BP Canada Energy Company, for its audited financial statements under GAAP, had to “calculate reserves to account for contingent tax liabilities. Those calculations [had to] include an estimate of the liability BP would face if the Minister were to challenge uncertain positions on BP’s self-assessed tax return.” The Minister, in the course of an audit, demanded to see the working papers because they identified “the issues … which BP knows may merit adjustment” and “BP’s list of uncertain tax positions would identify the areas at highest risk for loss of tax revenue.” BP refused to produce the working papers, and so the Minister applied to the Federal Court for an order compelling their production for audit purposes.
The Court ordered the production of the working papers. The Court acknowledged the CRA’s long-standing policy in this area not to “routinely request audit files from accountant’s for inspection”, but it pointed out that the Minister herself, in 2010, stated clearly that the policy was subject to an overriding power to compel the production of such files. The Court also dismissed the notion, advanced by BP, that the CRA’s demand, in effect, created a “self-audit system”. The Court noted that the taxpayer had prepared the working papers in issue not because of a CRA demand but because of the requirements of GAAP. It also didn’t matter, in the Court’s view, that the working papers were not required to be prepared under the Income Tax Act or that they contained subjective judgments about BP’s potential liability. The papers were relevant to BP’s liability for tax, and so the Minister had a right to see them.
Interestingly, the Court rejected BP’s argument that granting the order would not be good public policy because “The Minister is taken to know the ramifications of a successful outcome on the legal issue in the present Application. The public and industry interest is within the Minister’s purview, and not the Court’s.”
