Levett v. Canada (Attorney General)

Levett v. Canada (Attorney General)
Court (s) Database
Federal Court Decisions
Date
2021-04-12
Neutral citation
2021 FC 295
File numbers
T-1333-18, T-1334-18, T-1335-18
Decision Content
Date: 20210412
Dockets: T-1333-18
T-1334-18
T-1335-18
Citation: 2021 FC 295
Ottawa, Ontario, April 12, 2021
PRESENT: The Honourable Madam Justice St-Louis
BETWEEN:
CRAIG LEVETT AND NATHALIE BENSMIHAN
OFER BAAZOV AND CATHY BENSMIHAN
9179-3786 QUÉBEC INC.
Applicants
and
THE ATTORNEY GENERAL OF CANADA
Respondent
and
THE CANADA REVENUE AGENCY
Federal Board
JUDGMENT AND REASONS
I. Introduction
[1] These three Applications for judicial review [the Application(s)] concern three Requests for Specific Exchange of Information [the Requests for Information] addressed by the Canada Revenue Agency [the CRA], to the Swiss Federal Tax Administration [the Swiss authorities] pursuant to the Convention between Canada and Switzerland for the Avoidance of Double Taxation with respect to Taxes on Income and on Capital done at Berne on May 5, 1997, as amended to include the Interpretative Protocol done on October 22, 2010 and the Supplementary Convention done on July 23, 2012 [the Convention].
[2] More precisely, (1) Mr. Craig Levett and Mrs. Nathalie Bensmihan, husband and wife, challenge the Request for Information dated October 20, 2017, in which they are jointly named (Court file T-1333-18); (2) Mr. Ofer Baazov and Mrs. Cathy Bensmihan, husband and wife, challenge the Request for Information dated October 20, 2017, in which they are jointly named (Court file T-1334-18); and (3) 9179-3786 Québec Inc. [the 9179 company], a Quebec-registered numbered company, owned by Mr. Levett, challenges the Request for Information dated April 19, 2018 (Court file T-1335-18). The term “Applicants” will refer hereinafter to the four physical persons and the 9179 company collectively.
[3] As remedies, the Applicants ask the Court to (1) quash the Requests for Information; (2) order the CRA, the Minister of National Revenue [the Minister], and their officers, employees and agents to send a letter to the Swiss authorities informing them that the Requests for Information have been quashed, and requesting that they cease all activity related to the Requests for Information; (3) prohibit the CRA, the Minister, and their officers, employees and agents from using and relying on any information provided in response to the Requests for Information, and any information derived therefrom; (4) prohibit the CRA, the Minister, their officers and their employees and agents from sending further requests to the government of Switzerland – or any other foreign country – that concern the Applicants and are similar to the Requests for Information until the CRA, the Minister, and their officers, employees and agents have exhausted all domestic means of audit regarding the information and documents sought by the Requests for Information; and (5) the whole with costs.
[4] On August 29, 2018, Madam Prothonotary Steele ordered, inter alia, that the three Applications (Court files T-1333-18, T-1334-18 and T-1335-18) be consolidated pursuant to Rule 105(a) of the Federal Courts Rules, SOR/98-106 [the Rules]. Madam Prothonotary Steele also identified Court file T-1333-18 as the lead Application for the purposes of proceedings management and of the hearing on the merits, indicated that a copy of any judgment rendered in file T-1333-18 would also be placed in the other two files, and outlined the proper style of cause.
[5] For the reasons exposed hereafter, the Applications will be dismissed.
II. Brief Procedural History
[6] On July 11, 2018, the Applicants filed their three Notices of Application. The Applicants essentially asserted that the Requests for Information were irremediably vitiated, and unreasonable, because the CRA (a) acted beyond its jurisdiction; (b) did not comply with the provisions of the Convention and the applicable rules of law; (c) acted based on allegations of fact which were false and which it knew to be false; and (d) failed to provide full, frank, and honest disclosure to the Swiss authorities. The grounds for review then set out by the Applicants were that the Requests for Information are invalid because the CRA did not exhaust all domestic avenues of compliance and did not provide full and frank disclosure to the Swiss authorities.
[7] In each of their Notices of Application, the Applicants included a request pursuant to Rule 317 of the Rules for an itemized list of relevant material in the possession of the CRA, and not in the possession of the Applicants, including the “CRA auditor’s records of conversations T2020.”
