What is the “automatic exchange of financial information”
In order to increase tax transparency across the globe, the Organisation for Economic Co-operation and Development (OECD) adopted the Common Reporting Standard (CRS) on July 15, 2014. The CRS initiative calls on each participating jurisdiction to obtain information from financial institutions within their country and automatically exchange that information with other jurisdictions on an annual basis. The objective is to increase tax compliance by providing key information to the participating jurisdictions allowing them to identify whether their citizens accurately report their foreign assets and income. However, since the CRS is not constraining, 90 jurisdictions have also signed the Multilateral Competent Authority Agreement (MCAA) on automatic exchange of financial account information. The MCAA provides a mechanism to facilitate the exchange of information in accordance with the CRS. Such information to be disclosed includes the following :
- The name, address, taxpayer identification number, date and place of birth of each account holder;
- The account number;
- The name and identifying number of the financial institution;
- The account balance or value (including, in the case of a cash value insurance contract or annuity contract, the cash value or surrender value) as of the end of the relevant calendar year or the closure of the account;
- The total gross amount of interest, dividends and other income generated with respect to the assets held in the account.
Qu’est-ce que « l’échange automatique de renseignements financiers »?
Afin d’accroître la transparence fiscale à travers le monde, l’Organisation de coopération et de développement économiques (OCDE) a adopté la norme commune de déclaration (NCD) le 15 juillet 2014. L’initiative de la NCD invite les juridictions participantes à obtenir des renseignements auprès des institutions financières de leur pays et à les échanger automatiquement avec d’autres juridictions sur une base annuelle. L’objectif est d’accroître l’observation des règles fiscales en fournissant des renseignements importants aux juridictions participantes afin de leur permettre de déterminer si leurs citoyens déclarent correctement leurs actifs et leurs revenus étrangers.
Cependant, puisque la NCD n’est pas contraignante, 90 juridictions ont également signé l’Accord Multilatéral entre Autorités Compétentes (AMAC) sur l’échange automatique de renseignements financiers. L’AMAC fournit un mécanisme pour faciliter l’échange de renseignements conformément à la NCD. Les renseignements à divulguer comprennent ce qui suit :
- Le nom, l’adresse, le numéro d’identification du contribuable et la date et le lieu de naissance de chaque titulaire du compte;
- Le numéro de compte;
- Le nom et le numéro d’identification de l’institution financière;
- Le solde ou la valeur du compte (y compris, dans le cas d’un contrat d’assurance comportant une valeur de rachat ou d’un contrat de rente, la valeur de rachat) à la fin de l’année civile concernée ou à la fermeture du compte;
- Le montant total des intérêts, des dividendes et des autres revenus générés relativement aux actifs détenus dans le compte.
The Canada Revenue Agency’s (the ‘’CRA’’) voluntary disclosures program allows taxpayers who meet certain conditions to correct inaccurate or incomplete information previously submitted to the CRA, or to disclose information not previously reported on their tax form. Under the current voluntary disclosures program, those who make a valid disclosure will be responsible for paying the taxes and reduced interest owing as a result of their disclosure, the whole without penalties or fear of prosecution. However, access to the voluntary disclosures program will be limited in the near future and radical changes will be introduced.
Access to the voluntary disclosures program limited for some and radical changes for others
However, on May 29, 2017, the CRA announced by the way of its Report on Progress that a revised voluntary disclosures program policy would be introduced shortly. The changes sought will tighten the access to the voluntary disclosures program and the relief provided. This announce by the CRA is made after the recommendation from the Standing Committee on Finance to conduct a review of the voluntary disclosures program as part of the strategy to combat offshore tax evasion and aggressive tax planning.
In completing its review of the program, CRA sought input from the Offshore Compliance Advisory Committee (the ‘’OCAC’’). In December 2016, the OCAC released the ‘’Report on the Voluntary Disclosures Program’’ which sets out different recommendations to ‘’improve’’ the program. The main contemplated alterations are to, in certain circumstances :
- increase the period for which full interest must be paid;
- reduce penalties relief in certain circumstances so that the taxpayers pay more than they would pay if they had been fully compliant; and
- even deny relief from civil penalties.
