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Avoiding Panama: Tax dispute considerations for your board

Author(s): Mary Paterson, Amanda Heale

Oct 26, 2016

An essential part of counsel’s role is to mitigate taxation-related risk to the greatest extent possible and to keep the board informed at each of the various stages of the “taxpayer life cycle” – from compliance, to assessment, to resolution. Counsel must advise the board about each of the organization’s transactions, as well as the implications and applicable processes for subsequent audits, objections and litigation.

Refer to this guide for valuable insight into the important issues to consider when advising your board about potential tax disputes. For more detailed information and to access additional resources, visit Osler’s Brief the Board series.

1. Transaction

  • In reports to the Board, document the commercial objective / business reason.
  • Your Board relies on tax opinions to mitigate risk. Tax opinions depend on factual assumptions. Ensure that your organization's facts (documentation and conduct) are consistent with the assumptions in the opinions.

2. Audit

Advise your Board on how the organization is:

  • Avoiding the waiver of privilege in documents provided to the CRA.
  • Managing reputational and legal risk by properly collecting and preserving relevant records (consider a litigation hold memo).
  • Managing the cost of document production in the tax dispute life cycle by collecting documents methodically and keeping a record of documents produced to the CRA.

3. Objection

Advise your Board on:

  • Timelines: Beware of the large corporation rules and filing deadlines.
  • Strategic Choices: Consider whether engaging with Appeals creates an opportunity to settle the dispute. If there is little chance of settlement, consider expediting litigation

4. Litigation

Advise your Board on:

  • Reputational Implications: Consider and plan for reputational implications of public proceeding.
  • Costs: The two largest costs in litigation are discoveries (documentary and examinations) and trial. To manage costs:
    • Leverage document collection from audit for documentary discoveries; and
    • Agree to a discovery plan with the opposing party.
  • Timelines: Consider using judicial case management to create a timeline and impose discipline on discoveries. Often settlement discussions will not occur until discoveries are complete.
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Taxpayer Life Cycle

 

Taxpayer Life Cycle: Compliance - Assessment - Reflection - Resolution - Investigative

 

The Taxpayer Life Cycle image above displays a continuous cycle, beginning at Year End

  1. Compliance

    1. Filing Limits - Payment
  2. Assessment
    1. Notice of Assessment – Desk Audit
    2. Notice of Re-assessment – Site Audit
  3. Reflection
    1. Notice of Objection - Payment
  4. Resolution
    1. Appeals
    2. Court – Tax Court of Canada; Federal Court of Appeal; Supreme Court
  5. Investigative
    1. Pre-filing – Technical Interpretation; CRA Rulings

Avoiding Panama: Tax Dispute Considerations for your board