Tax Evasion, Not Tax Reform on the CRA Agenda

Beth Graddon

Tax evasion will take precedence over tax reform according to the federal Finance Minister, who attended a June 5 meeting of the Senate Finance Committee. That’s the same day the Joint Chiefs of Global Tax Enforcement (J5), which the CRA is a part of, celebrated its first anniversary.

This organization is made up of heads of tax crime and senior officials from five international tax organization. Their goal is to share data and intelligence, while addressing cross-national tax crime threads, including cyber-crime and crypto-currency, and global tax evasion. So far, it’s an initiative the group claims has proven to be effective.  In fact, there have already been hundreds of data exchanges between J5 partner agencies with more data being exchanged in the past year than the previous 10 years combined.  

“When we launched the J5 we were clear that we wanted to use our combined powers and expertise to close the net on offshore tax evaders, international organised crime groups and those who help them,” said Simon York, Director HMRC Fraud Investigation Service. “In just 12 months, that net has tightened with eighteen suspected enablers in our sights and a further 50 cases in the pipeline. This builds on work that has seen HMRC secure more than £2.9bn from offshore tax evaders since 2010.  Our message remains clear - no matter how safe you think you are, the J5 are closing in.”

The leaders from five international tax organizations met in Washington, DC, to mark the one-year anniversary of the formation of the J5 which includes the heads of tax crime and senior officials from the Australian Criminal Intelligence Commission (ACIC) and Australian Taxation Office (ATO), the Canada Revenue Agency (CRA), the Dutch Fiscal Intelligence and Investigation Service (FIOD), Her Majesty’s Revenue & Customs (HMRC), and Internal Revenue Service Criminal Investigation (IRS-CI).

The J5 is involved in more than 50 investigations involving international enablers of tax evasion, including a global financial institution and its intermediaries who help taxpayers  hide their income and assets. The agencies are also cooperating on cases covering crimes from money laundering and the smuggling of illicit commodities to personal tax fraud and evasion.

“Tax crimes continue to evolve in their level of sophistication and complexity, which is why it is essential that we collaborate with our international partners to combat tax evasion,” said Stephane Bonin, Director General, CRA. “After one year working with the J5, we are now all better equipped to conduct operations together in the fight against those who commit, promote and enable international tax crimes and money laundering. Together, we will continue to tighten the net on those who break tax laws, and ensure they face the consequences of their actions.”

As a result of its leadership in this space, J5 countries are making it harder for people to dodge taxes by hiding their money abroad. But this is precisely where the need for a significant overhaul to the current tax system may come in. Many professionals and research organizations have commented on this need recently.

A study published in 2018 by the CPA Canada entitled Canada’s Tax System: What’s so Wrong and Why It Matters, notes that tax simplification can lead to important benefits in enhancing compliance, increasing tax revenues and reducing.

The study also notes “according to the CRA, Canada is losing considerable tax revenue to taxpayer errors or tax evasion and the underground economy. The CRA estimated that, for individuals, the federal tax gap – the difference between the amount of tax it should have collected and how much it actually received – stood at $8.7 billion or 6.4 per cent of personal income tax revenues in 2014. . .In view of the high amount of forgone tax revenue, however, we also believe efforts to close the tax gap would be more effective in combination with steps to significantly simplify the tax system and improve trust.”

It also concluded that:

• Canada’s tax system does not align with international norms or do enough to promote global competitiveness

• Canada’s tax system needs to do more to help businesses grow and innovate

• Whether Canada’s tax expenditures achieve their goals at the right cost is unknown, yet there is no doubt that they greatly complicate the tax system

• Canada’s personal tax system discourages compliance in many cases, and there may be ways to deliver social benefits more efficiently and effectively

The Fraser Institute, meanwhile found that federal tax complexity has significantly increased since the turn of the century, in a study published in April 2019.  Particularly interesting were finding around the popularity of electronic filing, which does not necessarily help with tax compliance: “While the introduction and growth in Auto-fill, Netfile, and Efile mechanisms may be productive in reducing the time and cost of compliance, these changes do not address the underlying complexity of the tax system, nor necessarily help taxpayers understand the tax system. The risks are that Canadians may not be fully aware of their tax obligations, or understand how to make better choices to reduce their liabilities, and they may become complacent.”

Further, despite the J5 efforts to quell international tax evasion, it has been recently announced that  CRA negotiated a secret settlement with KPMG, which helped wealthy clients with an offshore tax scheme. This has certainly raised eyebrows and with it, trust factors. All are compelling reasons for the Finance Minister to reconsider and put tax reform on his agenda. 

Your opinion matters on these issues. Please weigh in to our monthly national polls. This month’s question is: “The CRA recently signed a secret settlement with wealthy KPMG clients involved in an offshore tax scheme. Do you agree with this?”

Additional educational resources: Become a DFA-Tax Services Specialist™, and help clients remain above-board in all of their dealings with the CRA and international tax authorities.

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