[8] The CRA provided responses though separate certificates under Rule 318 of the Rules. Hence, on August 9, 2018, the CRA provide its first three Rule 318 certificates, one for each of the court files – which had not yet been consolidated. Among the material included were “Memos for File (T2020) in bundle,” which included redacted long and short Memos for file (T2020) for the files regarding applicants Craig Levett, Ofer Baazov and the 9179 company.
[9] On August 27, 2018, the Applicants served an affidavit sworn by Mtre Charles Leibovich, one of the Applicants’ representatives in the CRA audits described below. Mtre Leibovich attached 18 exhibits (some of which include more than one document).
[10] On October 11, 2018, the Applicants received the affidavit sworn by Ms. Danielle Asselin, tax auditor for the CRA [the First Asselin Affidavit]. Ms. Asselin, inter alia, affirms that the Requests for Information were presented to the Swiss authorities as part of Messrs. Levett and Baazov’s audits, and that their wives were mentioned in order to verify if they had been used as nominees (prête-noms) to open bank accounts or hold assets outside of Canada. Along with her affidavit, Ms. Asselin introduces exhibits, including, as exhibit 5, the Memo for file (T2020) in each Mmes. Cathy Bensmihan and Nathalie Bensmihan’s audit file. In addition, Ms. Asselin includes, as exhibit 6, seven (7) documents that should have been filed in the Rule 318 certificates.
[11] On June 28, 2019, Madam Prothonotary Molgat ordered that an un-redacted version of the short Memos for file (T2020) for the files concerning applicants Craig Levett, Ofer Baazov, and 9179 company, be provided to the Applicants. On July 4, 2019, the un-redacted versions were provided.
[12] On August 19, 2019, the Applicants served an additional affidavit sworn by Mtre Leibovich, introducing 11 exhibits. The filing of the affidavit is opposed by the Respondent, the Attorney General of Canada [the AGC], as detailed below.
[13] On October 2, 2019, the Applicants filed a Motion to Amend their Notices of Application and to accept Mtre Leibovich’s August 19, 2019 affidavit for filing [the Motion to Amend] under Rule 369 of the Rules. The AGC opposed the Motion to Amend.
[14] On January 20, 2020, the CRA provided an Addendum to the Rule 318 certificates in response to the filing of the Amended Notices of Application. 16 documents were then provided, including letters between the CRA and the Toronto-Dominion Bank [TD Bank].
[15] On January 20, 2020, Madame Justice Walker decided, inter alia, that the Motion to Amend would be heard together with the merits of the Applications. She noted that the parties had agreed on a procedural timeline and procedural steps on the basis of the draft Amended Notices of Application, under reserve of the AGC’s contestation of the proposed amendments.
[16] On February 4, 2020, the AGC filed an additional affidavit from Ms. Asselin [the Second Asselin Affidavit], and on February 24 and 25, 2020, Ms. Asselin was cross-examined by counsel for the Applicants. The Applicants have submitted both Ms. Asselin’s affidavits and the transcript of her cross-examination as part of their Application Record.
[17] On January 20 and 21, 2021, the Court heard the parties’ submissions on the merits of the Applications. At the onset of the hearing, the parties confirmed to the Court that the Motion to Amend was filed under Rule 369 of the Rules, that no hearing was necessary, and that they relied on their written submissions.
III. Motion to Amend the Notices of Application and to Accept the Affidavit for Filing
A. Amended Notices of Application
[18] Having had the benefit of consulting the First Asselin Affidavit and its exhibits, the Rule 318 documents transmitted by the CRA, and the un-redacted versions of the short Memos for file (T2020), the Applicants ask the Court to grant them leave to amend their Notices of Application and add five grounds for the Applications, as outlined in subsections (C), (D), (E), (G) and (H) of their Amended Notices of Application. The Applicants rely on Rule 75 of the Rules, which provides that the Court may, at any time, allow a party to amend a document. They notably cite Canderel Ltd v Canada, [1994] 1 FC 3 (CA), which states that amendments should be allowed in order to ensure that the proper issues are before the Court, provided that such amendments can be made without causing injustice that could not be remedied with costs.
[19] The Applicants submit that the amendments they propose should be allowed, as they clarify the questions in controversy between the parties, will not unduly delay the outcome of the files, will not result in a new issue or cause of action, and will not cause prejudice to the Respondent.
