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Paradise Papers and the new voluntary disclosures program

December 20, 2017 Nicolas Simard

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.

Canada

Panama Papers: Canada Revenue Agency moves into full gear

August 10, 2017 Jenny P. Mboutsiadis

panama-1675062_1920 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.

!Jurisdiction, Africa, Alberta, Analysis, British Columbia, Canada, Cross-border (Canada/US), Europe, France, Israel, Ontario, Quebec, South Africa, United Kingdom

Why now is the time to do a voluntary disclosure of foreign assets

June 9, 2017 Nicolas Simard

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)“.

Analysis, British Columbia, Canada, Ontario, Quebec

Panama Papers data leak will prompt more tax audits targeting wealthy Canadians

April 4, 2016 Nicolas Simard

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.