Professional News Snapshots
February 2013
Tax Court of Canada compels CRA to disclose the GAAR Policy.
Similar to section 61A of the Hong Kong Inland Revenue Ordinance, the General Anti-Avoidance Rule (the "GAAR"), contained in section 245 of the Income Tax Act of Canada (the "Act") empowers the Canada Revenue Agency ("CRA") to re-determine the tax consequences of transactions that are found to abuse the Act to obtain tax benefits.
In Birchcliff Energy Ltd v The Queen, (2012-1087(IT)G), the Tax Court of Canada ruled on a motion under its Rule 52 to require the Minister of National Revenue to disclose the object, spirit, and purpose of the provisions of the Act (the “Policy”) that will be argued and decided at trial or the way that the Policy was abused.
Will a proposed legislation with retrospective effect adjourn a court case?
The Federal Court of Appeal granted the adjournment to the taxpayer in Edwards v The Queen (2012 FCA 330). The taxpayer brought a motion for an adjournment of his case pending the enactment of proposed amendments to the Income Tax Act. The retrospective application may have allowed the taxpayer to claim all or a portion of the denied credit in a charitable donation scheme. The taxpayer failed in the Tax Court but his appeal was allowed when the amendments had received first reading at the time of appeal.
Note: The Canada Revenue Agency (“CRA”) has denied some tax shelter schemes and suspended the assessment of returns for individuals suspected of being involved in the schemes since January 1, 2013. Up to February 2013, the CRA has rejected over CAD5.5billion in donation claims, reassessed over 167,000 taxpayers, revoked the charitable status of 44 charitable organizations which were found guilty.
A GST on criminal defence legal fee is unconstitutional?
The appellant in Standley J Tessmer Law Corporation v The Queen (2013 TCC 27) argued that the Goods and Services Act (“GST”) on criminal defence legal services is unconstitutional with respect to the purpose and effect of subsection 10(b) of the Charter of Rights and Freedoms. Hu further argued that it was not required to provide evidence as the general effect of the tax was unconstitutional under reasonably hypothetical circumstances. The Tax Court of Canada rejected his contention that the constitutionality of the GST on criminal legal defence services was a question of law alone and therefore it was not required to produce any evidence.  In the absence of evidence of his claim, the Tax Court held that the GST imposed by section 165 of the Excise Tax Act does not infringe and is not inconsistent with the rights of the appellant’s clients guaranteed by subsection 10(b) of the Charter of Rights and Freedoms.
Corporate Governance
Hong Kong
Extension of time to hold AGM and lay its accounts at the AGM
In Bamboos Professional Nursing Services Limited (HCMP112/2013), the company did not comply with the provisions of Sec 122 and 129, which are concerned with timely presentation of financial statements to members. The directors defended that they were ignorant of the relevant requirements and assured the Court that they would take all reasonable steps in future to secure compliance with relevant statutory requirements. Considering the directors’ acceptance of an undertaking, the Court granted an extension of time to present the financial statements for the year ended June 30, 2012.
Led International Holdings Limited, a company listed on the Alternative Investment Market (“AIM”) of the London Stock Exchange (“LSE”), applied to hold its AGM and lay its accounts before its members at the AGM. On February 1, 2013, the High Court of Hong Kong granted the application (Re: Led International Holdings Limited (HCMP 21/2013) based on the rules set out in Yu Sun Say v HKI Properties Limited (2008) HCMP 2556-2561, 2565-2568/2007, Jan 29, 2008. The rules were adopted by Kwan J (as she then was) in Re: Sanliuyidu (Hong Kong) Sports Goods Co. Limited (2009) 4 HKLRD 708 as follows:
    • Whether the shareholders were aware of the financial position of the company in question and thus were not prejudiced by the non-compliance;
    • Whether the default was inadvertent;
    • Whether the court is satisfied that the company would comply with the obligation to lay its profit and loss account or income and expenditure statement before general meetings in future.
      In respect to factor (ii) above, the delay in this case was caused by a dispute with the former auditor and the time required by the new auditor to complete the audit of the financial statements. However, the Court gave a warning to the applicant not to take this kind of application lightly.
      The Court extends the liability of professionals acting as directors to their professional firm
      In Allen v Aspen Group Resources Corporation (2012 ONSC 3498), both the law firm and the lawyer who sat as a director of the defendant were found liable to certain misrepresentations and omission of certain material facts in a circular about an acquisition. The defendant submitted that the charge would deter professionals from acting as directors. The court rejected the submission. On the contrary, the court held that the firm had to share the risk and responsibility of its lawyer who sat on the board of the defendant. It would provide greater protection for the public, result in higher standards and controls, put the risk on the party most able to control and insure it.
      Public Law
      United Kingdom
      Accountants, you are yet entitled to legal advice privilege!
      A big four accounting firm provided its client tax advice on a tax avoidance scheme. By a five to two majority, the Supreme Court (the former House of Lords) in the U.K. dismissed the Appeal in R (on the application of Prudential Plc and another) v Special Commissioner of Income Tax (2013, UKSC 1) that legal advice privilege should be extended to accountants even though that advice given by a qualified accountant is exactly the same as that provided by a lawyer. The Supreme Court recognized that, as a pure logic, there was no reason to distinguish the same advice given by a lawyer or a qualified accountant. The minority consider that recognizing the privilege to the legal (tax) advice of accountants would not be extending the scope of legal advice privilege.
      The snapshots are intended to provide some news in the subject matters. Readers should obtain professional advice before acting on any information contained in the above.
      Prof. Raymond Yeung BA.LLB, MA, LLM, D. Prof, FCGA CPA(HK & USA), CA(Aust),
      Proprietor, Raymond Yeung & Co, CPA (Hong Kong)