[20] The AGC opposes the proposed amendments, except those outlined at paragraph 14 of his Written Representations. He submits that the test is whether it is “more consonant with the interests of justice that the […] amendment be permitted or that it be denied” and lists some factors the Court may take into account. He essentially submits that the remaining amendments should not be allowed, as they constitute new grounds for judicial review, are devoid of factual basis, and are untimely.
[21] The Applicants have satisfied me that the interest of justice weighs in favour of granting the Motion to Amend and allowing the Applicants to amend their Notices of Application.
[22] The AGC suffered no prejudice, having had the opportunity to respond fully to the new arguments raised. The AGC confirmed as much at the hearing.
B. Filing of the additional affidavit
[23] The Applicants also make their Motion pursuant to Rule 312 of the Rules, which provides that the Court may allow a party to file an additional affidavit, in this case the affidavit sworn by Mtre Charles Leibovich on August 19, 2019. Mtre Leibovich affirms, “I have knowledge of the facts and matters […], except for the facts that were told to me or that I read, which I verily believe to be true.” He introduces as exhibits correspondence between the CRA and Mtre David Assor, the CRA and Mtre Steve Levy, and the CRA and each Mmes. Cathy and Nathalie Bensmihan. He also introduces two letters he sent to the CRA. Finally, he attaches a correspondence from Québec’s Autorité des Marchés Financiers [AMF] to various attorneys regarding an investigation and Memos for file (T2020) regarding the Applicants.
[24] The Applicants first submit the affidavit is not an additional affidavit per Rule 312 of the Rules, as it was served and filed within the time period provided in and authorised by the Order of the Court dated June 28, 2019 (per Madam Prothonotary Molgat) [the Order]. If, however, the affidavit does constitute an additional affidavit, the Applicants submit that the Order has already granted them leave to file it. In the alternative, the Applicants seek leave to file the affidavit under Rule 312 of the Rules, on the basis that the facts are relevant to the arguments raised in the Amended Notices of Application
[25] The AGC cites Rule 312(a) of the Rules, which provides that a party may be allowed to file an additional affidavit if the evidence is admissible and relevant. If this threshold is met, the Applicants must convince the Court to exercise its discretion in favour of granting leave based on a number of factors. They include the availability of the evidence when the affidavit was filed, the Applicants’ due diligence in obtaining it, the assistance the evidence may provide to the Court, and the possibility of substantial or serious prejudice to the other party.
[26] The AGC submits that, for the most part, Mtre Leibovich’s proposed additional affidavit dated August 19, 2019 is inadmissible, as he does not have personal knowledge of the matters he deposes of. The AGC adds that, in an application for judicial review, an affiant cannot depose of information he believes to be true without violating the prohibition against hearsay evidence (under Rule 81(1) of the Rules and Moldeveanu v Canada (Minister of Citizenship and Immigration), [1999] 235 NR 192 (FCA)). The AGC adds that Mtre Leibovich is not a party to the letters he attaches as Exhibits A, B, C, E, F, G and I, and did not personally receive the Memos for file (T2020) he attaches as Exhibit K; the whole as described at paragraph 44 of the AGC’s Written Representations.
[27] The AGC adds that, if Mtre Leibovich’s affidavit is admitted as evidence, only exhibits D and H and paragraphs 11 and 15 are admissible. However, the AGC argues that these paragraphs refer to letters (Exhibits D and H) dated March 13, 2017 and April 19, 2017, which were accessible to the Applicants. The AGC argues that the Applicants did not explain or file evidence as to why they were not filed earlier.
[28] I am satisfied that the Applicants can file the affidavit. However, I agree with the AGC that only exhibits D and H and paragraphs 11 and 15 are admissible.
[29] Under Rule 81(1) of the Rules, affidavits are “confined to facts within the deponent’s personal knowledge except on motions, other than motions for summary judgment or summary trial.” As such, in an Application, the affiant, Mtre Leibovich, could only depose of information within his personal knowledge.
[30] As the Federal Court of Appeal found in Éthier v Canada (RCMP Commr) [1993] 2 FC 659 (CA), Rule 81 is not an absolute prohibition on the admission of hearsay evidence. However, the prohibition against information based on belief is rooted in the common law rules against hearsay evidence. Indeed, our Court states in Bressette v Kettle & Stony Point First Nations Band Council, [1997] 137 FTR 189:
This Rule embodies the common law rule of hearsay which prohibits the admission of statements made by someone not called as a witness, except when such statements are tendered for a purpose other than to establish their truthfulness. The rationale for these two tenets is that the evidence contained in an affidavit must be able to be tested during a cross-examination of the affiant (at para 3).
