This posts was originally published on White Collar Post under “Panama Papers: CRA getting tougher on tax evasion” – a Fasken Martineau blog.
We are beginning to see the legal enforcement fallout from the now infamous Panama Papers. Canada Revenue Agency’s (CRA) concerted efforts to find undeclared offshore money and assets is moving into full gear. In addition to pursuing typical civil audits, the CRA is now executing search warrants and launching criminal investigations for tax evasion.
The CRA is actively gathering information from domestic and international sources to identify and charge offenders criminally. Since 2015, the Canadian government has required domestic financial institutions to report to the CRA all international electronic fund transfers of $10,000 or more. In addition, as of March 2016 the CRA has analyzed over 41,000 transactions worth over $12 billion dollars, involving four jurisdictions and particular financial institutions of concern, and has initiated risk assessments on 1,300 individuals named in the Panama Papers. This has resulted in approximately 122 CRA audits to date and counting. However, it is not just taxpayers who are subject to the CRA’s scrutiny and who may be criminally charged. The CRA is also investigating the enablers and advisors, including the lawyers and accountants, who facilitated the hiding of taxpayer money and assets offshore.
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.
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)“.
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