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Avoiding Panama: Controlling exposure to tax disputes

Oct 26, 2016

As corporations are scrutinized more intensely for their tax planning practices, their risk of exposure to tax controversy, tax audits and potential tax disputes grows. The size and stakes of such disputes is increasing – as are the financial and reputational implications for businesses and their executive leadership.

That is why it is especially important for counsel to have a thorough communication strategy in place to effectively brief key internal stakeholders regarding potential exposure. For example, advising on how the organization’s tax risk has been mitigated, and flagging key strategic decision points and important timelines is crucial.

As part of Osler’s Brief the Board series, Mary Paterson, a partner in Osler’s Litigation Practice Group, and Amanda Heale, a partner in Osler’s Taxation Practice Group, have developed resources to provide an overview of what an organization’s leadership needs to know and do when facing tax litigation. Specifically, they offer guidance on

  • assessing what is at stake
  • developing an effective tax audit defence and handling the organization’s relationship with the CRA
  • strategically managing the tax litigation and the business’s shareholders and reputation

The following resources provide a framework for mitigating exposure and the impact of possible tax disputes or litigation:


The essentials

  • Transaction: Document the commercial objective/business reason in reports to the board
  • Audit: Advise board on how organization is avoiding waiver of privilege, managing risk and containing costs
  • Objection: Ensure board is aware of large corporation rules, deadlines and potential for settlement
  • Litigation: Provide board with information on reputational implications, costs and timelines

Access the PDF of TakeawaysReview the slide deck



Video transcript

ERIC MORGAN: Hello, and welcome to Osler's webinar series "Brief the Board." I'm Eric Morgan. I'm an associate in Osler's Litigation Department in Toronto. This is a series of webinars that Osler is presenting on how counsel can brief their board members and senior management about a variety of litigation topics. In today's webinar, we'll be discussing briefing boards and senior management about tax disputes and litigation.

I'm joined today by Mary Paterson, a litigation partner here at Osler in Toronto with extensive experience in tax litigation, and Amanda Heale, a partner in Osler's Tax Department who advises on tax issues and tax litigation. If you have any questions during the webinar, please email us or type them into the area provided on your screen, and we'll respond to them as time permits. With that, I'm going to turn it over to Mary and Amanda.

MARY PATERSON: Thanks, Eric. This is Mary Paterson speaking. We're delighted to be here. And as we all know, the issue of tax disputes has become more prominent lately, particularly because of the Panama Papers scandal issue. I'm not sure what moniker to apply to it. Some of you may not know, but after Panama Papers broke, KPMG did a survey of global financial institutions. And some of their responses about the Panama Papers explain why it is that we picked this topic for our "Brief the Board" webinars.

Interestingly, the majority of the financial institutions took active steps after the Panama Papers scandal broke. A quarter of these financial institutions filed suspicious transaction or activity reports, and more than half were contacted by a regulator. As a result, it's clear that most of our organizations and boards are concerned about tax disputes given their reputational implications.

So today, we're going to speak with you about the taxpayer life cycle, what it is, how it is that tax disputes evolve, and how you can work with your board to manage both the dispute and the risk. So the taxpayer life cycle has four stages. There's the transaction stage, the audit stage, the objection stage, and the litigation stage. And because pictures are worth a thousand words, we're going to show you a picture of what the life cycle looks like.

We're going to start at the beginning of the tax dispute, which is the bottom left-hand corner of this picture, the investigative stage. That's when your colleagues in a tax group look at the financial information and decide what filing position the company should take when they file their taxes. And they look at a variety of things, including the law on tax, which, fortunately for all of us, we're not going to get into that much today.

After they file their taxes, you move up to the top left-hand corner where you've filed your taxes, you've complied with the requirements to do so, you've paid your taxes, you've complied with all of the time limits to do so, and now it's over to the CRA. Now we're into the assessment stage in the top center of the picture. Two things happen at the assessment stage.

First, the CRA conducts a desk audit, which basically means that somebody looks at the forms filed and makes sure that all the boxes are checked and the numbers are filled in where they're supposed to be. They don't really verify the numbers. They just make sure, literally, that the paperwork is done correctly. At the end of a desk audit, if the paperwork is correct, you get a notice of assessment saying that your filing position is the taxes that you've paid, generally speaking.