[31] The Applicants have presented no justification for their decision to ask Mtre Leibovich to attest to facts and documents that are not within his personal knowledge. Likewise, they have presented no indication that the proper fact witnesses – the parties to the letters and documents Mtre Leibovich attaches to his affidavit – were unavailable. The Applicants have not explained why these documents are admissible as attachments to Mtre Leibovich’s affidavit – either in the affidavit itself or their submissions.
[32] I am satisfied it is in the interest of justice to strike from the record paragraphs 6, 7, 8 (as it pertains to Mtre Levy), 9, 10 (as it pertains to Mtre Levy), 12, 13, 14, 16 and 18 of Mtre Leibovich’s affidavit, and to strike from the record the exhibits referred to in these paragraphs, i.e. Exhibits A, B, C, E, F, G, I, J and K.
[33] Paragraphs 11 and 15 and exhibits D and H of Mtre Leibovich’s August 2019 affidavit will not be struck.
[34] At paragraph 11 of his affidavit, Mtre Leibovich affirms having sent a copy of Mtre David Assor’s trust account ledger, and a copy of the bank statement for his trust account for the relevant period, to the CRA, as appears from his letter to the CRA dated March 13, 2017, attached to his affidavit as Exhibit D. Per the text of the letter, the documents are sent in further response to the CRA’s “question 16.” Me Leibovich adds that he had not received the consent of his client, Mrs. Nathalie Bensmihan, to the transmission of these documents to the CRA.
[35] At paragraph 15, Mtre Leibovich affirms having advised the CRA that the requested copies of supporting documents from TD Bank (of electronic fund transfers) were not available to him and his client, Mrs. Nathalie Bensmihan, as appears from the letter he sent to the CRA on April 19, 2017, in response to the CRA’s letter of March 21, 2017, and attached to his affidavit as exhibit H.
[36] As further detailed below, the other exhibits attached to Mtre Leibovich’s affidavit, if admitted, would not have affected my conclusion on the merits of the Applications.
IV. Context
A. CRA audits of Messrs. Levett and Baazov
[37] Ms. Danielle Asselin, an auditor for the CRA, was assigned to Mr. Levett and Mr. Baazov’ audits from their inception. Per the information she provided in her affidavit, Ms. Asselin received information from a partner country (“pays partenaire”) in regards to Zhapa Holdings, a British Virgin Islands corporation. She also gathered information regarding Messrs. Baazov and Levett on online discussion forums. This information led her to believe that Messrs. Levett and Baazov could have unreported foreign assets.
[38] By letter dated June 30, 2015, the CRA advised Mr. Levett that he was selected for an audit pursuant to section 231.1 of the Income Tax Act (RSC 1985, c 1 (5th Supp)) [the Income Tax Act] for the 2011 to 2013 taxation years. By letter also dated June 30, 2015, the CRA advised Mr. Baazov that he was selected for an audit for the 2010 to 2013 taxation years.
[39] In these June 2015 letters, the CRA individually informed Messrs. Levett and Baazov that it possessed information that led it to determine that they may have offshore holdings that they have failed to disclose for Canadian taxation purposes, as required by the Income Tax Act. The CRA attached questionnaires Messrs. Levett and Baazov were required to complete pursuant to section 231.1 of the Income Tax Act. A copy of these questionnaires is in the record, from which we see a number of questions to the taxpayer regarding whether he or his family members own residences, property, banks accounts, or investments accounts outside of Canada, and whether he or his family members have been involved with companies, trusts, and other entities outside of Canada.
[40] It is not disputed that for the years under audit, Messrs. Levett and Baazov have not declared foreign assets valued at more than CAD 100,000, as they did not complete T1134 or T1135 taxation forms for these years.
[41] On September 8, 2015, Messrs. Levett and Baazov returned their completed questionnaires, and documents in support thereof, to the CRA. Messrs. Levett and Baazov answered no to all questions pertaining to their or their family members’ involvement with entities and ownership of assets outside of Canada.
[42] On March 8, 2016, Ms. Asselin questioned both Messrs. Levett and Baazov pursuant to the audits and, per their representations (at paragraph 17 of the Applicants’ Memorandum of Fact and Law [the Applicants’ Memorandum]), Messrs. Levett and Baazov undertook to provide additional information and documents related to their affiliation with and connections to Canadian entities. Messrs. Levett and Baazov were questioned on a number of entities, including Zhapa Holdings and Kilworthy Limited, and confirmed they were not involved with and did not know about them (pages 639 and 650 of the Applicants’ Record).
