Date : 20040126
Docket : T-306-02
Citation : 2004 FC 113
BETWEEN :
SAIPEM LUXEMBOURG S.A.
Applicant
AND :
THE CANADA CUSTOMS AND REVENUE AGENCY
Respondent
ROULEAU, J.
[1] This is an application for review of a Requirement by the Canada Customs and Revenue Agency (the "CCRA") that Saipem Luxembourg S.A. provide foreign based information and documents. The Notice dated December 6, 2001 required the applicant to produce, pursuant to section 231.6(4) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) as amended (the "Act"), the following:
"...information, and production of all invoices, correspondence, agreements, contracts with amendments, financial statements, books and records of account, reports, memoranda, schedules, working papers, minutes of meetings, telexes, faxes or other documents regarding Saipem Luxembourg S.A.'s July 31, 2000 and July 31, 1999 fiscal years."
[2] The applicant seeks to have the Notice of Requirement set aside as being unreasonable on the following grounds:
A) The Requirement as worded is clearly not relevant to the administration or enforcement of the Act. The applicant is a non resident of Canada and did not have a permanent establishment in Canada during the relevant period.
B) In the alternative, that the Requirement as worded is unreasonable and constitutes a far-reaching fishing expedition and totally bypasses the procedures laid out in the Tax Convention between Canada and the Grand Duchy of Luxembourg.
[3] The applicant was incorporated in Luxembourg in 1998 and, for tax purposes, is a resident of Luxembourg. Its activities consist in acting as a sub-sea pipeline construction company.
[4] The applicant owns and operates various vessels including the S7000, a unique and probably the most powerful heavy lift vessel in the world; it is designed for work in deep and ultra-deep water.
[5] On August 4, 1998, the applicant entered into a contract of service with Saipem UK Limited ("SUK"), a related company, to complete a portion of Phase 2 of a contract entered into by it with Mobil Oil Canada Properties for engineering related to the Sable Project. The consideration for the contract involved was 10.5 million UK pounds.
[6] The Sable Offshore Energy Project is located in Nova Scotia, Canada, as well as the Nova Scotia Offshore region. It includes both offshore and onshore facilities necessary to produce and process hydrocarbon products for eventual transportation to market.
[7] The work in relation to the Phase 2 contract was performed in Canada in September and October 1998. It lasted for a period of 53 days after which the vessel left Canadian waters to carry out contract work for other parties located elsewhere throughout the world. At that point in time, it is alleged that the contractual relationship between SUK and the applicant with respect to Canadian activities terminated.
[8] It is further alleged that in the fall of 1998 SUK and the project owners enquired from the applicant as to the availability of the S7000 to be further engaged in Phase 3 of their project anticipated to be concluded in August 1999.
[9] As a result, SUK and the applicant entered into a new contract dated December 14, 1998 for completion of the Phase 3 work.
[10] The Phase 3 work was performed from August 15, 1999 to September 16, 1999 during which time the S7000 was present in Canadian waters. The vessel then left Canadian waters and no further activities were performed in Canada.
[11] On August 17, 1998 the applicant made a request to obtain waivers for regulations 102 and 105 of the Income Tax Regulations. By letters dated September 17, 1998, CCRA granted waivers with respect to both these regulations (waiver from withholding tax).
[12] The applicant submits that the Canada-Grand Duchy of Luxembourg Tax Convention provides for the exchange of information between the competent authorities of both contracting states as is necessary for the carrying out of the provisions of the Convention, to underline that at no time did the officials of the CCRA communicate with the Luxembourg tax authorities with respect to any matter pertaining to the applicant's activities.
[13] The issue in dispute is whether or not the applicant is bound to disclose income earned in Canada if they were considered to have a "permanent establishment" in accordance with Article V of the Tax Convention between Canada and the Grand Duchy of Luxembourg. The term "permanent establishment" includes more particularly under section 2(g) the following:
"A building site or construction or installation project which exist for more than 12 months."
[14] It is submitted that the two contracts performed by the applicant involving the S7000 vessel were separate and distinct, one having been undertaken in September and October 1998 and the other in August and September 1999.
[15] In the alternative, the applicant submits to the CCRA that it proceed with the determination of a question of fact and law under the provisions of section 173 of the Income Tax Act as to whether or not the applicant had a permanent establishment in Canada; that it is incumbent on the CCRA that it so proceed before it may subject a non-Canadian taxpayer to a full scale audit of its world-wide affairs.
