Canada To Ramp Up Efforts Against Tax Evasion

The Canadian Government has said that it will review its tax ruling process and voluntary disclosures program as part of its response to recommendations made last year by a parliamentary committee.

In October 2016, the Standing Committee on Finance released its report on the Canada Revenue Agency’s (CRA’s) efforts to tackle tax avoidance and evasion. The Government has now published its response, in which it accepted all 14 of the committee’s recommendations.

As per the Government’s response, the following will now take place:

• The CRA will review its advance tax ruling process by March 31, obtain feedback on the timeliness and effectiveness of the process, and identify possible improvements;
• The review will also consider the effectiveness of the pre-ruling consultation service, which has been in place since 2013, and affords taxpayers the opportunity to discuss a transaction prior to submitting a formal ruling request;
• The CRA will review its Voluntary Disclosures Program (VDP) by March 31, 2017, taking into account the Offshore Compliance Advisory Committee’s recommendations in this area;
• The CRA will review the Informant Leads Program and the Offshore Tax Informant Program, with a view to their modernization;
• The CRA will report on its approach to the information contained in the Panama Papers by June 1, 2017;
• The Government will continue work on estimating the tax gap, and will publish a paper on personal income tax compliance this spring; and
• The Government will review and develop a plan to update the small number of Canada’s exchange of information relationships that do not meet international standards.

Revenue Minister Diane Lebouthillier commented: “The Government of Canada is taking action to crack down on tax cheats. When some choose not to pay their share, it places an unfair burden on the tax system. We are sending another strong signal to tax cheats: that this behavior will not be tolerated and they will face the full force of the law.”

“Our Government will continue to update Canadians on these important actions to ensure a tax system that is responsive, fair, and meets the needs of all Canadians.”

Between April 1, 2011, and March 31, 2016, 42 taxpayers were convicted of having engaged in offshore tax evasion, in cases involving CAD34m (USD25.97m) in evaded federal taxes, CAD12m in court fines, and 734 months of jail time.

The CRA is currently conducting audits of more than 820 taxpayers and criminally investigating 20 cases of tax evasion related to offshore accounts.

Audits of the highest risk taxpayers for four offshore jurisdictions are underway. The first two jurisdictions targeted were the Isle of Man and Guernsey, but the CRA cannot name the other two at present. So far, a total of 41,000 international financial transactions, equalling over CAD12bn, have been analyzed.

The CRA expects that it will recover CAD13bn from its audit efforts this fiscal year.