Government That Works 1 In late 2015, the Pennsylva.docx
TaxAlert2016No20
1. National Revenue Minister Diane Lebouthillier held a news conference on 11 April 2016 to announce
measures aimed at addressing international tax evasion and avoidance. Most had been previously
announced in the 22 March 2016 federal budget, when the government allocated $444.4 million over
five years to enhance the Canada Revenue Agency’s (CRA’s) ability to detect, audit and prosecute tax
evasion at home and abroad (see our Tax Alert 2016 Issue No. 14, Federal budget 2016-17).
In this Tax Alert, we summarize and provide some additional commentary on the Minister’s
announcement.
Detection
The Minister indicated that since January 2015, the CRA has collected information on all
international funds transfers over $10,000 and further stated that Budget 2016 builds on this
new capability by providing the agency with the ability to more fully examine potential tax evasion
across an entire jurisdiction, adding that the first to be investigated will be the Isle of Man, with
additional jurisdictions to follow.
Supplementary material released with the announcement stated that beginning this month, the
CRA will be contacting approximately 350 individual taxpayers and 400 businesses that have had
transactions involving the Isle of Man, and that more than 60 audits related to these taxpayers are
already underway.
Furthermore, in May 2016, the CRA will expand its analysis to other jurisdictions, as well as
financial institutions, of concern.
2016 Issue No. 20
12 April 2016
Tax Alert — Canada
Revenue Minister announces
measures to combat aggressive
tax avoidance and offshore tax
evasion
EY Tax Alerts cover
significant tax news,
developments and
changes in legislation
that affect Canadian
businesses. They act as
technical summaries to
keep you on top of the
latest tax issues. For
more information,
please contact your EY
or EY Law advisor.
2. Revenue Minister announces measures to combat aggressive tax avoidance and offshore tax evasion | 2
The reporting requirement to the CRA for international electronic funds transfers of $10,000 or more
was announced by the previous government as part of the 2013 budget’s package of measures to combat
international tax evasion and aggressive tax avoidance.
Audits and investigations
In order to combat tax evasion and tax avoidance, Minister Leboutillier announced that the CRA will
create a special program dedicated to stopping the organizations that create and promote these tax
schemes for the wealthy. It was further stated that “this will result in a 12-fold increase in the number of
tax schemes examined by the CRA. This team will apply penalties and refer cases for criminal
investigation, where appropriate.”
It is not clear how, or whether, this new program and team are different than the previous government’s
announcement in 2013 of the establishment of a dedicated team at the CRA to accelerate the
implementation of the international tax evasion and aggressive tax avoidance measures announced in the
2013 federal budget. Then-Revenue Minister Gail Shea stated at that time, “It will ensure that the full
force of the agency’s international compliance and auditing resources are brought to bear on individuals
or businesses seeking to hide money or assets offshore.”
The Minister announced that the new funding will give the CRA the ability to hire more auditors and
specialists. This will increase the number of examinations focused on high-risk taxpayers from 600 per
year to 3,000 per year, raising additional tax revenue of $432 million. In addition, the new funding will
help the CRA bring in 100 additional auditors to investigate high-risk multinational corporations, a
strategy it says will collect an additional $500 million in revenue over five years.
The figures of $432 million a year and $500 million over five years reconcile with the statement in
Budget 2016 that the additional $444.4 million in funding for the CRA would have an expected aggregate
revenue impact of $2.6 billion over five years.
It is not clear whether or how a revenue impact of this magnitude can be achieved within such a short
timeframe. Even if experienced domestic auditors are transferred from their current duties to
international and aggressive tax audits, and new auditors are hired to replace and backfill them in doing
audits with less complexity, the newly transferred international and aggressive tax auditors will require
training; the additional audits will have to be selected and screened; the audits will take many months to
complete before proposals are issued to taxpayers; and the assessments will be subject to possible
objections and appeals by the taxpayers.
Penalties and prosecution
To help ensure results on the criminal prosecution side, the CRA will embed legal counsel in the
investigation teams, so that cases can be quickly brought to court. The CRA says it will use the latest
investigative tools and technology, paired with larger investigative teams, to detect more cases of tax
evasion that result in the appropriate charges, fines and penalties.
For a number of years, the CRA has made it a practice to embed Department of Justice legal counsel in
some of its large business audit teams in order to make these files more court ready earlier in the dispute
resolution process in the event that taxpayers choose to appeal the assessments at Tax Court. This audit
practice on the civil side will now apparently be used in criminal investigation cases as well.