[16] Subsection 173(1) of the Income Tax Act reads as follows:
"173(1) Where the Minister and a taxpayer agree in writing that a question of law, fact or mixed law and fact arising under this Act, in respect of any assessment, proposed assessment, determination or proposed determination, should be determined by the Tax Court of Canada, that question shall be determined by that Court."
[17] Finally, the applicant submits that the Requirement is too wide in ambit considering its extensive world-wide activities.
[18] The respondent disputes the applicant's allegations with respect to the duration of activities in Canada and submits that it has no means of verifying the information advanced without carrying out an audit of the applicant's books and records.
[19] The respondent further argues that CCRA officials did not communicate with Luxembourg tax authorities since there is no such requirement under the Treaty, nor is there any obligation requiring the CCRA to apply further information gathering techniques prior to issuing the Requirement.
[20] It is further advanced by the CCRA that a subsection 173(1) application which requires agreement in writing as to the facts cannot be established without a proper audit. The CCRA is in no position to verify any of the facts advanced by the applicant without access to their books and records.
[21] Section 231.6 of the Act was introduced in 1988 to provide rules enabling the Minister to obtain such foreign-based information or documentation as is necessary to permit a proper assessment for Canadian tax purposes.
[22] In the case of Merko v. Canada (Minister of National Revenue-M.N.R.) [1991] 1 F.C. 239, Cullen J. of this Court stated:
"It is clear from the wording of the legislation, supra, that Parliament intended to give Revenue Canada strong, comprehensive and far-reaching powers to secure "foreign-based information or document". Section 231.6, in defining "foreign-based information or document", sets forth "any information or document which is available or located outside Canada". To secure this information or document National Revenue need only be able to show "it is relevant to the administration or enforcement of this Act"."
[23] Thus, the test to be applied is not whether the information requested will be relevant in determining the applicant's Canadian tax liability, but rather whether the information is relevant to the administration of the Act.
[24] In the present case, the respondent seeks information in order to carry out a general audit of the applicant's affairs for the 1999 and 2000 fiscal years with a view to determining its Canadian tax liability. It is trite law that one of the purposes of an audit is to verify information. The fact that some information has been provided by the taxpayer or may be available from another source is irrelevant.
[25] It is the CCRA's duty to verify the applicant's tax liability which necessarily requires the production of the applicant's books and records. If, after being examined, they have no impact on Canadian tax liability and if some information gleaned from the audit proves to be irrelevant it shall be treated as such but, before such a determination can be made, the books and records must be made available.
[26] In conclusion one need only refer to the summary of Merko v. Canada (Minister of National Revenue-M.N.R.), supra:
"Parliament intended to give the Minister far-reaching powers under section 231.6 to obtain information available outside of Canada. The Minister need only show that it is relevant to the administration or enforcement of the Act. The taxpayer is protected from abusive use of the provision through the power of a judge to review the requirement. The respondent's requirement was not an abuse of the process nor was the request unreasonable."
[27] As stated by the Supreme Court of Canada in McKinlay Transport Ltd. v. Canada, [1990] 2 C.T.C. 103, the requirement to provide information, though broad in its terms, is not an abuse of the process.
[28] The application is hereby dismissed.
JUDGE
OTTAWA, Ontario
January 26, 2004
FEDERAL COURT
NAMES OF COUNSEL AND SOLICITORS OF RECORD
STYLE OF CAUSE:
SAIPEM LUXEMBOURG S.A.
Applicant
and
THE CANADA CUSTOMS AND
REVENUE AGENCY
Respondent
PLACE OF HEARING: Montreal, Quebec
DATE OF HEARING: January 6, 2004
REASONS FOR ORDER : THE HONOURABLE MR. JUSTICE ROULEAU
APPEARANCES:
Mr. Wilfrid Lefebvre FOR THE APPLICANT
Mr. Peter J. Leslie FOR THE RESPONDENT
SOLICITORS OF RECORD:
Ogilvy Renault FOR THE APPLICANT
Montreal, Quebec
Morris Rosenberg FOR THE RESPONDENT
Deputy Attorney General of Canada
Montreal, Quebec