But after that, CRA audit gets involved, and they really dig into the filing position you've put forward. They dig into whether the numbers you've placed on the forms are correct. They dig into whether the treatment is correct. And you will know-- many of you have had CRA auditors come and sit in your offices or permanently live in your offices as they go through and verify whether the position you've taken is correct.

If the CRA thinks the position you've taken is not correct, then they reassess you. And this is when the dispute really gets rolling, and you enter what's called on the right-hand side of the slide the reflection period. This is the period where you know you have a dispute with the CRA. They have said your filing position is not correct, and you have a choice. You can object or let it lie.

If you object, you're still in the CRA. You move to an independent branch called the Appeals Branch where you have a chance to persuade an appeals officer that, in fact, the auditors are incorrect, an d original position was correct. If they agree with you, that's usually the end of the dispute. If they don't agree with you, however, that's when you really start to deal with people like me, the litigator, and you go to court.

On this diagram, if you're in the center bottom box where you have decided to go to court, that's the first time when the dispute becomes public unless it becomes public through some other way. This is where you file a pleading with the court, you file a notice of appeal, and you get into your dispute. One of the things that both Amanda and I will speak about going through this presentation is the importance of having a communication plan with your key internal stakeholders.

It's important for your stakeholders to know who is going to get a report, the level of detail in the report, and when the report is going to come to them so that they can let you know what is the information that they need to complete their duties. So that's the life cycle of the dispute. And the key thing to keep in mind throughout is, who are your stakeholders, and how are you going to communicate with them?

Now I'd like to turn it over to Amanda to talk to us about the first stage in the taxpayer life cycle, which we call the transaction stage, the investigative stage. Amanda, can you take us through some of the risks when dealing with your board in that preliminary stage?

AMANDA HEALE: Great. Thank you, Mary. Hi, everyone joining us over the web. This is Amanda Heale speaking. Of course, as Mary mentioned, the first phase of the tax dispute risk cycle is one in which you aren't yet in a dispute at all, which is the stage at which you are planning and implementing transactions.

Here, your focus in briefing your boards and senior managers will be on advising these people what the tax risks inherent in transactions are and how you've mitigated them. Now, we all like to say that it is perfectly appropriate for taxpayers to do their transactions in ways that minimize their tax burden. And that said, it may seem obvious within an organization what the commercial objectives of a transaction are. And the focus in briefing your boards and senior managers in risk management processes and in board approvals is on advising about the tax planning, what the tax risks are, and how those tax risks are going to be mitigated.

However, the single most significant factor driving tax audit risk in today's climate is whether transactions are perceived to have a business purpose or whether they are perceived as being solely tax-motivated. It is therefore critical in reporting to boards and senior managers about transactions that are proposed that the business purpose of a transaction be documented. Board decisions and risk management decisions regarding transactions often rely, with respect to tax risk, on legal opinions.

Legal opinions are, of course, based on factual assumptions, and they are only as good as those assumptions. It's therefore critical to ensure that the documentation of a transaction and that the actual conduct of the relevant individuals within an organization is consistent with the assumptions that are made in any tax opinion. It may also be important where there is a significant risk that conduct may not align with documentation, or where there might be some slippage in the conduct and its consistency with the assumptions in the tax opinion, that the board be made aware of that risk and how it is proposed that it will be managed.

And once the transaction has been implemented and documented, the next stage, as Mary has mentioned, is to manage the CRA audit. I'll now turn it over to Mary to talk about some of the considerations in briefing boards and senior managers about managing CRA audits.

MARY PATERSON: Thank you. As we've seen in recent days, the key issue for your board and your senior management when it comes to a large tax dispute is most likely to be the potential reputational implications of the dispute for the organization. That's obvious. We've seen it splashed over the newspaper almost daily for the last six or eight months. So when you're going to your board and senior management, it's important to consider what could the implications for your organization be, and more importantly, to get in front of those potential implications.

So we have seen clients, even at the very early stage-- perhaps not as early as the transactional stage, but certainly as early as the audit stage-- prepare draft press releases so that the board and the senior management are all very concretely on the same page about what the message will be should the tax dispute become public information before the company decides to make it so through the appeals process. So that's the first thing to consider when you have an audit happening. Is there a potential reputational risk, and how will it be managed?