Such circumstances could include, for example :
- Situations where large dollar amounts of tax were avoided;
- Active efforts to avoid detection and the use of complex offshore structures;
- Multiple years of non-compliance;
- Disclosures motivated by CRA statements regarding its intended focus of compliance, by broad-based tax compliance programs or by the reception of leaked confidential information by the CRA such as the Panama Papers data leak; and
- Other circumstances in which the CRA considers that the high degree of the taxpayer’s culpability contributed to the failure to comply.
Less certain and more expensive results
If implemented by the CRA, the recommendations of the OCAC would significantly change the current voluntary disclosures program and the result of a disclosure would be more discretionary and expensive. Therefore, taxpayers entertaining the possibility of making a voluntary disclosure may want to act soon as the CRA intends to tighten the criteria for acceptance into the voluntary disclosures program and to be less generous in its application.
For more information about filing a voluntary disclosure download “The Voluntary Disclosures Programs in Canada (And in Québec)“.
In Industrielle Alliance vs. Mazraani and MNR, the Federal Court of Appeal recently quashed a Tax Court of Canada decision on the basis that the trial judge violated the linguistic rights of both witnesses and counsel for Industrielle Alliance. The reasons for judgment can be found here in English and French.
The Tax Court of Canada decision
Before the Tax Court of Canada (TCC), Kassem Mazraani appealed the Minister’s determination that he was not engaged in insurable employment while working for Industrielle Alliance between April and November 2012. Industrielle was an intervenor to the appeal and had taken the position that the Minister’s determination was correct since an independent contractor agreement had been concluded with Mazraani. The appeal was heard under the informal procedure before Justice Archambault and the hearing lasted 6 days. Mazraani filed his appeal in English, the Minister’s reply was in English also and Industrielle’ s intervention was in French.
In a massive 160 page decision, the TCC concluded that Mazraani was engaged in insurable employment.
Dans la récente décision Industrielle Alliance, Assurance et services financiers Inc. c. Mazraanim et M.N.R., la Cour d’appel fédérale annule une décision de la Cour canadienne de l’impôt au motif que le juge de première instance a enfreint les droits linguistiques des témoins et de l’avocat de l’Industrielle Alliance. Les motifs du jugement peuvent être consultés ici en anglais et en français.
Décision de la Cour canadienne de l’impôt
Devant la Cour canadienne de l’impôt (CCI), Kassem Mazraani en appelait de la décision du Ministre selon laquelle il n’occupait pas un emploi assurable auprès d’Industrielle Alliance durant la période d’avril à novembre 2012. Industrielle Alliance était une intervenante dans le cadre de l’appel à la CCI. Elle soutenait que la décision du Ministre était juste, puisque l’entreprise avait conclu un contrat d’entrepreneur indépendant avec Mazraani. L’appel a été entendu selon la procédure informelle par le juge Archambault et l’audition a duré six (6) jours. L’avis d’appel de Mazraani était en anglais, la réponse du Ministre était aussi en anglais et l’avis d’intervention d’Industrielle Alliance était en français.
Dans une décision imposante de 160 pages, la CCI a conclu que Mazraani avait occupé un emploi assurable.
A huge data leak from a Panama-based law firm has exposed billions in secret, offshore transactions involving multiple political leaders around the world and approximately 350 Canadians with offshore tax haven investments.
Previous leaks of offshore activities have led the Canada Revenue Agency (CRA) to engage in multiple tax audits targeting wealthy Canadians, such as clients of the LGT Bank, the Swiss HSBC Bank, and recently clients of one international accounting firm, just to name a few. This time should be no different. CRA was already instructed to get the leaked data in Panama Papers.
Many OECD-participating countries have engaged in a fight against tax evasion, treaty shopping and base erosion and profit-shifting (BEPS). Combined with the upcoming exchanges of financial information between countries starting in 2017 and 2018, Canada’s “new” offshore tax compliance section since 2013 and the offshore tax informant program (OTIP) rewarding whistleblowers, wealthy Canadians and businesses engaged in aggressive tax planning are more likely than ever to be audited.
In addition, the 2016 Federal budget proposed a plan to “improve tax compliance, prevent underground economic activity, tax evasion and aggressive tax planning,” requiring an investment of $444.4 million over five years to be used by the CRA for:
- hiring additional auditors and specialists
- developing robust business intelligence infrastructure
- increasing audit activities
- improving the quality of investigative work that targets criminal tax evaders
The expected additional revenue from such measures is $2.6 billion.
