Canada's lawyers mount constitutional challenge to mandatory disclosure regime

Thursday, 21 September 2023
The 14 provincial and territorial bodies governing Canada's legal profession have filed a petition challenging the constitutionality of the new mandatory disclosure regime (MDR) for reportable and notifiable transactions.

The rules, enacted as part of Bill C-47 in June this year, require taxpayers, promoters and advisors including legal professionals to report to the government information in respect of certain tax avoidance transactions with which they are involved, on pain of heavy penalties. They apply to transactions entered into after 22 June 2023, but reporting will be required where the taxpayer signed up before that date to make 'notifiable transactions' and 'reportable uncertain tax treatments'.

However, Canadian lawyers are concerned that the MDR rules could give rise to conflicts of interest between legal counsel and their clients, with lawyers having to comply with a law that could conflict with the professional duties of confidentiality they owe to their clients.

The petition, filed on 11 September by the Federation of Law Societies of Canada (FLSC) in the Supreme Court of British Columbia, seeks to exempt legal professionals from the rules. A hearing on this application has been scheduled for 20 October. Meanwhile, the FLSC is also requesting an injunction suspending the application of the rules to lawyers until the Supreme Court decides the issue, though Canada's federal government has already agreed to a consent injunction respecting this moratorium throughout Canada until at least 20 November.

The FLSC says the case raises many of the same issues involved in its successful challenge to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act in 2015.

A similar challenge was made by European lawyers to corresponding provisions in the EU DAC6 directive. In December 2022, the European Court of Justice agreed that the measure breached the right to legal professional privilege (ECJ C-694/20).


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