The second key topic to be managed in the audit is something that is near and dear to my litigator's heart, and it is managing the document collection. I know. It sounds really sexy. But here's the thing. This is the aspect of your dispute that will cost your company the most money and that poses the most evidentiary risk. So although it is not fun for any of us-- believe me-- it is the most important phase for you to manage properly, and from the very beginning.

There are two key topics that your board and you should consider at the very beginning of a CRA audit. The first is privilege. Your organization is not obliged to waive privilege. Amanda and I can't tell you the number of cases where we have seen where well-meaning businesspeople have given privileged information to the CRA during the audit phase believing that it will make the CRA understand that everything is OK, and the CRA will go away.

That is not always how the CRA reacts in a situation of an audit. Sometimes that dispute goes all the way through to trial, and you have lost the protection of privilege. Making sure that your board has made a conscious choice when it comes to protecting privileged information, or your management, or is aware of the choice that has been made, and making sure that the people on the ground who are actually assisting the CRA during the audit know that choice and know how to implement it, is very important.

The second thing to keep in mind when you're managing a CRA audit is, as we're going to discuss, the CRA asks for a lot of information. They have a lot of powers to compel the production of documents and information, and even where they're not using the strong and long arm of the court to force you to do so, they have a lot of leverage just because of who they are. They're the CRA, for heaven's sakes.

So when you get queries or requirements, your people should attempt to cooperate with the CRA to give them what they're asking for, assuming that the requests are reasonable and within the bounds of what is really appropriate in an audit. When you do that, as soon as you let a piece of paper or a document or a representation leave your office and go to the CRA, you need to do a couple of things.

You need to know what you've given to the CRA because there's nothing worse than having told your board that the risk at trial is going to be x, and a surprise document is produced to your senior management while they're testifying, a document that was given to the CRA during audit that nobody knew about. We don't like it when that happens. Neither do you. So keep track of the documents that you've given to the CRA during audit.

The other thing to keep in mind with the document production during the audit is that you have a very good opportunity to engage in defensive document collection and production. You have a chance to set up your entire case for the audit, for the appeals, and for the litigation. And being prepared at the very beginning means you have a way better chance of getting a settlement at any of the next stages because you know the full life circle and body of the entire case that you have to meet or will have to prove. So that all sounds very airy-fairy and namby-pamby, but what do I really mean?

I mean you need to know who are the key players and who are the peripheral players in the tax planning or the tax dispute. What documents do they have? Talk to them. Find out. What documents have you collected? What documents have you not collected? Do you need to do a litigation preservation memo at this time, or can that wait? At the very least, you should tell people not to destroy their documents. And you should have a single memo or document tracking exactly what you've done to collect the documents that have been given to the CRA.

If you do that early and you do it properly, you will be able to assure your board and senior management that you've done everything in your power to manage both the dispute and, more importantly, potentially, the cost of the dispute. So what else do you need to know about managing audits? The CRA is not the enemy-- usually. When you have communications with the CRA, it is important to be respectful, reasonably open and transparent, because having a good working relationship with the regulator, the regulator who is going to be there every single year on every single issue that you are ever going to have, is a critical asset for your company.

And sometimes reasonable people disagree, and sometimes reasonable people behave unreasonably. That happens. But you have it within your control to approach your communications with the CRA in a way that is an asset to your organization, and instilling that culture and explaining that strategy to your management and your board is an important thing to keep in mind.

And the last thing I'll mention is waivers. So like in all areas of dispute, there's a concept of limitation periods when it comes to tax reassessments. And I'm not going to get into the number of years. But what I will tell you is when that year is approaching, when that deadline is approaching, when the CRA is facing a situation where their ability to dispute things is becoming what we call in the game statute barred, they have the chance to come to you and say, listen, give me a waiver. Give me a waiver of this limitation period so I can continue to do my audit. And I can look at the material, and I can come to a reasonable conclusion.

