Revenue Canada liaison meeting on excise and GST questions.

On December 5, 1995, Tax Executives Institute held its annual liaison meeting on pending excise and commodity tax issues with officials of Revenue Canada-Customs, Excise & Taxation. (Separate liaison meetings were held with Revenue Canada on income tax issues and with the Canadian Department of Finance on both income and excise tax issues.) The meeting was arranged under the aegis of TEI's Canadian Commodity Tax Committee, whose chair is Pierre M. Bocti of Hewlett-Packard (Canada) Ltd., and the Institute's delegation was chaired by Vincent Alicandri of Xerox Canada Limited. Reprinted below are the questions that the Institute submitted to Revenue Canada in advance of the liaison meeting.

Tax Executives Institute, Inc. welcomes the opportunity to present the following comments and questions on several pending commodity and excise tax issues, which will be discussed with representatives of Revenue Canada-Customs, Excise and Taxation during TEI's December 5, 1995, liaison meeting. If you have any questions in advance of that meeting, please do not hesitate to call either Vincent Alicandri, TEI's Vice President for Canadian Affairs, at [phone] or Pierre M. Bocti, chair of the Institute's Canadian Commodity Tax Committee, at [phone].

I. Revenue Canada Audit Initiatives

Since our last liaison meeting, there have been a number of developments in various Revenue Canada Audit Initiatives. We would appreciate an update in respect of the following areas:

* The use of engagement letters to define the scope of an audit.

* The Department's use of statistical sampling methods.

* The scope, objectives, procedures employed, and the implementation process for Audit Protocols.

* The Department's standards for the imposition and waiver of penalties.

* Real-time audits.

II. Wash Transactions

Revenue Canada's assessment practice in respect of wash transactions seemingly requires a supplier to charge and remit the GST that was inadvertently not charged. At the same time, the recipient of the supply is required to remit the GST and claim an input tax credit (ITC) for the same amount. This policy imposes a considerable administrative burden on both the supplier and recipient producing no demonstrable revenue for the government. Moreover, where the assessed transactions are identified close in time to the end of the eligibility period for claiming input tax credits, there is a risk that the recipient will be unable to claim the ITC; hence, the government will receive an unwarranted windfall. As an alternative to the requirement that the recipient claim the ITC, will Revenue Canada consider permitting recipients of taxable supplies to assign the right to claim ITC to the supplier?

To clarify our understanding of the application and administration of the policy regarding wash transactions, will Revenue Canada provide an example of when and how the policy will be applied? Will any other form of administrative tolerance be exercised where both the supplier and recipient are registrants?

III. Policy and Legislation Issues

A. TEI would like to discuss the following policy and legislative matters:

* Who issues rulings and interpretations - the District or Head Office? The need for consistent application of rulings and interpretations.

* The process employed to ensure quality control on the issuance of rulings.

* The development and publication of policy papers for areas requiring additional guidance or clarification of existing rules.

* The treatment of co-op advertising - a plethora of complex rules that could be eliminated by providing a zero-rating for registrants.

B. GST Memorandum 400-3-11 permits an employer to use a formula for the calculation of ITCs in respect of reimbursements of taxable expenses incurred by employees. In many instances, the employee will pay for the expenses using a credit card issued directly to the employee, i.e., the employee is personally liable for payment of the charges incurred on the credit card. In the interest of administrative efficiency, many companies are replacing the cards issued to the employees with credit cards issued to the company. In such cases, the company makes payment directly to the card issuer. Will Revenue Canada permit companies that switch to corporate credit cards to continue calculating ITC amounts on a formula basis?

IV. Conclusion

Tax Executives Institute appreciates this opportunity to provide its comments and questions on various commodity and excise tax issues. We look forward to discussing our views with you during our December 5, 1995, liaison meeting.