Court File NO.:T-1736-14 FEDERAL COURT BETWEEN: VIRGINIA HILLIS and GWENDOLYN LOUISE DEEGAN PLAINTIFFS and THE ATTORNEY GENERAL OF CANADA 'and THE MINISTER OF NATIONAL REVENUE DEFENDANTS MOTION RECORD OF THE DEFENDANTS (Motion to Strike Portions of Defendants' Affidavits) Department of Justice Solicitor for the Defendants: B.C. Regional Office 900-840 Howe Street Vancouver, British Columbia V6Z 2S9 Michael Taylor, Donnaree Nygard and Tel: 604-666-3049/604-775-6014/ Oliver Pulleyblank 604- 666-7761 Farris, Vaughan, Wills & Murphy LLP Solicitor for the Plaintiffs: Barristers and Solicitors P.O. Box 10026 Pacific Centre South . 25th Floor, 700 West Georgia Street Joseph J. Arvay, Q.C., and Vancouver, British Columbia Jason K. Yamashita, Counsel V7Y IB3 Tel: 604-684-9151 INDEX Motion Record re Plaintiffs' Motion to Strike Portions of Defendants' Affidavits TAB Description Page Number 1 Excerpts from Transcript of the cross-examination of Stephanie 1-8 Smith, dated July 21, 2015 2 Written Representations of the Defendants, dated July 30, 2015 9-19 3 Authorities Cases A Armstrong v. Canada (Attorney General), 2005 FC 1013. B Sawridge Bandv. Canada, [2000] F.C.J. No. 192. C TPG Technology Consulting Ltd. V Canada, 2011 FC 1054. 0 White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23; 2015 CSC 23. International Treaties } E Vienna Convention on the Law of Treaties, Article 31 / '., - .;-~ 1 1 Court File No. T-1736-14 1 2 FEDERAL COURT 3 BETWEEN: 4 5 VIRGINIA HILLIS and GWENDOLYN LOUISE DEEGAN Plaintiffs 6 7 - and - 8 THE ATTORNEY GENERAL OF CANADA and 9 THE MINISTER OF NATIONAL REVENUE 10 Defendants 11 12 CROSS-EXAMINATION OF STEPANIE SMITH held at the offices of Dare Corporation, 13 275 Slater Street, Suite 900, Ottawa, Ontario 14 on Monday, July 21, 2015 at 2:00 p.m. 15 16 17 APPEARANCES: 18 19 Mr. David Gruber on behalf of the Plaintiffs 20 Ms Donnaree Nygard on behalf of the Defendants .21 22 A.S.A.P. Reporting Services Inc.@ 2015 23 11D5 - 200 Elgin Street 900-333 Bay Street 24 Ottawa, Ontario K2P 1L5 Toronto, Ontario M5H 2T4 25 (613) 564-2727 (416) 861-8720 2 1 INDEX 2 PAGE 3 4 AFFIRMED: STEPHANIE SMITH 4 5 Cross-examination by Mr. Gruber 4 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 3 1 LIST OF EXHIBITS 2 3 NO DESCRIPTION PAGE 4 5 6 1 "Model Convention with Respect 7 to Taxes on Income and on Capital. 8 8 9 2 List of declarations made with 10 respect to Treaty No. 127. 19 11 12 3 Agreement between the Government 13 of the United States of America 14 and the Government of [FATCA Partner] to 15 Improve International 16 Compliance and to Implement FATCA. 30 17 18 19 20 21 22 23 24 25 4 4 1 Ottawa, Ontario 2 Upon commencing on Tuesday; July 21, 2015 3 at 2:00 p.m. 4 AFFIRMED: STEPHANIE SMITH 5 CROSS-EXAMINATION BY MR. GRUBER: 6 Q. Ms. Smith, do you have your 7 th 8 affidavit before you which you swore on the 4 of 9 July, 2015? 10 A. Yes, I do. 11 Q. I am going to direct your 12 attention first to paragraph 6 of your affidavit. 13 The first sentence of paragraph 6, 14 you refer to the "usefulness of autbmatic exchange 15 of information in conducting risk assessment." 16 What do you mean by "risk 17 assessment" in that sentence? 18 A. Risk assessment allows the 19 Canada Revenue Agency to determine -- use certain 20 factors to determine the potential non-compliance 21 of a particular group of taxpayers. 22 Q. And what sort of factors 23 would be relevant to a risk assessment in that 24 context? 25 A. It might be if they find that 5 5 1 there's a certain -- there's non-compliance with 2 respect to payments on a certain product or a 3 certain group of taxpayers that would indicate that 4 there's potential higher risk,of non-compliance. 5 Q. So it would be information 6 that would indicate to eRA that a particular group 7 of taxpayers is at a higher risk of non-compliance 8 with their obligations? 9 A. It could be, yes. 10 Q. And what else could it be? 11 A. Sorry, I am not sure I 12 understand. 13 Q. I am just -trying to 'flesh 14 out. 15 Because the words "risk 16 assessment" to me are very generic and I am trying 17 to understand more specifically what we mean by 18 "risk assessment", as specific as you can be for my 19 purposes. 20 A. It's a process by which tax 21 administrations try to -- I mean, they do risk 22 assessment on the basis of there is different 23 industries, different payments. 