A taxpayer cannot bring an application for a court order preventing the CRA from exercising its power to demand records and information even where the taxpayer believes that the CRA would be estopped from issuing an assessment for a matter to which the records and information relate.
In Valero Energy Inc. v Canada (Attorney General), 2019 FC 319, the Crown brought a motion to strike the taxpayer’s application for the following relief (among other things):
A. an order setting aside the Minister’s requirement for information dated July 18, 2017, requesting certain documents and information related to international shipping services rendered in Canada;
B. a declaration that based on administrative law principles and the doctrines of promissory estoppel and legitimate expectations, the Minister cannot in the circumstances of this case require Valero to comply with the requirement for information; and,
C. in the alternative, a declaration that the CRA made representations to Valero, or that Valero had legitimate expectations, that no withholding or deduction was required under section 105 of the Regulations for international shipping services.
The Federal Court held that the application could proceed to a hearing in respect of these items. The Federal Court of Appeal (Canada (Attorney General) v Valero Energy Inc., 2020 FCA 68) allowed the Crown’s appeal and struck out the application in its entirety. According to the Court (at ¶27), “the real question turn[ed] on whether the Minister can be blocked from exercising her statutory authority under subsection 231.2(1) of the Act.” The Court wrote as follows:
[35] I turn now to the Crown’s third issue. As outlined in paragraph [29] above, the actual question is whether the Application has any possibility of success when reviewed in its entirety. If an order setting aside the requirement for information is granted, the Minister will be prevented from properly exercising her powers under the Act. She will be impeded from completing a fulsome review of Valero’s taxation years of 2011 to 2015 and will be unable to calculate accurately what amount of tax, if any, should have been withheld by Valero in regards to the international shipping services provided to it in Canada. Valero itself admits in its Application that the calculation of these amounts is complex. Preventing the Minister from having the requested documentation in this context cannot stand.
[36] The Minister has not yet assessed. Once she has received the complete information and documents, she may well find that Valero has no liability. In my view, Valero cannot stop the Minister from carrying out her statutory duty under the Act to assess income tax payable by way of an application for judicial review. It is clear from the overall Application, noting in particular the settlement offer it made to the CRA, that this is precisely what Valero is attempting to do.
[37] Taking a holistic approach with a view to understanding the real essence of the Application, I find that in the circumstances of this case, the doctrines of promissory estoppel and legitimate expectations cannot be utilized to prevent the Minister from obtaining the necessary documents she requires to properly administer the Act and fulfill her obligations. The Minister is required to administer and enforce the Act. This positive duty encompasses, at the very least, an obligation to assess taxpayers under the Act and to take appropriate steps to collect unpaid taxes (Vallelunga v. Canada, 2016 FC 1329, [2017] 2 C.T.C. 192, at paragraphs 12-13). To accede to Valero’s arguments would, effectively, override the power granted to the Minister under subsection 231.2(1) of the Act to obtain the proper documents to assess Valero during the 2011 to 2015 period. Again, this cannot be right (see also Prince v. Canada (National Revenue), 2020 FCA 32, 314 A.C.W.S. (3d) 658, at paragraph 17).
The Court likewise had little difficulty dismissing the other relief sought. In particular,
[39] Finally, I would also strike Valero’s alternative request for a declaration that the CRA made representations to it or that it had legitimate expectations that no withholding or deduction was required under section 105 of the Regulations in respect of payments made during the relevant period for international shipping services rendered in Canada. This is premature. Once the Minister receives the documents, if she assesses Valero for not withholding tax, Valero may have recourse in accordance with administrative law principles.
“Valero may have recourse”, but in fact it almost certainly will not, if the recourse in question is another application to the Federal Court. The Minister cannot be estopped from assessing in accordance with the provisions of the Act, regardless of any representations about the provisions made by her agents. Moreover, the correctness of an assessment under the Act is within the exclusive jurisdiction of the Tax Court.
