........
- Page 11 and 12: Editor’s Preface The objective of
- Page 13 and 14: Canada agreements. 5 Most of the un
- Page 15 and 16: ii Criminal tax prosecutions Canada
- Page 17 and 18: Canada by directly substituting its
- Page 19 and 20: Canada whether such an infraction a
- Page 21 and 22: Canada iii Claimants The general ru
- Page 23: Canada circumstances. 57 Taxpayers
- Page 27 and 28: Canada availability of paper losses
- Page 29 and 30: Canada as an opportunity to present
- Page 31: Baker & McKenzie LLP Brookfield Pla
iv<br />
International tax disputes<br />
Canada<br />
Where a dispute involves issues covered by one of Canada’s international tax conventions,<br />
taxpayers may also have the option of seeking relief through dispute resolution procedures<br />
provided under a tax treaty. These may include seeking relief through the contracting<br />
states’ mutual agreement procedures or entering into an advance pricing arrangement<br />
on transfer pricing matters. Furthermore, certain of Canada’s bilateral treaties also allow<br />
(or require) contracting states to refer unresolved disagreements to binding arbitration.<br />
For example, Canada’s treaties with the United States and Switzerland 64 provide for<br />
mandatory arbitration where the countries’ competent authorities are unable to resolve<br />
a dispute covered by the treaties. Taxpayers often stand to benefit from pursuing these<br />
international dispute resolution avenues in parallel with domestic dispute resolution<br />
strategies, but it may be necessary to hold one proceeding in abeyance pending the<br />
completion of the other.<br />
v Alternative forms of litigation<br />
As discussed in Section V.ii, supra, taxpayers also enjoy a general right to bring judicial<br />
proceedings to challenge administrative decisions, practices or failures to act. In a similar<br />
vein, where a taxpayer has been subjected to particularly egregious conduct, the taxpayer<br />
has the option of initiating a civil lawsuit against the relevant tax authority or against<br />
particular tax officials. Although taxpayers regularly succeed in judicial review proceedings<br />
in respect of administrative activities in the tax sphere, successful civil actions against<br />
Canadian tax authorities or officials are exceedingly rare.<br />
vi Remission orders<br />
Finally, where they have been unable to obtain relief against civil tax assessments through<br />
any of the traditional or alternative dispute resolution procedures, taxpayers may seek a<br />
tax remission order from the particular taxing jurisdiction. Remission orders are formal,<br />
discretionary decisions made by the executive branch of government that excuse taxpayers<br />
from debts considered to be unreasonable, unjust or where forgiveness is otherwise in<br />
the public interest. To illustrate, the CRA tends to recommend remission in only four<br />
situations:<br />
a in cases of extreme hardship;<br />
b where CRA officials have acted incorrectly or given incorrect advice;<br />
c where financial setback is coupled with extenuating factors beyond the taxpayer’s<br />
control; or<br />
d where the tax debt was not intended by the relevant legislation.<br />
VIII ANTI-AVOIDANCE<br />
Although federal and provincial tax statutes contain numerous discrete anti-avoidance<br />
provisions, the ‘general anti-avoidance rule’ (‘the GAAR’) found in most of these statutes<br />
64 The mandatory arbitration provisions in the Canada–Switzerland treaty are not yet in force.<br />
34
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