24 There may be different -- which I 25 guess wouldn't be the case here,'but if a certain 6 6 1 person had a certain level of deductions for 2 charitable contributions, and yet they only had a 3 certain income, that may indicate that that is 4 something that they want to look into in more 5 detail. 6 Q. So generically speaking, it's 7 information that may indicate non-compliance? 8 A. Well, yes, it may, it could. 9 Does not have to. 10 But it leads to a maybe higher 11 risk and maybe taxpayers that they want to do 12 further investigation or commence an audit into 13 their particular tax return. 14 Q. Do you mean anything else by 15 "risk assessment" in that sentence other than what 16 you've already told me? 17 A. No. 18 Q. Alright. Could you turn next 19 to paragraph 8, please? 20 In paragraph 8 you indicate that: 21 "Canada has a network of 92 22 bilateral tax conventions (in 23 force) ." 24 And then you say that: 25 "All of these conventions include 7 1 exchange of information provisions 7 2 that are based on the OECD Model." 3 I would ask Ms. Nygard to have a 4 copy of the OECD Model available for you. 5 Could you put that before the 6 witness, please? 7 MS. NYGARD: Yes. 8 BY MR. GRUBER: 9 Q. And this is a document 10 entitled: "Model Convention With Respect Taxes on 11 Income and Capital". 12 And it's the condensed version 13 OECD 2014, you'll see it in the footer as we turn 14 over, do you see that? 15 A. Yes. 16 Q. Is this the document you're 17 referring to in paragraph 8? 18 A. This is the current version 19 of the OECD Model, yes. 20 Q. And there were previous 21 versions to this OECD Model, is that correct? 22 A. Yes. 23 Q. And the specific article in 24 the OECD Model that you're referring to in 25 paragraph 8 is which article? ./ 8 1 A. Article 26. 8 2 Q. And that's at page 40 in the 3 document before you? 4 A. Yes. 5 Q. And when you say that 6 Canada's network of bilateral attacks to mentions 7 include exchange of information provisions that are 8 based on that model, what did you mean by the words 9 "based on"? 10 A. That they generally use the 11 same or very similar wording to what appears in the 12 current or past versions of the OECD Model 13 Convention. 14 MR. GRUBER: Alright. 15 Could the docvment before the 16 witness be marked as an exhibit, please? 17 EXHIBIT NO.1: Document 18 entitled: "Model Convention With Respect to Taxes 19 on Income and on Capital." 20 BY MR. GRUBER: 21 Q. Ms. Smith; we were just 22 looking at article 26. 23 On the following page, page 31 of 24 Exhibit 1, there is an article 27 which is entitled 25 "Assistance in the Collection of Taxes". 9 Court File No.: T-l736-14 FEDERAL COURT BETWEEN: VIRGINIA HILLIS and GWENDOLYN LOUISE DEEGAN PLAINTIFFS and THE ATTORNEY GENERAL OF CANADA and THE MINISTER OF NATIONAL REVENUE DEFENDANTS WRITTEN REPRESENTATIONS OF THE DEFENDANTS Motion to Strike Portions of the Defendants' Affidavits Department of Justice Michael Taylor, Donnaree Nygard, and Oliver B.C. Regional Office Pulleyblank, Counsel 900-840 Howe Street Vancouver, British Columbia V6Z 2S9 Solicitor for the Defendants Farris, Vaughan, Wills & Murphy LLP Joseph 1. Arvay, Q.C., Counsel Barristers and Solicitors P.O. Box 10026 Pacific Centre 2500 -700 West Georgia Street Vancouver, British Columbia V7Y 1B3 Solicitor for the Plaintiffs , .'~.'. ." 1 1U .0,.-.' PART I - STATEMENT OF FACTS 1. On 6 July 2015, the defendants served on the plaintiffs the affidavits of Stephanie Smith, sworn 4 July 2015 (the "Smith Affidavit") and Sue Murray, sworn 3 July 2015 (the "Murray Affidavit"), in response to the plaintiffs' motion for summary trial. 2. Neither the Smith Affidavit nor the Murray Affidavit is put forward as expert opinion evidence. 3. Ms. Smith is the Senior Chief, Tax Treaties Section, at the Tax Legislation Division of the Tax Policy Branch of the Department of Finance Canada . 4. Ms. Murray is the Director, Competent Authority Services Division, International and Large Business Directorate, Compliance Programs Branch, of the Canada Revenue Agency ("CRA"). 5. On 21 July 2015, the plaintiffs cross-examined Stephanie Smith, and on 22 July 2015 they cross-examined Sue Murray. PART II - ISSUES 6. Should any portion of the Smith Affidavit or the Murray Affidavit be struck? PART III - SUBMISSIONS Prejudice must be demonstrated to justify striking an affidavit 7.