Tax Law Services Portfolio Evaluation
This section of the report presents conclusions based on the findings presented in the previous sections. The information is structured along the main evaluation issues and questions.
Is there a continued need for TLS Portfolio legal services?
The TLS Portfolio provides legal services to a single client, the CRA, because of the volume, complexity and inherently legal nature of the Agency's work. The nature of the relationship of the TLS Portfolio and the CRA remains important to the effective delivery of legal services, with the Portfolio offering independent, impartial legal services while also having an in-depth understanding of the policies and practices of the CRA that contributes to the high quality of legal services.
The CRA's need for legal services continues to rise, as demonstrated by the increasing number of actively managed files and the number of hours spent by Portfolio counsel on providing legal services. In addition, the complexity and legal risk of tax law issues addressed by the Portfolio have risen during the last five years due to factors such as the federal government's increased emphasis on complex tax issues. These factors provide confirmation of the continued need for legal expertise on issues related to tax law.
Does the delivery of legal services by the TLS Portfolio continue to respond to federal government priorities and departmental strategic outcomes?
As the TLS Portfolio is the legal counsel to the CRA and the Government of Canada on all tax matters, its work necessarily responds directly to government priorities related to taxation. Over the past five years, there has been good alignment between governmental priorities and commitments outlined in federal budget reports, Speeches from the Throne, Portfolio activities, and commitments established in the annual Department of Justice Reports on Plans and Priorities and Departmental Performance Reports.
The TLS Portfolio also makes efforts to align its structure and services with CRA priorities (which, in turn, are adjusted to respond to federal priorities). The Portfolio's involvement in the CRA's management committee and its close working relationship with the Agency enable it to better respond to changes in CRA priorities. Continuous alignment with the CRA's lines of business helps to ensure that the TLS Portfolio focuses on areas of the law that are important to the CRA's priorities and mandate.
The work of the Portfolio also supports the Department of Justice in achieving its second strategic outcome: the high quality of Portfolio services and the Portfolio's alignment with government and CRA priorities help to ensure that the federal government is supported by effective and responsive legal services.
Does the provision of legal services by the TLS Portfolio align with federal roles and responsibilities?
The TLS Portfolio assists the Minister of Justice and Attorney General in fulfilling his responsibilities under the Department of Justice Act. Alignment of the Portfolio's legal services with the Department of Justice Act is achieved through the Portfolio's work to advise the CRA on matters of law connected to the Agency, represent the Crown in litigation involving tax issues, and ensure that the CRA's actions and legislative and policy initiatives are in accordance with federal legislation.
Does the TLS Portfolio provide timely, responsive, high-quality litigation services and legal advice?
Satisfaction with TLS Portfolio legal services is high. The Portfolio is meeting its service standards, which help to ensure that the services provided are clear, practical, timely, courteous and respectful, responsive to client needs, and appropriate to the CRA's policy and program objectives.
Multiple lines of evidence indicate that Portfolio services are high-quality, timely, and generally responsive to client needs. CRA employees are highly satisfied with the quality of Portfolio services, and evidence indicates that the Portfolio is successful at responding to legal requests in a timely manner and meeting CRA and internal departmental deadlines.
The long-term, positive working relationship between the TLS Portfolio and the CRA is a major contributing factor to the Portfolio's ability to provide high-quality services that are responsive to the needs of the Agency. As Portfolio counsel have a good knowledge of the CRA's requirements, policies, practices, and the nature of the legal issues faced by the Agency, they are able to assist it in developing appropriate solutions to legal issues.
Overall, perspectives of the Portfolio's responsiveness are generally positive; however, the client satisfaction scores that the Portfolio received on two areas of responsiveness (namely, providing updates and involving the CRA in developing legal strategies) may indicate an opportunity for better communication about the appropriate involvement of the CRA on specific kinds of files — i.e., those eligible for resolution strategies. Although the resolution process is intended to reduce interactions with the Agency in an effort to contain legal costs, some CRA evaluation participants expressed a desire for more involvement in, and updates concerning, these files. Therefore, more communication between the TLS Portfolio and the CRA on the respective roles of counsel and litigation officers on files where counsel are using resolution strategies may be beneficial.
Are legal risks identified and assessed in a timely and consistent manner, and managed and mitigated effectively?
Risk identification and assessment.
