Judicial Review Applications Challenging Minister’s Alleged Violation Of Voluntary Disclosure Policy And MAP Agreement Allowed To Proceed: Sifto Canada Corp. V. MNR

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In Sifto Canada Corp. v. Minister of National Revenue, 2013 FC 214, Prothonotary Aalto of the Federal Court rejected the Crown’s motion to strike out judicial review applications filed by Sifto Canada Corp. challenging decisions made by the Minister of National Revenue to:

(a) assess penalties contrary to the terms of the Voluntary Disclosure Program; and

(b) assess transfer pricing adjustments contrary to an agreement between the Competent Authorities of Canada and the United States on the appropriate transfer price under Article XXVI of the Canada-U.S. Tax Treaty (known as the “Mutual Agreement Procedure” or “MAP”).

The Crown made the usual argument that section 18.5 of the Federal Courts Act precludes such judicial review applications (for background, see our earlier post on the JP Morgan decision mentioned below).  Prothonotary Aalto had this to say about the Crown’s argument:

[8]    One of the mantras of the Minister of National Revenue is that the judicial review process should not be used to circumvent the comprehensive code for the assessment and collection of taxes set out in the Income Tax Act (ITA) and for which the Tax Court of Canada (TCC) is given exclusive jurisdiction.  As a general proposition, this is a correct approach to the taxation regime in Canada.  However, cases such as Chrysler Canada [2008 FC 727, aff’d 2008 FC 1049], JP Morgan Asset Management [2012 FC 651, aff’d 2012 FC 1366] and Canadian Pacific Railway [2012 FC 1030; aff’d 2013 FC 161] come to this Court and fall within this Court’s jurisdiction because of their unique factual circumstances.  This case, like those, revolves around a factual scenario which takes it out the pure assessment or appeal regime of the ITA and the jurisprudence recognizes that such matters can come within the jurisdiction of this Court.

Prothonotary Aalto explained his reasoning for allowing the applications to proceed:

[22]    In this case there are agreements which are alleged to have been entered into between Sifto and the Respondent which are alleged to have been breached.  These facts on their face do not engage issues of the correctness of assessments or appeals under the ITA.  They are therefore not bereft of any chance of success.  To the extent the breach of agreements and other allegations made in these applications engage matters beyond the scope of the correctness of an assessment or re-assessment they are not within the jurisdiction of the TCC.

[23]    The conduct of officials in CRA cannot be considered in determining the correctness of assessments [footnote omitted].  Such matters must be asserted in another Court.  Thus, the conduct of CRA officials as asserted by Sifto in this case relating to understandings and agreements cannot be considered by the TCC.

[24]    These applications engage more than a review of assessments to determine their correctness.  Therefore, it cannot be said that these applications are bereft of any chance of success.

In addition to arguing that the applications should be struck out in their entirety, the Crown argued in the alternative that certain allegations should be struck out or that the applications be stayed (by way of ”extension of time”) until the final determination of appeals against the assessments issued as a result of the impugned decisions.  Prothonotary Aalto had little difficulty dismissing each of the Crown’s alternative arguments.

The Crown has already made a motion asking a Federal Court judge to set aside the Prothonotary’s decision.  In light of the decisions of the Federal Court in Chrysler Canada, JP Morgan and Canadian Pacific, the Crown may very well be facing an uphill battle.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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