And usually what they say is, and by the way, if you don't give me a waiver, I'm going to reassess you for an arbitrary and often exorbitant amount. So most people agree to give waivers. But that is a tool in your toolkit that you should be aware of, and it's an important one when you're briefing the board because it can impact any timelines that you have set out for the board. So coming back to the concept of our communication plan, when you're in the audit, flag the key strategic decision points. Be clear about the timelines. And please, manage your document collection projects in a way that mitigates risk for the entire lifecycle.

So let's say you've gotten through your audit. The CRA disagrees with the filing position that you've taken, and you are now faced with a disagreement. Amanda, what do you do?

AMANDA HEALE: Well, Mary, you object. So an objection is the process by which taxpayers can choose to disagree with the decision that's been made by CRA Audit in reassessing their return and their tax liability for a year. And the objections process involves engaging with the CRA Appeals branch, which is an independent branch of the CRA that is charged with conducting an independent review of the decisions that have been made by CRA Audit, and with a view to potentially disagreeing with CRA Audit and reversing what they have done and agreeing with the taxpayer.

In filing an objection, of course, the baseline requirement for an objection is that it keep open a taxpayer's right to appeal a reassessment to the tax court if it continues to disagree with the CRA's approach after CRA Appeals has done its review. And that means that at a bare minimum in objecting to a reassessment, taxpayers need to be very mindful of what we call the large corporation rules as well as filing deadlines.

Now, the filing deadline is an easy one. When you've received a reassessment, you have 90 days within which to object. And there is some limited ability to obtain an extension of time from the CRA if you haven't met that 90-day deadline, although it is always best to do so because the CRA does have some discretion as to whether to allow an extension of time.

The large corporation rules are a bit trickier. So large corporation rules, which apply to the majority of our clients, are rules that are intended to ensure that corporations are not allowed to file an objection with a bare minimum of information and then take their time in coming up with different ways that they might disagree with the CRA's reassessment or even with their own filing positions and come up with different creative ways to determine their tax liability for a year in the fullness of time.

The large corporation rules are intended to ensure that CRA understands exactly what it is about their reassessment that is in dispute with the taxpayer when an objection is filed. And they require large corporations to specify the issues that are in dispute with CRA as a result of a reassessment, and in respect of each issue, the relief that is requested expressed in terms of a change in a balance. That's a very specific way to go about filing an objection.

And there are other aspects of objections, which are the facts and reasons supporting the taxpayer's position on the issues in dispute and the relief requested. But the issues and the relief are the critical items. And as a result of recent cases, in particular the [? Devon ?] case, the courts actually take quite a strict approach to keeping large corporations to this requirement that they specify every issue that's in dispute. And it can be quite an art.

So for example, if the CRA has denied a deduction that was taken by a taxpayer under section 9 the Income Tax Act, and the taxpayer objects, saying, I disagree with CRA, this amount was deductible under section 9, and then later on in court, tries to take the position that the amount, alternatively, isn't deductible under section 9, but it is deductible under one of the paragraphs of subsection 21, the court could very well say that-- and based on recent case law, may well say that the taxpayer is precluded from making those arguments because those weren't issues that were specified in the objection. So specifying your issues and your relief is an art and something of which taxpayers must be very mindful if they are large corporations.

So compliance with large corp rules and with filing deadlines are the bare minimum for an objection. One important strategic consideration in filing an objection is to determine whether the primary objective of the objection is protective or persuasive. An objection that is primarily protective simply keeps the issue open for a taxpayer to file an appeal with the Tax Court of Canada. So for example, where a reassessment is a result of a CRA audit that has gone to the very highest levels within the CRA where a Head Office determination has been made as a matter of policy about a certain category of issues, and you know that CRA Appeals has possibly already been looped into this-- there may be multiple taxpayers with the same issue. It's an industry dispute, and the CRA has a firm position.

Then your objection is going to be primarily protective. You file it. And it may be that when you are allowed to do so, which is 91 days after filing your objection, you push the dispute into court by filing a notice of appeal. Alternatively, it may be the case that CRA Audit has made a decision, and you think that there's a realistic prospect that CRA Appeals will overturn audit, that they will reverse the audit decision and agree with the taxpayer. In that case, the objective of your objection may be primarily persuasive. You're aiming to persuade CRA Appeals to overturn Audit and agree with your position.