The TLS Portfolio has practices in place to support timely identification of legal risks. Once again, the long-term, ongoing relationship and regular interaction between the Portfolio and the CRA supports timely risk identification. In addition, Portfolio involvement on CRA risk management committees and the involvement of Portfolio lawyers at the audit stage through the CRA's ILBD further contribute to collaboration between the Portfolio and the Agency on risk identification and the timely identification of legal risks (i.e., identification earlier in the file than would be achieved without these practices).
The Portfolio is also effective in assessing legal risks in a timely manner. Most litigation files (93% over the past five years) are assessed for legal risk within 30 days of being opened. Although Justice Canada's legal risk assessment process is less standardized for advisory files, the Portfolio provides the CRA with narrative, more informal accounts of risks levels on these files.
TLS Portfolio counsel are expected to reassess legal risk on files to ensure that the CRA and Justice Canada managers are kept apprised of significant changes to the file affecting legal risk. This expectation is articulated in the policy for mandatory risk assessments at pleading and post-discovery for litigation files.
Based on available evidence, the evaluation could not confirm whether legal risk reassessments are occurring when they should be (i.e., according to the policy); however, it found that reassessment is being carried out. iCase data indicate that risk reassessment is being practiced by the Portfolio on the majority of litigation files. In addition, evidence indicates that the Portfolio is reassessing legal risk responsibly (i.e., at key points or developments in the file or when factors change that affect the level of risk).
Communication of legal risks – timeliness, consistency, structures, tools and processes.
The TLS Portfolio's practices for communicating legal risks to the CRA are generally effective. The Portfolio not only identifies and assesses legal risks in a timely manner, but it communicates them to the CRA proactively so that the Agency can factor legal risk into decision making. In addition, both Portfolio counsel and CRA employees generally feel that the Portfolio describes legal risk clearly and consistently.
The Portfolio uses a number of structures, tools and processes for communicating legal risk both within the Portfolio and to the CRA, and the evaluation confirms the usefulness of many of them. Internal briefing tools and procedures, such as Early Warning Notes and the Adverse Reporting Procedure, help to ensure that legal risks are communicated to senior management effectively and at the right time. The Portfolio's involvement on risk committees (including the CRA's regional risk management committees and the tri-departmental Risk Management Committee) allows the Portfolio and the Agency to engage in discussions on legal risks, which, in turn, assist the CRA in considering risk in decision making.
Evaluation results were more divided about the usefulness of the Department's LRM grid as a tool for assessing and communicating legal risk. Its limited application and lack of applicability to advisory files reduce its usefulness. However, it should be noted that this grid is currently under review.
Risk management and mitigation.
The Portfolio has appropriate risk management practices. The Portfolio's practice of considering legal risk in assigning counsel to files promotes risk management, as it ensures that work on files is carried out by appropriate, qualified counsel. In addition, the Portfolio's continuous communication with the CRA and the monitoring of legal risk contribute to the CRA's high level of satisfaction with the Portfolio's role in the development of mitigation strategies and options. Although the Agency may, in some cases, choose to accept legal risk and diverge from Portfolio advice concerning legal risk, evidence indicates that the CRA generally considers Portfolio legal advice in the development of strategies to prevent, mitigate and/or manage legal risk.
Has the TLS Portfolio contributed to the enhanced understanding of legal issues, their implications and potential risks by the CRA?
The TLS Portfolio has been successful at enhancing the CRA's already sophisticated understanding of legal issues. The Portfolio's contributions to the Agency's understanding of legal issues, their implications and potential risks are the result of a range of Portfolio activities and practices, including its involvement in a wide variety of committees that are led by, or also involve, members of the CRA; the ongoing consultations between Portfolio counsel and the CRA on individual files; the timely, clear communication of legal risks to the CRA by Portfolio counsel; and the joint CRA and Portfolio training sessions, shared learning events and practice groups.
Although the CRA's level of understanding is generally high, the evaluation found some evidence of misunderstandings concerning specific issues, such as when to engage the Portfolio, the importance of identifying legal risks, and the potential impacts of legal risks. In addition, evidence suggests that factors such as years of experience may have an influence on CRA employees' understanding of the Portfolio's role in assessing legal risk. These findings point to a potential opportunity for the Portfolio to improve communication and assist in meeting the Agency training needs on these issues.
Do counsel have the appropriate competencies, tools, structures and resources to conduct their work?