3. Revenue Minister announces measures to combat aggressive tax avoidance and offshore tax evasion | 3
The Minister also announced a number of additional steps that the CRA will take, including:
Bolstering international collaboration to fight tax evasion
Creating an independent advisory committee on offshore tax evasion and aggressive tax planning
Beginning work to estimate the “tax gap,” so that Canadians and Parliamentarians have confidence in
the fairness of the tax system
The Offshore Compliance Advisory Committee (OCAC) will be composed of seven independent experts
who will provide input to the Minister and the CRA on additional administrative strategies for offshore
compliance that build on the Budget 2016 funding.
The OCAC’s first meeting will be in spring 2016, and its initial areas of focus will include:
Strategies to help alleviate and discourage offshore non-compliance
Administrative policies being used by other tax administrations to address this global issue
Advice to the CRA in moving forward with its measurement of the tax gap
Additional strategies and practices related to promoters of tax schemes
Potential ways to improve the CRA’s criminal investigation functions
The committee will be chaired by Dr. Colin Campbell, currently Associate Professor of Law at Western
University, and the Vice-Chair will be Kimberley Brooks, Associate Professor of the Schulich School of
Law at Dalhousie University.
A definition of the “tax gap” can be viewed conceptually in both “gross” and “net” terms. The “gross tax
gap” is the difference between the estimated amount of tax that taxpayers should pay under the law and
the amount they actually pay on time. The “net tax gap” is the difference between the “gross tax gap”
and the amounts of tax actually recovered from enforcement activities (including verification activities
such as audits).
Although some tax jurisdictions, including the US, do calculate a “tax gap,” and the Parliamentary Budget
Office has recommended doing one for Canada, the Department of Finance and the CRA have historically
resisted initiating this practice here because of the cost and obvious methodological difficulties.
As a 2008 report for the OECD’s Forum on Tax Administration noted, “Given the widely varying types of
non-compliance behaviours that comprise the overall tax gap, it will be apparent that measuring its
overall size is a difficult, costly and (some would say) inevitably quite an imprecise undertaking.
Furthermore, there is a view in some quarters that producing and publicising overall tax gap estimates
may have a negative impact on taxpayers’ compliance in an overall sense and could lead to inappropriate
behaviour by revenue officials.”
4. Revenue Minister announces measures to combat aggressive tax avoidance and offshore tax evasion | 4
Learn more
For more information, contact your EY or EY Law advisor or one of the following professionals:
Toronto
Linda Tang
+1 416 943 3421 | linda.y.tang@ca.ey.com
Mark Kaplan
+1 416 943 3507 | mark.kaplan@ca.ey.com
Phil Halvorson
+1 416 943-3478 | phil.d.halvorson@ca.ey.com
Trevor O’Brien
+1 416 943 5435 | trevor.obrien@ca.ey.com
Quebec and Atlantic Canada
Albert Anelli
+1 514 874 4403 | albert.anelli@ca.ey.com
Angelo Nikolakakis
+1 514 879 2862 | angelo.nikolakakis@ca.ey.com
Nicolas Legault
+1 514 874 4404 | nicolas.legault@ca.ey.com
Nik Diksic
+1 514 879 6537 | nik.diksic@ca.ey.com
Ottawa
Paul Mulvihill
+1 613 598 4339 | paul.f.mulvihill@ca.ey.com
Fred O’Riordan
+1 613 598 4808 | fred.r.oriordan@ca.ey.com
Prairies
Karen Nixon
+1 403 206 5326 | karen.r.nixon@ca.ey.com
Mark Coleman
+1 403 206 5147 | mark.coleman@ca.ey.com
Vancouver
Eric Bretsen
+1 604 899 3578 | eric.r.bretsen@ca.ey.com
New York – Canadian Tax Desk
Terry McDowell
+1 212 773 6332 | terry.mcdowell@ey.com
Andrea Lepitzki
+1 212 773 5415 | andrea.lepitzki@ey.com
EY Law
Daniel Sandler
+1 416 943 4434 | daniel.sandler@ca.ey.com
David Robertson
+1 403 206 5474 | david.d.robertson@ca.ey.com
Louis Tassé
+1 514 879 8070 | louis.tasse@ca.ey.com
And for up-to-date information on the federal,
provincial and territorial budgets, visit
ey.com/ca/budget.
