BP: Working Papers Held To Be Accessible to CRA

In the recent case of Canada (National Revenue) v. bp Canada Energy Company (2015 FC 714, under appeal), the FC issued a compliance order under subsection 231.7(1) of the Act requiring BP to hand over unredacted copies of its tax accrual working papers, including a list of uncertain tax positions (UTPs). The FC ruled that the minister’s request for such documents was within the scope of subsection 231.1(1). The FC felt that the compliance order did not offend the principles of the self-reporting tax system, that the list of UTPs had a purpose related to the enforcement of the Act, and that providing the list of UTPs did not require any additional work on BP’s part.

In “Acquiring Information from Taxpayers, Registrants and Third Parties,” the CRA’s stated policy is that an official authorized by the minister to perform his or her duties in accordance with sections 231.1 to 231.5 has the authority to request tax accrual working papers, although they will not be routinely required. In BP, the minister considered the company a “large filed audit,” and so it was audited on an annual basis. The minister requested the list of UTPs to help identify the areas of highest risk for a loss of tax revenues, which would allow the minister to focus resources on those areas. BP objected to the request on the same basis. BP does not believe that it should be responsible for providing the CRA with a road map for its audit of the company.

We learn from this case that the CRA is becoming increasingly aggressive in its audit practices, and the legislation provides the CRA with extremely broad powers to obtain information from taxpayers. Even though it has always had the authority to request such working papers under the Act, the CRA has not historically made such requests: it has not been the CRA’s policy to request general access to an accountant’s working papers for the purpose of examining them in the course of conducting an audit. While the working papers in this case were prepared by in-house accountants, the reasons provided by the court to support the decision seemingly also apply to working papers prepared by external accountants.

Commentators have referred to the fact that some taxpayers produce UTP schedules with their tax lawyers (rather than external accountants) and ask the lawyers to provide opinions on the veracity of the positions taken. This practice may be a way to protect working papers from required disclosure under solicitor-client privilege. However, the CRA’s technical publication cited above states that there are limitations to solicitor-client privilege. For example, if a lawyer is not providing legal advice or working in the capacity of a solicitor, solicitor-client privilege will not apply. Additionally, communication between a third-party adviser and a lawyer is not protected under solicitor-client privilege if the adviser does not act as a channel of communication between the lawyer and the client, unless the adviser’s role is essential to the existence or operation of the solicitor-client relationship.

Jingchan Hu
Crowe Soberman LLP, Toronto

Canadian Tax Focus
Volume 5, Number 4, November 2015
©2015, Canadian Tax Foundation