And whether an objection is primarily protective or persuasive is a strategic call that has to be made based on all of the circumstances of a reassessment. Coming back to the communication plan, it's important that your board and senior decision makers understand exactly what you're hoping to achieve by virtue of filing an objection and what the expected life span of the dispute is. Is this a matter that you expect that you may be able to either persuade CRA Appeals to agree with your position or resolve by way of settlement with CRA Appeals, or is it a matter where you know that you are in a dispute, you have a firm position, CRA has a firm position as well, and where you might choose to file an objection, wait 90 days, and then once you're entitled to on day 91, file an appeal and push the matter into court?

I'm now going to turn it over to Mary to talk about what happens next if that's the decision that you take.

MARY PATERSON: Thanks, Amanda. So now you're in court. Your tax dispute is public. You have engaged with your senior stakeholders on the public relations plan, which may, in fact, be to do nothing or maybe to take a proactive step. You have engaged your litigators to make sure that they are onboard with the pleadings and the document collection plan. And there are two things that your senior management and board are going to ask you.

First, they're going to ask you, when am I going to trial? And second, they're going to ask you, how much is this going to cost us? Those two questions are the reasons why we're going to speak about the documentary discovery in litigation. And in a few moments, Amanda will speak about settlement, because those are the two key drivers of both timing and cost.

Now, I know I'm harping about documentary discovery a little bit. I do it because people really don't like doing it properly, and they try to ignore it. And it's always, always, always a mistake to try and not do it properly. So because you have done document collection and the audit properly, you now have a framework that you can use and leverage when you get into litigation.

You are ahead of the eight ball. And you can go to the CRA and say, here's what you already have from the audit phase. And you can make sure that your litigation counterparts in the Department of Justice know what they already have, because sometimes the CRA doesn't tell them. So you can get the Department of Justice up to speed with you right away.

Then you can agree to a discovery plan with the opposing party, with the Department of Justice. And the discovery plan is a phenomenal thing if you can get buy-in because what it allows you to do is say to the Department of Justice, here are the kinds of documents that we're going to give you. And they can say, actually, I think you need to give us this other category of documents too. And you can resolve that difference of opinion upfront, right away, before you even get into examinations for discovery.

The difference between documentary discovery and examinations for discovery can be pretty obvious. Documentary discovery-- you're giving each other documents. Examinations for discovery-- one of your senior executives or fact witnesses is sitting in a room, having sworn an oath, sometimes on a religious book, sometimes just affirming to tell the truth. And they are being grilled by the Department of Justice lawyer about what happened.

Those examinations for discovery have no time limit. They can go on for days and days and days and weeks and weeks and weeks. One way to limit the cost of those examinations for discovery is to make sure that you aren't using days and days and days and weeks and weeks and weeks of time having the Department of Justice say to you, did you ask Sally for her documents? Did you ask Jared for his documents? No, no. You've already dealt with that at the very beginning of the document production phase with a discovery plan. Doing it properly at the beginning saves you time and saves you money.

That's what we mean when Amanda and I say you should engage in defensive documentary collection. You should make sure that you have, in fact, spoken to all the people who are likely to have or even peripherally likely to have relevant documents so that when the Crown says to you, did you ask Sally's administrative assistant if she has any emails on her personal hard drive, you can say, in fact, Mr. Crown Attorney, yes, we did, and then move on.

That granularity won't be of interest to your board, guaranteed. But being able to tell them that you have achieved that level of granularity, and therefore managed the costs to the company, will be of great interest to the board. And that's why we raise this point with you here today. The last thing I'll note for you is that having a theory of the case very early in the piece gives you two big benefits. First, it allows you to explain to your board, most of whom will not be tax experts-- and many of you may not be tax experts-- it gives you a key, usually clearly written, usually plain-language, simply written document to say, this is what this fight is all about.

Here's our risks. Here's our pros. Here's our cons. Here's what we're going to argue. This is what we still need to find out. That document helps you with brief your board. It also helps you brief your junior people, your litigators or perhaps in-house if you're doing it in-house, but what documents may or may not be relevant. So having a theory memo very early in the phase helps you manage your cost and your timelines.

Now, like I said, the two things your board is going to ask you is, when is my trial, and will we settle? Will we have to go to trial, and how much will it cost? The key driver of cost, at least before we get to trial, is documents. The key driver of whether you have to go to trial is whether or not you can engage in settlement discussions. Amanda, teach me the trick of how to get the Department of Justice to settle, please.

