http://decisions.fct-cf.gc.ca/fc-cf/decisions/en/item/126272/index.do
Canada (National Revenue) v. Amdocs Canadian Managed Services Inc. (October 30, 2015 – 2015 FC 1234, Russell J.).
Précis: Amdocs Canadian Managed Services Inc. (“Amdocs Canada”) is part of a multi-national group providing “software and related services to over 250 communication, media and entertainment services providers in over 80 countries” (para. [2]). In 2013 CRA commenced domestic, transfer pricing and foreign accrual property income audits of Amdocs Canada for its 2011 and 2012 taxation years. As part of the audits it issued a number of queries pursuant to paragraph 231.1(1)(a) of the Income Tax Act (the “Act”) (the audit power). Three of those queries, all related to the transfer pricing audit, remained unanswered in the view of CRA; as a result it took this application for a compliance order pursuant to subsection 237.1(1) of the Act.
The Federal Court held that Amdocs Canada had complied to the extent it could with the four disputed queries and could not be compelled to produce documentation that did not exist. The application was dismissed with costs to Amdocs Canada.
Decision: CRA made this application in respect of three queries which it had made pursuant to paragraph 231.1(1)(a) of the Act which it regarded as either being unanswered or not fully answered:
[7] In March 2014, the CRA issued sixteen queries to obtain documents with respect to the TPA. As of the date of this application, ACMS has not provided a satisfactory response to three of the queries (IM1-2, IM1-10 and IM1-12), offering several explanations, including that the information is not available, the CRA is not entitled to it, or that ACMS will not be providing it.
[8] Query IM1-2 requested a detailed functional chart for each of the Amdocs Group entities involved in intercompany transactions with ACMS.
[9] Query IM1-10 asked for financial statements and detailed working papers containing the details of cost pools and all entities the cost was allocated to, from Amdocs Management Limited.
[10] Query IM1-12 required detailed financial statements for Amdocs Inc and detailed working papers to support back office charges.
The Federal Court accepted the evidence of Amdocs Canada that it had answered the queries to the best of its ability and held that it could not be compelled to produce documents that did not exist:
[73] If the CRA is interested in seeing any functional organization chart that may exist for the Amdocs Group, then this should be requested. IM1-2 was a request for a chart that contained particular information, and it would appear that a chart in that specified form, on the evidence before me, does not exist. It would also appear on the evidence before me that the documentation requested under IM1-10 and IM1-12 does not exist and/or is not available to ACMS. It may be that under s 230(1) of the ITA this is documentation that should exist and for which ACMS should have kept adequate records
In such a form and containing such information as will enable the taxes payable under this Act or the taxes or other amounts that should have been deducted, withheld or collected to be determined.
However, this application has been made in accordance with ss 231.7 and 231.1 of the ITA. So the issue for the Court is whether it should exercise its discretion under s 231.7 to order production of documents that are not in the possession, power or control of ACMS and which may not even exist. The Minister has not raised s 231.6 in this application. If the documents sought by the Minister in this case do exist, then they must, on the evidence before me, exist outside of Canada. However, it has not been established that they exist at all, at least in the form sought by the Minister. Should the Minister conclude that the documents could exist outside of Canada, then the Minister is at liberty to invoke s 231.6 of the ITA.
[74] Nor has the Minister asked the Court to order ACMS to create documentation that does not exist, even if this were a possible remedy available under s 231.7. The Minister has the power under s 230(3) of the ITA to specify what books and records ACMS should keep in order to fulfil its obligations under s 230(1) of the ITA, but that is not an issue before me. The Minister is at liberty to exercise this power hereafter.
[75] So the Court is left with a situation where, under s 231.7(1)(d), ACMS was required to provide access to the information sought under s 231.1, but, on the record before me, that information is not in the possession of ACMS and ACMS has no power to acquire it, even if such information exists elsewhere. The ITA does not contemplate the creation of records where they do not exist. That which does not exist cannot be produced. The exception carved out in s 231.5(2) applies here as ACMS is simply unable to do everything required of it under s 231.
[76] Subsection 231.5(2) of the ITA compels ACMS to do everything that the person is required to do “under subsection (1) or sections 231.1 to 231.4,” “unless [ACMS] is unable to do so.” I conclude on the evidence before me that ACMS has made reasonable efforts to acquire the documentation at issue, but is unable to provide the balance of the documentation and information requested by the Minister under IM1-2, IM1-10 and IM1-12. For this reason, there is no point in ordering ACMS to do something it cannot do and I decline to exercise my discretion under s 231.7(1) to grant the Minister the relief sought in this application.
As a result CRA’s application was dismissed, with costs to Amdocs Canada.