In general, the evaluation found that counsel have the appropriate resources to conduct their work, although a few areas of improvement were identified. The TLS Portfolio has two key tools for sharing information internally - the Fiscal Path (intranet site to provide information on the Portfolio and its processes) and Justipedia (an online portal launched in 2012 to provide access to legal content). Satisfaction with these tools is not high, but work is underway to enhance them. As knowledge management is a key method for improving efficiency, the TLS Portfolio should continue to work to ensure that counsel are satisfied with and use these tools.
As the Portfolio's challenges and needs grow more complex, the evaluation found that advancing its technological capabilities has become increasingly critical due to the fact that Justice may be lagging behind the private sector in terms of its technological support. The evaluation found that the Portfolio can certainly look to improve its use of technology. In particular, the use of e-discovery software is not widespread, and the Portfolio may want to assess whether there are potential efficiencies to gain from its greater use and, if so, what are the barriers to its use.
The TLS Portfolio has a number of structures and tools in place to assist Portfolio counsel in providing high-quality, coordinated, "whole-of-government" services, such as National Coordination Committees, the file assignment process, and practice directives. Evaluation results show that, in general, these structures and tools are working well and are viewed positively by Portfolio counsel.
Training opportunities are available to TLS Portfolio counsel internally, externally (third-party training) and through the CRA. Counsel are generally satisfied with the training offered, although those with more than five years of experience are substantially less satisfied, which may indicate a need for more mid- and senior-level training. Counsel provided some suggestions for training that appeared to address this possible gap by requesting training on business practice of particular industries and sector-specific training. In addition, the current travel cap limits the ability for counsel to obtain outside training, which, in turn, increases the importance of internal training opportunities or external training offered online or remotely. However, the evaluation found some limitations in the effectiveness of the Portfolio's use of these technologies in training (e.g., connectivity or other technical support issues, content and format need improvements). The Portfolio may want to take these suggestions into consideration in its current or future training programs.
Does the TLS Portfolio strategically manage legal issues and protect the interest of the Crown?
For the TLS Portfolio, strategic management of legal issues involves pursuing a national, whole-of-government approach to legal issues, providing a consistent approach in addressing and advising on legal issues, and protecting the interests of the Crown in decisions regarding legal issues and strategies. The TLS Portfolio takes a national, coordinated approach, which supports the integrity of the tax system and fairness to taxpayers by ensuring its consistent application of tax law across the country. This approach reduces legal risk by minimizing the potential for inconsistent application of the law and by supporting the CRA's compliance with the rule of law.
The TLS Portfolio ensures its whole-of-government approach by coordinating with the Portfolio, as well as with other areas of Justice Canada, as needed. The evaluation found room for improvement in consulting with the CRA LSU, when appropriate, as well as in involving specialized sections like the PLS. Although tax is a very specialized area of the law, there is evidence of an increase in files involving constitutional and Aboriginal law issues, so this type of broader consultation may become increasingly important.
Is the TLS Portfolio legal advice considered by CRA decision makers?
Disagreements with TLS Portfolio legal advice are considered rare, as the Portfolio has such a comprehensive understanding of the practices and policies of the CRA. As a result, the advice of the TLS Portfolio is not only considered in decision making, but is also most often relied upon by the CRA. This finding goes beyond the outcome identified for the TLS Portfolio, which focuses on the consideration of the advice in recognition of the fact that legal advice is just one factor that affects clients' decisions. Clients can choose not to follow the advice given. However, the detailed understanding of the Agency by the Portfolio developed over two decades, coupled with the legal sophistication of the CRA, have led to the advice being not only considered but usually followed by the CRA.
Efficiency and economy
Could the work of the TLS Portfolio be undertaken/conducted more efficiently and economically?
Between 2008/09 and 2011/12, the cost of legal services (minus disbursements) recovered from the CRA rose by 83% due to additional workload which resulted in an increase in number of FTEs, and increases in the rates applied to each FTE.
The TLS Portfolio has undertaken several steps to improve its efficiency while maintaining the quality of legal services. To best serve the CRA, the Portfolio operates like a national law firm and assigns files based on expertise and workload to ensure timely, high-quality work on each file. The Portfolio also manages its work by aligning resources with the level of legal risk, complexity and profile of files; higher risk and complexity files have more counsel assigned to them, a greater level of effort expended on them, and more senior counsel assigned who spend a greater proportion of the hours on the file than more junior counsel. These practices all correspond with approaches to law practice management emphasized in the literature, which promote the delegation of work and the alignment of resources based on the "value" of the work. These approaches in the literature, which are being used by the TLS Portfolio, are considered to efficiently and effectively utilize the resources of the legal unit providing the services.