AMANDA HEALE: That, Mary, is a tall order. But what I can tell you is that usually, the best opportunities to settle a tax dispute are at the objection stage with CRA appeals and after discovery has been completed. So once discoveries have been completed, you're at a magic moment in a tax dispute when all of the information is out there. Each party knows its case well, and it knows where the strengths and weaknesses are.

And they are also staring a trial in the face and saying, well, gee, do I really want to do all of the work that is involved in preparing for this trial? So that's the moment when settlement is at its strongest prospect. Now, there are two important objectives in engaging with the Crown in settlement discussions. The first one, obviously, is to resolve the dispute without having to go to trial.

But the second is also important, and that is that settlement offers can influence the ultimate cost order that a party can obtain from the court. The tax court rules contain a rule that's intended to encourage settlement discussions. And so the rule is this. If a taxpayer makes an offer to the Crown and is ultimately able to achieve at least as good a result from the court by going to trial as the offer that it has made-- and of course, if they've gone to trial, then Justice has rejected the offer-- then the taxpayer is entitled to better cost indemnity from the Crown than it would normally have gotten if no settlement offer had been made.

And the reverse is also true. If Justice makes an offer to the taxpayer and ultimately achieves a better result by going to court, then the taxpayer can be on the hook for more of Justice's costs than it otherwise might have been. So that's a rule that's intended to encourage settlement and is why often, even if a taxpayer has limited faith that a matter can be settled without going to trial and is very, very confident in its own case, you might still expect to make a settlement offer prior to trial.

And one important aspect of settlements with the CRA and Justice that is just not there with commercial disputes is that a settlement with the CRA must be principled. We've put principled in quotation marks on this slide because it's sort of a term of art in the context of tax disputes. So the CRA-- and there's case law to support this-- the CIA is not entitled to assess a taxpayer arbitrarily. So it's not allowed to assess a taxpayer purely as a matter of compromise. It's required to abide by the rules in the Income Tax Act in reassessing.

And what that means in terms of settling a tax dispute is that the taxpayer and the CRA need to come up with a basis that has its root in the Income Tax Act as to how it is that the taxpayer is going to be assessed under the act that results in a settlement. So unlike in other jurisdictions, in fact, where a tax authority and the taxpayer might just agree they're going to saw it off somewhere, they're going to split the tax liability in the middle, taxpayers in Canada and the CRA need to be creative when they're coming up with settlements.

So they need to agree, for example, that this year and this year are going to be reassessed in one way, but a couple of other years are going to be reassessed in a different way, and come up with a reason based on the fact that it can reasonably be said that a different position applies in each year. Or it might be that the CRA has two different positions that result in a total assessment of x plus y, and they agree to drop one but keep the other to keep an assessment of only x.

So that's what we mean when we say that a settlement offer must be principled. And that means that when taxpayers make settlement offers to Justice, first they have to be creative in coming up with exactly what basis under the Income Tax Act it is that they're proposing to be reassessed under, but second, it's also usually accompanied by submissions and involves a little mini-argument that's being made for why this is a principled way to settle the dispute.

Of course, if it's not possible to settle at the stage when discovery has been completed, that means that the taxpayer and Justice are headed to trial. And I'm going to turn it over to Mary to talk about what getting ready for a trial in the tax court looks like.

MARY PATERSON: Thanks, Amanda. So as we said, your board's going to ask you when's the trial. So if you're going to trial, you're going to know when the trial is. That question will be answered easily. But you will also be asked, how much is it going to cost us? Trial is the second driver of the cost of resolving your dispute. Documentary discovery and examinations for discovery are the first, and the trial is the second.

Your board may be interested in the strategies that you and your team are employing to manage both the timelines and the cost of trial. Those strategies include potentially having case management throughout and very targeted and thoughtful pre-trial discussions, both with the Department of Justice and with the trial judge. You can also consider using certain motions on the merits-- we call them Rule 58 motions-- to either deal with threshold issues, which if you are successful on those issues, the whole assessment will fall away, or that will take a large chunk of the case out of trial.