[43] On March 15, 2016, Ms. Asselin sent each of Messrs. Levett and Baazov a letter to ask for more information in regards to the corporate entities they had discussed. Ms. Asselin also asked them for information regarding their wives and, among other things, their wives’ disposal of shares in 2011.
[44] Some of the documents sought by Ms. Asselin were not available to Messrs. Levett and Baazov. Indeed, during the same period, Messrs. Levett and Baazov were the subject of an investigation by the AMF. In the context of that investigation, the AMF had seized all of the documents relating to their dealings in the securities of a Canadian publicly traded company. Therefore, Messrs. Baazov and Levett could not provide the CRA with some of the documents it sought.
[45] On April 6, 2016, Ms. Asselin unsuccessfully tried to reach her liaison at the AMF. She did not mention the taxpayers in her voice message (pages 2261 and 2264 of the Applicants Record).
[46] In April and May 2016, the AMF remitted Messrs. Levett and Baazov certain documents, none pertaining to foreign entities, and Messrs. Levett and Baazov in turn provided documents to the CRA.
[47] On August 19, 2016, Ms. Asselin again contacted the AMF liaison to enquire into whether the taxpayers could receive a copy of the seized documents, and to obtain information on the proper procedure in this regard, reporting to Messrs. Levett and Baazov’s then counsel the same day.
[48] In August 2016 and March 2017, Messrs. Levett and Baazov remitted yet more documents to the CRA.
[49] Per their own submissions (Applicants’ Memorandum at para 21), nothing in the information or documents provided by Messrs. Levett and Baazov gave any indication to the CRA that they were involved with foreign entities or held investments, bank accounts, or other assets offshore.
[50] On April 27, 2017, Ms. Asselin contacted the investigative director of the AMF in order to obtain information about the investigation, particularly to ask whether the investigation would be concluded soon. The director responded that no information could be provided, as the investigation was ongoing, but he sent Ms. Asselin a decision from the Tribunal administratif des marchés financiers [the AMF Tribunal Decision and the AMF Tribunal] (bearing the reference Autorité des marches financiers c Baazov, 2017 QCTMF 32). In its decision, the AMF Tribunal reproduces allegations raised by the AMF, notably regarding the potential existence of two bank accounts in Switzerland, one held by Kilworthy Limited with Hyposwiss Private Bank Ltd. [Hyposwiss] and the other held by Optivilla Holding, a British Virgin Island corporation, with Union Bancaire Privée [UBP].
[51] On May 12, June 7, June 8, and June 21, 2017, the CRA sent requirements to various financial institutions for information regarding bank accounts and credit cards of Applicant Craig Levett. It also requested a list of shareholders of Amaya Inc. from a stock transfer company, as well as list of transactions performed by various persons and entities, including Messrs. Levett and Baazov, Optivilla Holding, Kilworthy Limited, and Zhapa Holdings.
[52] On May 12, 2017, the CRA sent similar requirements to TD Bank for information regarding bank accounts and credit cards of Applicant Ofer Baazov.
B. CRA audits of Mmes. Cathy and Nathalie Bensmihan
[53] The Court’s decision on the inadmissibility of part of Mtre Leibovich’s August 29, 2019 affidavit and some exhibits he sought to enter into evidence impacts the evidence adduced in regards to Mmes. Cathy and Nathalie Bensmihan’s files the most.
[54] Essentially, there thus remain, in regard to Mmes Cathy and Nathalie Bensmihan, the information contained in the First Asselin Affidavit and its exhibit 5, Memos for file (T2020); the information contained in Mtre Leibovich’s August 2019 affidavit and its exhibits D and H; and the documents remitted as part of the Addendum to the Rule 318 Certificates in January 2020.
[55] The evidence reveals that the CRA questioned each of Messrs. Baazov and Levett on their wives’ sale of the shares in 2011, and that on November 2016, the CRA contacted each of Mmes. Cathy and Nathalie Bensmihan to inform them that an audit had been commenced for their 2008 to 2013 taxation years. The CRA was interested in the sale of shares in 9191-1982 Québec Inc. to a Spanish company in November 2011 (see paragraphs 46-48 of the First Asselin Affidavit). As mentioned earlier, this information was sought in the questionnaires the CRA sent to Messrs. Levett and Baazov as part of their audits, following the March 2016 meeting.
