In the Supreme Court of Canada.
POTASH CORPORATION OF SASKATCHEWAN INC.
HER MAJESTY THE QUEEN
Affidavit of Mario M. Tombari
On February 6, 2004, Tax Executives Institute filed the following affidavit with the Supreme Court of Canada in support of Potash Corporation of Saskatchewan's appeal of a decision denying PCS's amendment of a notice of appeal. TEI's affidavit, which marks the first time TEI has become involved in a court case in Canada, urges the Supreme Court to review the case because the issues have national significance affecting all large coporations. The affidavit, which was prepared under the aegis of TEI's Canadian Income Tax Committee, was signed by TEI's Vice President for Canadian Affairs, Mario M. Tombari, of Imperial Tobacco Limited.
I, MARIO M. TOMBARI, of the City of Montreal, in the Province of Quebec, MAKE OATH AND SAY:
1. I am currently the Vice President for Canadian Affairs for Tax Executives Institute ("TEI" or the "Institute") and serve on the nine-member Executive Committee of the Institute's Board of Directors. TEI is a voluntary, non-profit association of corporate and other business executives, managers, and administrators who are responsible for the tax affairs of their employers. The Institute's Executive Committee is vested with the authority to manage the day-to-day operations of TEI, including the deliberation and approval of all Institute positions on public policy matters. In addition to serving as the 2003-2004 Vice President for Canadian Affairs of TEI, I am the Corporate Income Tax Director for Imperial Tobacco Canada Limited of Montreal, Quebec. I am, however, making this affidavit in my capacity as TEI's Vice President for Canadian Affairs rather than as a representative of my employer.
2. TEI was organized in 1944 and has approximately 5,400 members who represent more than 2,800 of the leading businesses in Canada, the United States, and Europe. The Institute is dedicated to promoting the uniform and equitable enforcement of the tax laws and to reducing the costs and burdens of administration and compliance to the benefit of both the government and taxpayers.
3. TEI members represent a cross-section of the business community with representatives from most major industries, including manufacturing, distributing, wholesaling, and retailing; real estate; transportation; financial services; telecommunications; and natural resources (including timber, mining, and integrated oil companies). Canadians make up approximately 10 percent of TEI's membership, with Canadian members belonging to chapters in Montreal, Toronto, Calgary, and Vancouver, which together make up one of TEI's eight geographic regions. In addition, a number of TEI members in the United States and Europe work for companies with substantial Canadian operations.
4. Members of the Institute have a vital interest in this case because it involves the first significant interpretation and application of subsections 165(1.11) and 169(2.1) of the Income Tax Act, R.S.C. 1985 (5th supp.), c. 1, as amended (the "I.T.A."), by the Tax Court of Canada (the "T.C.C.") and the Federal Court of Appeal (the "F.C.A."). These provisions set forth procedural rules affecting the rights of "large corporations," as defined therein, to object and to appeal assessments and reassessments for tax by the Canada Revenue Agency (the "C.R.A."). Nearly all Canadian members of the Institute work for business entities that are subject to the Large Corporation rules. In addition, many U.S. and European members have operations in Canada that are operated by entities subject to the Large Corporation rules.
5. Having read and considered the Reasons for Judgment of the F.C.A. and the T.C.C. in Potash Corporation of Saskatchewan Inc. v. The Queen, TEI has significant concerns that the decision of the F.C.A. will result in confusion, uncertainty, and unfairness to affected taxpayers. In reversing the Tax Court's decision to grant leave to amend the notice of appeal filed by Potash Corporation of Saskatchewan Inc. ("PCS"), the F.C.A. said that "it would not have been reasonable to simply say that the computation of 'Resource Allowance' or 'resource profits' was in issue, without specifying the particular elements of that computation that required a determination by the Minister or the Tax Court [...]." (Our emphasis).
6. Requiring affected taxpayers to state the "particular elements" of a computation imposes an undue burden that will lead, as the F.C.A. noted, to a "harsh result for PCS and a harsh rule for large corporations."
7. Owing to the complexity of the I.T.A., the large volume of transactions reported by large corporations on their returns, the plethora and scope of issues, and the substantial number of steps and computations involved in the proper determination of a large corporation's tax liability, it is impractical to require large corporations, with respect to each issue, to specify all the "particular elements" in their notices of objections that would then become fixed in respect of the issues, relief, and maximum amount. The result of such a holding is to confer on the C.R.A. unfettered discretion to invalidate claims where, for example, the issue has changed or the amount is, as a result of discussions, negotiations, or the discovery of new facts, higher than the amount claimed in the notice of objection even where the C.R.A. is fully informed of the issue or issues to be decided. Moreover, the factual and legal basis of the C.R.A's assessments or reassessments of large corporations is frequently vague, ambiguous, and, in some cases, misleading. Often, an assessment or reassessment will consist simply of an amount devoid of factual details or unsupported by legal reasoning other than a reference to a provision of the I.T.A. In such cases, it would be extremely difficult for a large corporation to accurately state the "particular elements" of each issue because the nebulous nature of the C.R.A.'s assessments or reassessments could mislead the taxpayer about the "particular elements" to be stated in the notice of objection. TEI is concerned that the F.C.A.'s decision would encourage the C.R.A to use vague and ambiguous assessments or reassessments. Large Corporations should be afforded the flexibility to reasonably state their objections to the C.R.A.'s assessments or reassessments as the circumstances of each case warrant.
8. Given the size and complexity of business operations and the tax issues, the I.T.A. accords the C.R.A. four years from the date of initial assessment (with a few exceptions) within which to complete an audit. Within the ninety-day time limit of section 165(1.11), large corporations must gather information from a variety of sources, evaluate the application of the tax legislation to specific facts, and respond to the C.R.A.'s findings of fact and law. It is impractical within that period for taxpayers to file a notice of objection that would be immutably correct in respect of "the particular elements" of each issue, relief, and amount. Thus, the F.C.A.'s decision imposes an undue burden on large corporations to anticipate and state in their notices of objections all possible claims and the legal theories necessary to support those claims.
9. In order to ensure compliance with the tax legislation, large corporations expend substantial sums to implement information recordkeeping and reporting systems, to establish internal controls and procedures, and to hire in-house tax professionals and outside advisers. At the same time, the corporations and their employees owe a fiduciary duty to the shareholders to protect the assets, rights, and property of the corporation and to minimize claims, including tax assessments or reassessments, against that property. In order to defend against vague, unsupported, or erroneous assessments and reassessments, which the F.C.A.'s ruling may encourage, large corporations may be compelled to expansively state the number of issues, relief sought, and amounts claimed in their notices of objection in order to avoid the risk of being assessed on overstated profits. Such "protective pleadings" or claims will increase the resources that the C.R.A. and taxpayers will be required to devote to review and resolve cases. Such a result was likely not intended by Parliament. As important, TEI does not believe that such a result is consistent with sound principles of tax administration, including the efficient resolution of disputes between large corporations and the C.R.A.
10. This case raises important and fundamental questions in respect of the Large Corporation rules that warrant resolution by this Court. At stake in this case are the threshold questions whether, and the extent to which, large corporations in Canada may have their tax liabilities properly and fairly determined under the I.T.A. in accordance with the standards that apply to all other taxpayers.
11. I make this affidavit in support of the application that I understand is being made on behalf of PCS for leave to appeal to this Court from the decision of the F.C.A. in Her Majesty the Queen v. Potash Corporation of Saskatchewan Inc., and for no other or improper purpose. No person or entity, other than TEI, its members, its members' companies, or its counsel has made a monetary contribution to the preparation or submission of this affidavit.
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|Date:||Mar 1, 2004|
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