Canadian court rules for taxpayer in transfer pricing tax probe

The Federal Court of Canada has ruled that the Canadian Revenue Agency may not conduct further face-to-face person interviews with representatives from a multinational concerning its transfer pricing affairs, having already discussed earlier tax years

Cameco Corporation declined to produce approximately 25 personnel for oral interviews in relation to an ongoing Canadian Revenue Agency audit regarding transfer payments for its 2010, 2011, and 2012 taxation years.

Ruling in favour of Cameco Corporation, the Federal Court, in Minister of National Revenue v Cameco Corporation (2017 FC 763), noted that the Minister's power ‘is not so wide to compel an indeterminate number of people for oral interviews.’

The Court observed that Cameco Corporation has provided the ministers with every opportunity to inspect, audit, and examine its books, records, documents, and inspect its property, and that the ministers while performing their audits cannot compel Cameco Corporation to reveal its ‘soft spots’.

The Court rejected the Minister's argument that ‘inspect, audit, and examine’ should include being able to conduct in-person interviews with taxpayers, as well as the right to inspect, audit, or examine books, records, documents, or property.

The Court concluded: ‘If the Minister's position is accepted, the CRA can compel oral interviews from as many persons as they see fit without any procedural limits. Oral interviews as sought on these facts at the audit stage would undermine procedural safeguards provided at the appeal stage. Furthermore, the Minister could use an isolated statement by an employee which the taxpayer would be forced to disprove at trial.’

In the course of auditing Cameco's 2003 and prior taxation years, the Minister had interviewed – by consent – key personnel from Cameco in 2006, 2007, and 2008. The information obtained from these oral interviews formed part of the Minister's economic and functional analysis of Cameco and led to a reassessment of Cameco's 2003 taxation year.

This article first appeared in Tax-News – Global Tax News, a Wolters Kluwer publication. 

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