To most Canadians, these measures may sound perfectly legitimate. But many taxpayers in the province of Québec will hear a familiar tune that evokes unpleasant memories.
The United States came down hard on Swiss banks after receiving, from various whistleblowers, Swiss bank data evidencing U.S. citizens had hidden fortunes in Swiss accounts. Swiss banks were fined billions for assisting U.S. citizens in evading taxes and now want to avoid repetition of this scenario when the exchange of information begins in 2018 with other countries.
The automatic exchange of information between Canada and Switzerland will begin in 2018[i]. Swiss banks have therefore put in place various measures to protect themselves and show, in a near future, that they did all they could to encourage Canadian clients to disclose offshore assets.
Most large Swiss banks have already requested from their Canadian clients evidence that their Swiss accounts are reported in Canada or that a voluntary disclosure has been initiated. This is generally done by having a tax professional confirm to the bank that a disclosure of the account has been filed for the client with the Canada Revenue Agency (CRA).
A GST/HST or income tax audit may result in an assessment that the taxpayer does not agree with. In this situation, it would be in the best interest of the taxpayer to object to a tax assessment by following these steps:
A tax audit on a specific subject can be short (an audit of the business promotional expenses and advertising) or if it is more general in nature, it can be longer (for example dealing with unreported income). During the audit stage, the taxpayer will be asked to provide documentary evidence, bank statements and explanations supporting his position in relation to the audited items. Many audits go well, however, some do not.
Generally, prior to the issuance of a notice of assessment following the audit, the auditor issues a draft assessment and invites the taxpayer to make representations prior to a predetermined date (usually 21 days). The taxpayer should take this opportunity to make representations explaining why he disagrees. It is preferable to make written representations and to submit any additional documents at this stage. It is wise to obtain professional assistance from an expert in the field to help with the representations during this period.
Following the representations on the draft assessment, it is possible that the Revenue agency (Quebec or Canada) will issue an assessment. Whether it is for income tax or GST/HST, this assessment carries interest at the prescribed rate starting on the day on the notice. Whether the taxpayer contests it or not, it is generally advisable to pay the amounts assessed in order to avoid an accumulation of interest. Furthermore, tax laws permit the imposition of costly penalties in certain circumstances, for example, gross negligence, which can form part of the assessment.
On March 16, 2015, The Bank of Israel issued an anti-tax evasion directive aimed at avoiding Israeli financial institutions being used by foreign taxpayers to move assets and income offshore, out of reach of the tax authorities of their countries of residence. Israel may now obtain bank information on accounts opened by non-residents and it will begin the process of exchanging tax information with other countries, such as Canada, in 2017.
The directive stipulates that Israeli banks must require their foreign clients to provide them with a declaration containing the following information:
- the customer’s country of residence for tax purposes;
- confirmation from the client that his or her aggregate investments and assets have been reported to the tax authorities of the resident jurisdiction (e.g., Canada) or, alternatively, a declaration to the effect that he or she has initiated a voluntary disclosure procedure in the resident jurisdiction; and
- a waiver from the taxpayer pursuant to which Israeli banks would be allowed to provide confidential bank account information to non-Israeli tax authorities
Israel may disclose the identity of their non-resident clients and report the funds held in their accounts to the tax authorities of their respective countries of residence
Le 16 mars dernier, la Banque d’Israël a émis une directive ayant pour objet de contrer l’évasion fiscale internationale et d’éviter que les institutions financières israéliennes ne soient utilisées par certains contribuables étrangers afin de réduire indûment leur fardeau fiscal dans leur pays de résidence.
Cette directive prévoit notamment que les banques israéliennes devront obtenir de leurs clients étrangers une déclaration contenant :
- Le pays de résidence fiscale du client;
- Une attestation du client à l’effet qu’il a déclaré l’ensemble des investissements et avoirs qu’il détient auprès de l’institution financière israélienne visée aux autorités fiscales de son pays de résidence, ou, alternativement, une déclaration du client à l’effet qu’il a entamé un processus de divulgation volontaire dans son pays de résidence; et
- Une décharge du contribuable relativement à la confidentialité de ses informations financières vis-à-vis des autorités fiscales de son pays de résidence.
En d’autres termes, les banques israéliennes s’autorisent à communiquer l’information relative à leurs clients étrangers aux autorités fiscales de leur pays de résidence. Continue Reading