[56] Mr. François Bergeron was the CRA auditor in charge of the audits of Mmes. Cathy and Nathalie Bensmihan until August 2018, when Ms. Asselin replaced him as auditor in charge of these audits (First Asselin Affidavit at para 49). The record shows (per Mrs. Cathy Bensmihan’s Memos for file (T2020)) that Mr. Bergeron contacted Ms. Asselin on November 16, 2016 in order to ask her if she had Mrs. Cathy Bensmihan’s personal bank accounts information in her file. Per the record, Ms. Asselin responded that she did not have them, but did have Mrs. Bensmihan and her husband’s joint accounts information and could see a deposit for the amount Mr. Bergeron was looking for.
[57] Again, per the Memos for file (T2020), in November 2016, Mtre Shlomi Steve Levy, counsel for Mrs. Cathy Bensmihan, and Mtre Charles Leibovich, counsel for Mrs. Nathalie Bensmihan, individually requested that their clients be provided with questions to be answered in writing in lieu of an in-person interview. Mr. Bergeron’s supervisor assented to that request on November 21, 2016 (pages 688-89 and 695-96 of the Applicants’ Record). Mr. Bergeron’s questionnaires were finalised, approved by his supervisor, and sent to the taxpayers in January 2017.
[58] Regarding Mrs. Cathy Bensmihan, the record shows Mtre Levy responded with the completed questionnaire on February 10, 2017 (Memo for file (T2020) at page 696 of the Applicants’ Record). On February 17, 2017, Mr. Bergeron followed up with Mtre Levy regarding when he would receive a lawyer’s trust account statement – the lawyer is not named. Mtre Levy subsequently confirmed having requested said statement (pages 696-97 of the Applicants’ Record).
[59] Regarding Mrs. Nathalie Bensmihan, on March 14, 2017, Mr. Bergeron received a copy of Mtre David Assor’s trust account statement (page 689 of the Applicants’ Record). This entry is contemporary to the March 13, 2017 letter Mtre Charles Leibovich addressed to the CRA and attached as Exhibit D to his 2019 affidavit (page 532 of the Applicants’ Record). In the letter, Mtre Leibovich states that he attaches a copy of Mtre Assor’s trust ledger, as well as the corresponding bank statement. In the same letter to the CRA, Mtre Leibovich also mentions that these documents are provided “in response to question 16,” presumably of the CRA’s questionnaire addressed to his client, Mrs. Nathalie Bensmihan.
[60] On March 20, 2017, Mr. Bergeron asked his Department of Justice [DOJ] contact for advice regarding whether he could request information from a bank. The DOJ contact informed him that he should wait for counsel’s opinion and continue to request such information directly from the taxpayers, as Canada (Attorney General) v Chambre des notaires du Québec, 2016 SCC 20 [Chambre des notaires] involved requesting information through the back door (“par en arrière”), without asking the taxpayers to waive privilege (the full name and reference of the case are not stated in Mr. Bergeron’s notes).
[61] Also on March 20, 2017, Mr. Bergeron met with his supervisor. They agreed that he would request the information directly from the taxpayers. They would also make a request from the bank regarding another account (not the lawyer’s account), which would not raise the concerns of counsel.
[62] For obvious reasons, the opinion Mr. Bergeron may have eventually obtained from counsel is not in the record.
[63] On March 22, 2017, Mtre Leibovich contacted Mr. Bergeron to mention that he would prefer that the letter addressed to his client (Mrs. Nathalie Bensmihan) have been sent to him. This appears to confirm that Mr. Bergeron did in fact request the information directly from the taxpayers.
[64] On March 23, 2017, the CRA sent TD Bank a requirement for supporting documents for two wire transfers of approximately $425,000, in the context of its verification of Mrs. Nathalie Bensmihan.
[65] On April 20 and July 4, 2017, TD Bank sent the information to the CRA.
[66] In August 2018, Ms. Asselin, the CRA auditor in charge of Messrs. Levett and Baazov’s audit, was put in charge of Mmes. Cathy and Nathalie Bensmihan’s audits.
[67] On cross-examination, Ms. Asselin confirmed that the requests for Mtre Assor’s trust ledger account was sent directly to each of Mmes. Cathy and Nathalie Bensmihan, and that the documents were provided to the CRA at least twice, including by both of Mmes. Cathy and Nathalie Bensmihan’s counsel.
