Canada's audit protocol initiative for large-file corporate taxpayers: September 27, 1996.

For more than a year, Revenue Canada has been working to develop a new model to govern the manner in which audits of large-file corporate taxpayers will be conducted. During that time, the Department's representatives have met with taxpayer representatives - both formally, through the Large Business Advisory Council and liaison meetings with taxpayer groups such as Tax Executives Institute (TEI), and informally in multiple forums - in order to explain the audit protocol initiative and obtain taxpayer views and feedback. The consultation process has permitted the government to assess the feasibility of its proposals and to gauge likely taxpayer reaction should the initiative be implemented. In response to a request from the government directed to Vincent Alicandri, TEI's 1995-1996 Vice President for Canadian Affairs, I am pleased to provide the Institute's comments on the June 1996 draft of the audit protocol.

Background

TEI is an international organization of approximately 5,000 professionals who are responsible - in an executive, administrative, or managerial capacity - for the tax affairs of the corporations and the other businesses by which they are employed. TEI's members represent more than 2,700 of the leading corporations in Canada and the United States.

Canadians make up approximately 10 percent of TEI's membership, with our Canadian members belonging to chapters in Calgary, Montreal, Toronto, and Vancouver, which together make up on of our nine geographic regions. In addition, a substantial number of our U.S. members work for companies with significant Canadian operations. In sum, TEI's membership includes representatives from most major industries including manufacturing, distributing, wholesaling, and retailing; real estate; transportation; financial services; telecommunications; and natural resources (including timber and integrated oil companies). The comments set forth in this submission reflect the views of the Institute as a whole, but more particularly those of our Canadian constituency.

General

TEI commends Revenue Canada for undertaking an initiative to study approaches and implement procedures to improve the efficiency of large-case audits. For too long, large-file corporate taxpayers have endured substantial delays in the resolution of their income and excise tax audits. The sources of delay in the audit process are numerous and well-known, including the increasing complexity of the tax laws and the concomitant administrative and compliance burdens engendered; the tendency of tax auditors to issue overbroad or vague information requests that result in taxpayers' producing excessive, insufficient, or unresponsive records to support reported liabilities; downsizing or periodic reorganizations of tax departments and Revenue Canada alike that stretch the ability of remaining staff to address audit issues in a timely, efficient, and knowledgeable manner; and, quite frankly, the inherent tension in the audit process, which, if not managed openly and cooperatively by both sides, will inhibit communication and breed distrust.

Regardless of the cause, taxpayers and government alike are frustrated by the persistence of audit delays. Taxpayers are frustrated over uncertainty about their ultimate tax liabilities while nondeductible interest accrues on deficiencies. On Revenue Canada's side, government revenues are not collected in a timely fashion...