The TLS Portfolio has also instituted measures, in collaboration with the CRA, to resolve matters efficiently. The Portfolio supports the Agency's increased focus on compliance activities by assigning counsel to assist CRA auditors on complex, large business audits that target aggressive tax planning. TLS Portfolio counsel support CRA auditors on these files, which has improved file preparation and enabled auditors to benefit from legal advice on files that often involve intensive involvement with taxpayers' counsel. CRA and the Portfolio believe that this work better prepares files for possible litigation and leads to the earlier resolution of files.
The TLS Portfolio and the CRA have also instituted a process to group project files with similar legal issues that involve literally thousands of individual taxpayers. This approach has managed what might otherwise be an unmanageable workload and takes a strategic approach to litigation by selecting a test case that is best suited to determine the legal issues involved, while the other cases are held in abeyance. The efficiency of this approach, however, is outside of the TLS Portfolio and CRA's control, as the courts must agree to hold the similar cases in abeyance and to bind these cases by the decision in the test case in order to realize the full efficiency of the approach.
In another effort to contain legal costs and provide efficient services, the TLS Portfolio and the CRA have a resolution process that pursues alternatives to litigation on low-risk, low-impact files that are not expected to affect tax law. Preliminary information on the use of the resolution process shows that, although it appears to reduce the time files are open and the hours spent on the files, its impact is currently limited, given the number of files that use the process. With wider use, the resolution process could have a more substantial impact on legal cost reduction.
Although the resolution process has proven effective, the TLS Portfolio has not shown an increase in the use of DR more generally during the last five years. The percentage of files concluded by adjudication has remained essentially unchanged, and the most common DR process used is negotiation. About one quarter of counsel believe that DR is currently underutilized, and the evaluation found support for the expansion of the resolution process to other files that pose only factual questions.
Another area where the TLS Portfolio has been active but could consider further improvements is in knowledge management. The literature on law practice management points to knowledge management as a key way to reduce risk and improve performance. Making collective knowledge available reduces duplication of efforts and streamlines the provision of legal services. The Portfolio is undertaking improvements in key areas of knowledge management, such as the Fiscal Path and Justipedia. Further knowledge management enhancements could also increase efficiencies or reduce the cost of legal services, such as online legal guidance for the CRA.
What is the role of the CRA in the efficiency and economy of legal services?
Managing the demand for legal services and improving the efficiency and economy of the delivery of those services are joint responsibilities of the TLS Portfolio and the CRA. The evaluation identified several areas through which legal costs could be reduced. Potential approaches require discussion and a collaborative effort with the CRA, recognizing resources and other implications on both sides.
Expanding the resolution process could bring efficiencies to handling more files that are low profile and will not affect tax law. The potential of the resolution process to reduce legal costs would appear to support the TLS Portfolio and the Agency reviewing whether its expansion is appropriate. There may also be opportunities for additional use of other DR options, such as mediation on tax files that should be discussed.
The CRA is recognized as a legally astute client, but experiences the usual staff turnover. Consequently, the understanding of counsel's and CRA's roles may be a useful subject of continued professional development. The evaluation found some misunderstandings of the role of counsel in identifying, assessing and communicating legal risk; of the level of consultation to be expected on files where the resolution process is used; and of the division of roles on providing and acting on legal advice.
The TLS Portfolio may also want to work with the CRA to assist its personnel in knowing when to seek legal advice and how to make clear and well-defined legal requests that do not lead to the unnecessary expenditure of legal resources. Similarly, the CRA and the TLS Portfolio might want to consider how best to improve file preparation so that counsel are not collecting factual information on files, and the Agency is focusing its efforts on improved file preparation on those files that are contentious and for which the potential for litigation is high.
Just as the CRA has a role in creating demand for legal services, it can also play a role in managing that demand. Some suggestions were to decide whether to proceed with certain matters more strategically and perhaps prioritize cases to assist the Portfolio in managing its workload in a way that aligns with CRA priorities.
Is the TLS Portfolio facing any challenges that are affecting its ability to achieve its expected outcomes?
The evaluation identified two main challenges facing the TLS Portfolio. The first is losing senior counsel to the private bar or retirement without being able to replace them. This situation has the potential to affect efficiency in the provision of legal services on complex matters; erode the experience and knowledge base of the Portfolio; and affect the quality of legal work. The second challenge is that cost recovery in an environment of fiscal restraint will create added pressure to reduce costs while maintaining the quality of legal services.
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