[68] Also on cross-examination, Ms. Asselin confirmed that, in October 2017, she had not yet been assigned to Mmes. Cathy and Nathalie Bensmihan’s audits. She stated that she was unaware of what was being done in their audit files prior to the reassignment (page 1513 of the Applicants’ Record). She testified that the spouses were named in the Requests for Information as part of their husbands’ audits (pages 1507 and following of the Applicants’ Record). She pointed to the questionnaires sent to Messrs. Levett and Baazov in June 2015 and March 2016 which contained queries about each taxpayer’s wife and family assets and activities, and referred to unexplained deposits and sales of shares.
[69] Finally, on cross-examination, Ms. Asselin described the process leading to the Requests for Information and confirmed the fact that the competent authority signing the requests relied solely on the auditor’s information (pages 1371-75, 1380, 1385, 1390, 1437-38, 1513, 1526-7 and 1559 of the Applicants’ Record). Ms. Asselin confirmed that the competent authority, which issues Requests for Information, is a separate team of CRA employees located in Ottawa.
C. CRA audit of the 9179 Company
[70] In December 2016, the CRA also conducted an audit of the 9179 company, which is owned by Mr. Levett, for its 2012 to 2014 taxation years. This was prompted by the CRA obtaining information from the Agence du revenu du Québec, around February 2016, to the effect that the 9179 company had received a loan of some 1.3 million dollars from a Swiss entity, Socimbal AG [Socimbal], in 2007.
[71] Ms. Asselin was also in charge of this audit. Her examination of the company’s financial records showed that the 9179 company had never repaid either capital or interest to Socimbal since 2007 (then a 10-year period).
[72] On November 21, 2017, Ms. Asselin sent questions to Mtre Leibovich, counsel to the 9179 company. On January 22, 2018, he (1) responded that the taxpayer (the 9179 company) was introduced to Socimbal by a Montreal lawyer, providing the name and telephone number of a contact at Socimbal (abroad); (2) indicated that no capital or interest has yet been reimbursed, “as lender satisfied with loan”; and (3) provided the disbursement document from the company, as well as and the loan agreement (page 130 and following of the Applicants’ Record).
[73] On February 1, 2018, Ms. Asselin met with the 9179 company representative to obtain precisions and was again informed that Socimbal was satisfied with the loan.
[74] On April 19, 2018, the CRA issued the Requests for Information under review.
V. The Requests for Information under Review
A. Mr. Levett and Mrs. Nathalie Bensmihan / Mr. Baazov and Mrs. Cathy Bensmihan
[75] On October 31, 2017, the two couples, Mr. Craig Levett and Mrs. Nathalie Bensmihan and Mr. Ofer Baazov and Mrs. Cathy Bensmihan, were each the subject of a CRA Request for Information to the Swiss authorities (pages 59-62 of the Applicants’ Record).
[76] The two Requests for Information are introduced by a letter from a Director of the International, Large Business and Investigations Branch of the Competent Authority Services Division of the CRA, who informs the Swiss authorities that the CRA is conducting two related audits and that the information requested in the two requests, although identical, must be requested under two separate requests.
[77] The Request for Information form contains 7 sections: (1) Canadian Taxpayer; (2) Spouse’s Information; (3) Person in possession of the Information Requested; (4) Other Related Information (where 2011 to 2015 are indicated as the years under audit); (5) Background; (6) Nexus (Reasons to Request the Info); and (7) Information Requested.
[78] The Background section indicates, inter alia, that (a) the CRA is conducting an audit of the taxpayers and their spouses; (b) the AMF seized all of the documents from the taxpayers, and given this ongoing investigation in Canada, it was impossible for the CRA to obtain the requested information; (c) the CRA’s suspicion in part arises from an April 2017 decision of the AMF Tribunal, attached to the Requests for Information, and certain elements of which are outlined in the Requests for Information; and (d) the CRA’s concern regarding Mrs. Nathalie Bensmihan’s taxable income and unexplained deposits.
[79] The CRA requests information from Hyposwiss Private Bank for the period of January 1, 2012 to December 31, 2015 regarding accounts held by the taxpayers, Zhappa Holdings, or Kilworthy Limited. The CRA also request information from UBP in regards to accounts held by the taxpayers or Optivilla Holding.
