On November 5, 2017, a massive leak of financial documents referred to as the Paradise Papers was released to the public. The leak involves multiple jurisdictions and contains nearly 13.4 million confidential electronic documents relating to offshore investment. The Paradise Papers comes largely from Appleby, a law firm based in Bermuda, and from the corporate registries of 19 tax havens.
The Paradise Papers cover the period from 1950 to 2016 and involve over 120,000 people and companies across the world, including government officials, entertainment personalities and corporate giants. It also involves more than 3,000 Canadian individuals and corporations, which is five times more than the ones from the Panama Papers.
On November 3, 2017, just a few days prior to this new leak, the Canada Revenue Agency (the “CRA”) delivered a statement (document) to highlight its work to combat tax evasion and tax avoidance. The CRA stated having “currently more than 990 audits and more than 42 criminal investigations related to offshore underway”, 123 of which involve participants and facilitators named in the Panama Papers. In light of the recent Paradise Papers leak, the CRA already announced that it is reviewing the data and promised to take “appropriate action”.
Furthermore, as part of the CRA’s strategy to combat offshore tax evasion and aggressive tax planning, the CRA announced earlier this year that a revised voluntary disclosures program policy would be introduced in 2018. The proposed changes were initially supposed to be implemented on January 1, 2018, but the CRA is delaying the implementation until March 1, 2018. The formal keys changes confirmed by the CRA will :
- eliminate the « no-names » disclosure process;
- require payment of the estimated tax at the time of the application;
- cancel relief if it is subsequently discovered that the application was not complete due to a misrepresentation; and
- create a two tracks system by introducing a « General Program » for minor non-compliance and a « Limited Program » for major non-compliance with limited relief in certain circumstances;
Such circumstances could include, for example :
- Situations where large 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 Paradise Papers data leak; and
- Other circumstances in which the CRA considers that there was a high degree of guilt in the taxpayer’s conduct contributing to his failure to comply.
In a summary judgment released on September 16, 2015, the Federal Court of Canada examined and disposed of the non-constitutional arguments in the Hillis and Deegan case generally finding that the automatic data collection and disclosure of taxpayer information to the United States by Canada pursuant to the Canada-U.S. Intergovernmental Agreement (IGA) is not inconsistent with the Canada – U.S. Tax Treaty (Tax Treaty) and does not otherwise violate the taxpayer confidentiality provisions in section 241 of the Income Tax Act (Canada) (ITA).
The plaintiffs had originally filed a claim seeking a declaration that the relevant provisions under the Canada – U.S. Tax Information Exchange Agreement Implementation Act (IGA Implementation Act) which implements the IGA are ultra vires or inoperative because the impugned provisions are unconstitutional or otherwise unjustifiably infringe Charter rights. An amended statement of claim was subsequently filed adding the non-constitutional arguments. The plaintiffs sought a permanent prohibitive injunction preventing the collection and automatic disclosure of taxpayer information to the United States by the CRA. A special sitting of the Court was scheduled so that the issues could be disposed of before taxpayer information was to be automatically sent pursuant to the IGA.
The Canadian government’s position was that the collection of taxpayer information is authorized by the IGA and that disclosure to the United States is not inconsistent with the Tax Treaty or in violation of section 241 of the ITA.
In its decision, the Federal Court endorsed the general reasoning and the legal arguments submitted by the government.
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