But the last thing that-- and all of those will be very case-specific. So we'll only advise you here to consider those things that, but can't really tell you what to do in your specific situation. You can always give us a call, of course. The second thing, though, that your report may be interested in is, who are your experts? Because there are many tax cases that require very specific expertise to assist the court in making the right findings of fact.

Your experts will also be one of the largest disbursements associated with the case. So you want to make sure that your lawyers or your experts have given you a budget for that aspect so that you aren't surprised by a $400,000 bill from your expert when you didn't budget for it. They may also want to know what experts you considered and rejected. The people on your boards are most likely very connected people in the community, and they will know who's good and who's not good, and they may have their own suggestions. They're a great resource to tap. And of course, everyone likes being asked their opinion.

So when you're going to your board to talk about trial and you're speaking about the cost, these are some strategies that you can consider when you are briefing your board on the time and cost associated with trial. So those are our key tips on how to plan for, manage, and deal with the risk posed by tax disputes in the Panama Papers era. Eric, has anyone submitted any questions for us to consider?

ERIC MORGAN: We've got one question I think I can put to Amanda. It's about sort of systems and practices. And it's, what are some ways to ensure that documents and conduct match the assumptions in a tax opinion?

AMANDA HEALE: That's a great question. Thank you, Eric. So I think what's important is to ensure that the risks with respect to conduct and what the tax issues are that need to be managed are understood not only by the senior managers and the tax people, but also by the so-called boots on the ground.

And so one strategy that I think is very effective is when briefing documents are prepared for those boots on the ground. So circulating a tax opinion is not necessarily the best way to make sure that people are conducting themselves in ways that are consistent with the assumptions. I can be the first to admit that tax opinions are terribly boring documents and that nobody wants to read them. But what can be done and can be very helpful is to prepare first a really concise summary of what the high-level critical tax issue is that is being managed and then something that's more like a checklist or a stoplight system.

So just to give an example, if the tax issue that's being managed is with respect to carrying on business within one jurisdiction rather than another-- so you've got a local affiliate in a foreign country, and you want to make sure that notwithstanding that the parent company might be in Canada, that that local company, as resident in the foreign jurisdiction, is carrying on business there. And so you've got a tax opinion that makes a whole bunch of assumptions about where the board of that company is going to meet, where its bank accounts are going to be, where it's going to be substantially conducting its operations.

But then you might want to also circulate to the boots on the ground a sort of stoplight document that has red light, yellow light, green light. Here are the things that you absolutely must do. Here are the things that you absolutely must not do, and here are the things to be wary and cautious of to make sure that you're conducting yourself in a way that's consistent with what everybody assumed the case was going to be when they gave that opinion.

ERIC MORGAN: Thanks very much, Amanda. Mary, we've got a question here. You mentioned well-intentioned but inadvertent disclosures of privileged information. And the question is, what are some examples or types of privileged information that's often given over to the CRA?

MARY PATERSON: Inadvertent production of privileged documents does happen quite often. And the key kinds of documents that people should be concerned about are, first of all, the obvious category of documents-- legal opinions. Legal opinions should not be provided to the CRA without careful thought.

The second kind of document that could be privileged is drafts. The CRA may ask you for drafts of the document that was ultimately signed as a transaction document so they can explore how the transaction evolved over time, and they can-- what's the word when you reverse engineer? They can reverse engineer the tax planning that went into the final document. Those drafts may be privileged, and you may not wish to produce them.

A third category of documents that could be problematic is when you have a document that, on its face, doesn't appear privileged because there's no lawyers involved, but Bob in tax is telling Fred in the business line what the lawyer told Bob. And that could be another example where privileged information is inadvertently produced. So those are a couple of examples.

I think as long as people understand that there is an issue there and can seek assistance from people who really understand privilege well, that risk is easily managed. You just need to make sure that, as Amanda says, the boots on the ground, the people dealing with the CRA, know it's an issue and know when to flag it for the people who have the information.

ERIC MORGAN: Thanks very much, Mary. So that concludes our webinar for today. On behalf of Mary and Amanda, thank you very much for joining us. We hope it's given you some useful insights. You can find more information and commentary on risk management on Osler's Risk Management blog at under the Resources tab. Thank you again for attending this webinar, and have a good day.