B. The 9179 Company
[80] On April 19, 2018, the 9179 company was the subject of a Request for Information from the CRA to the Swiss Federal Tax Administration (pages 100-103 of the Applicants’ Record). Mr. Levett is a shareholder of the 9179 company.
[81] The Request for Information is again introduced by a letter from the Director of the International, Large Business and Investigations Branch of the Competent Authority Services Division of the CRA, who outlines that the Request for Information relates to an audit of the taxpayer for the 2012 to 2014 taxation years.
[82] The Request for Information contains 6 sections (the sections mentioned above, except “Spouse’s Information”), and the CRA essentially asks the Swiss authorities to request from Socimbal its list of shareholders, documentation for the loan, and an explanation as to why it was not repaid.
[83] It appears that the Applicants unsuccessfully challenged the Requests for Information before the Swiss courts in 2019. Indeed, the Respondent submits as part of his record a decision bearing the reference A et al v Swiss Federal Tax Administration (ESTV), A-223/2019 [the Swiss Court’s decision].
VI. Legislative Framework
[84] Per the AGC’s Memorandum of Fact and Law [the ACG Memorandum], the exchange of information process between Canada and Switzerland was first included in Article 25 of the Canada-Switzerland Income Tax Convention of 1976, implemented into Canadian law by the Canada-Switzerland Income Tax Convention Act, 1976 (SC 1976-77, c 29).
[85] As mentioned above, Article 25 was modified by the Convention between Canada and Switzerland for the Avoidance of Double Taxation with respect to Taxes on Income and on Capital done at Berne on May 5, 1997, as amended to include the Interpretative Protocol done on October 22, 2010 (through article XI of the Protocol Amending the Convention Between the Government of Canada and the Swiss Federal Council for the Avoidance of Double Taxation with Respect to Taxes on Income and on Capital, done at Berne on May 5, 1997) [the Interpretative Protocol]. The amendment was destined to bring Article 25 more in line with Article 26 (entitled Exchange of Information) of the OECD’s Model Convention with Respect to Taxes on Income and on Capital [the OECD Model Convention].
[86] The current version of Article 25 reads as follows (Applicants’ Record page 2424):
Exchange of Information
1. The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant for carrying out the provisions of this Convention or to the administration or enforcement of the domestic laws concerning taxes covered by the Convention, insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Article 1.
2. Any information received under paragraph 1 by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the administration, assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to income or capital taxes. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. Notwithstanding the foregoing, information received by a Contracting State may be used for other purposes when such information may be used for such other purposes under the laws of both States and the competent authority of the requested State authorizes such use.
3. In no case shall the provisions of paragraphs 1 and 2 be construed so as to impose on a Contracting State the obligation:
(a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;
(b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;
(c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (ordre public).
4. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall use its information gathering measures to obtain the requested information, even though that other State may not need such information for its own tax purposes. The obligation contained in the preceding sentence is subject to the limitations of paragraph 3 but in no case shall such limitations be construed to permit a Contracting State to decline to supply information solely because it has no domestic interest in such information.
5. In no case shall the provisions of paragraph 3 be construed to permit a Contracting State to decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person. In order to obtain such information, the tax authorities of the requested Contracting State, if necessary to comply with its obligations under this paragraph, shall have the power to enforce the disclosure of information covered by this paragraph, notwithstanding paragraph 3 or any contrary provisions in its domestic laws.
[87] Section 25 must be interpreted in accordance with the Income Tax Conventions Interpretation Act (RSC 1985, c I-4) [the Interpretation Act], the Supplementary Convention of 2012 implemented as Part 6 of the Tax Conventions Implementation Act, 2013, SC 2013, c 27, the Interpretative Protocol appended to the Convention, the commentaries to the OECD’s Model Tax Convention (per Pacific Network Services Ltd v Canada (Minister of National Revenue), 2002 FCT 1158 [Pacific Network]; Blue Bridge Trust Company Inc v Canada (National Revenue), 2020 FC 893 [Blue Bridge] at para 20), and the Manual on the Implementation of Exchange of Information Provisions for Tax Purposes (Paris: OECD, 2006), [the OECD Manual].
[88] Article 2 of the Interpretative Protocol appended to the Convention reads as follows:
2. Regarding Article 25:
(a) It is understood that an exchange of information will only be requested once the requesting Contracting State has pursued all reasonable means available under its internal taxation procedure to obtain the information.
(b) It is u