Canada Provides Update On Anti-Avoidance Work

The Canadian Government has issued an update on its anti-avoidance work, and said that audits carried out in the past fiscal year are on track to capture more than CAD13bn (USD9.6bn) worth of taxes owed.

The report was issued to the Standing Committee on Finance, in accordance with commitments made in response to the Committee’s recommendations on the Canada Revenue Agency’s (CRA’s) anti-avoidance and anti-evasion activities.

The report includes details of the progress made in audits and criminal investigations launched in relation to the Panama Papers. As of April 1, 2017, there are 122 audits underway, and several criminal investigations are ongoing involving both participants and facilitators. The CRA has also identified 64 other potential files that “warrant further review to determine links to offshore files or transactions and assessment potential for further investigation.”

The report said that the CRA is collaborating with domestic and international partners to share findings on the Panama Papers. The CRA has been able to conduct risk assessments on 1,300 names to date, of which 860 were determined to be non-residents of Canada. Where residency was determined, the CRA is sharing some of the information it holds with the resident country, provided a tax treaty exists.

The CRA continues to use the expertise of its Promoter Compliance Centre to identify any Canadian promoters associated with the offshore structures cited in the Panama Papers. Barring any exceptional circumstances, it will not accept Voluntary Disclosure Program (VDP) requests from taxpayers involved in the Panama Papers.

The report additionally explained that the CRA has now reviewed the VDP and its negotiated audit settlements guidelines. It intends to tighten access to the VDP, and will soon make its revised VDP policy available for external consultation. Following public consultation, the revised policy will be finalized this autumn.

The Government will also this autumn launch an audit settlement approval process, which will involve mandatory referrals to a new Audit File Resolution Committee (AFRC) in certain circumstances.

The CRA has likewise conducted a review of the advance income ruling process and now intends to improve the system. The CRA will implement more frequent and better communications with taxpayers, including offering a meeting to be held within four weeks of the receipt of an advance income tax ruling request. To increase awareness, it will conduct workshops, update its guidance more frequently, and provide a sample “best practice” advance income tax ruling request.

In addition, the CRA said that, while it intends to retain and meet the current 90-day service standard for advance income tax rulings, it will amend the standard to exclude complex tax policy issues that cannot typically be completed within this time. It will develop guidelines for the provision of advance income tax rulings on questions of fact, and guidelines for instances where the CRA refuses to rule on the tax consequences of transactions for which there is little or no ambiguity and/or its position is, or should be, well known.

Revenue Minister Diane Lebouthillier said: “Canadians work hard to pay their fair share of taxes, so that they can enjoy the social programs we all benefit from and which make a big difference in our lives. When some choose not to pay their part, it places an unfair burden on all of us. This has to change and that is why our government is committed to putting the right tools and measures in place to combat tax evasion and avoidance.”

“I send another strong message to all Canadians: we are building a stronger and more fair tax system, where those who choose to cheat, are no longer able to hide and will face the consequences of their actions.”

Between April 1, 2011, and March 31, 2016, the CRA convicted 43 taxpayers with offshore links to tax evasion. It is currently conducting audits of more than 820 taxpayers and criminally investigating 20 cases of tax evasion specifically linked to offshore accounts.