In the Minister of National Revenue v. Amdocs Canadian Managed Services Inc. 2015 FC 1234, it was contemplated whether or not the Minister of National Revenue (Minister) could issue a compliance order to a taxpayer, compelling the taxpayer to create and provide information pursuant to section 231.7 of the Income Tax Act (ITA) when the taxpayer had proven that it did not possess such information.
Amdocs Canadian Managed Services Inc. (ACMS) was a Canadian taxpayer, incorporated under the Canada Business Corporations Act, and was a member of the Amdocs Group, a multinational corporation with establishments across the world.
In 2013, the Canadian Revenue Agency (CRA) initiated a transfer-pricing audit on ACMS. In light of this audit, the CRA issued numerous queries, of which three represented grounds for a compliance order. These three queries, which became the subject of the dispute in question, were as follows:
- Query 1: request for a detailed organizational chart for each of the Amdocs Group entities involved in the intercompany transactions with ACMS;
- Query 2: request for financial statements and detailed working papers containing the details of cost pools involving ACMS; and
- Query 3: request for the filing of financial statements for Amdocs Inc. and detailed working papers to support back office charges.
Federal Court Decision
The Minister brought these queries before the Federal Court as the Minister deemed the documents provided by ACMS were insufficient. However, as evidenced by several correspondences between ACMS and the Minister, ACMS exercised significant efforts and complied to the best of their abilities with the CRA's requests for information, by handing over the documents they had on hand in response to the queries.
The Court stated that the Minister has the entire prerogative to determine the scope of the audit, as well as the documents needed to do so. The Minister may also ask for additional details if they so please.
Furthermore, the judge concluded that generally, taxpayers such as ACMS are required to provide information in response to the CRA queries. However, in cases where the CRA is requesting documents that do not exist or are not in the taxpayer's possession, exceptions may apply. In the case brought to the Court, the exception of subsection 231.5(2) ITA applied when ACMS was unable to satisfy all of the CRA's requests. ACMS fulfilled its duties accordingly by making reasonable efforts to acquire the documentation in question and provided precisions when it could. The Court ruled that the Minister could not expect ACMS to create the missing documents in answer to their queries.
The Minister's application for a compliance order was therefore dismissed.
Though the CRA has the complete discretion to establish the scope of the audit and the required documents to conduct such an audit, a taxpayer is not expected to create new documents for the purpose of an audit. Providing the documents on hand as well as giving precisions in good faith satisfy the taxpayer's legislative duty to answer the CRA's queries.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.