Directions for Avoiding Complicity in Mistreatment by Foreign Entities (Commissioner of the Canada Revenue Agency) – 2022

Introduction

This report by the Commissioner of the Canada Revenue Agency (Commissioner) is presented to the Minister of National Revenue (Minister) in accordance with subsection 7(1) of the Avoiding Complicity in Mistreatment by Foreign Entities Act^{footnote 1} (Act). Under this provision of the Act, the Commissioner is required to prepare an annual report on the implementation of the Directions for Avoiding Complicity in Mistreatment by Foreign Entities (Commissioner of the Canada Revenue Agency) (Directions)^{footnote 2} by the Canada Revenue Agency (CRA) during the previous calendar year.

The Directions were issued by the Governor General in Council on September 4, 2019. This fourth annual report describes the implementation of the Directions for the period January 1, 2022, to December 31, 2022, and includes:

• an overview of the types of information shared by the CRA with its information exchange partners related to foreign entities;
• an overview of the impacted areas of the CRA;
• a description of the activities that support the CRA’s compliance with the Directions;
• details, if any, on substantial risk cases where the Commissioner was required to make a determination whether to disclose, request or authorize the use of information under the Directions, including the number of such cases; and
• details, if any, on restrictions to arrangements due to concerns of mistreatment.

Information-sharing practices and arrangements involving foreign entities at the CRA

Overview of information-sharing practices and arrangement

The CRA’s mission is to, “Administer tax, benefits, and related programs, and ensure compliance on behalf of governments across Canada, thereby contributing to the ongoing economic and social well-being of Canadians.”

 

In this capacity, the CRA exchanges information with a variety of both domestic^{footnote 3} and international partners for various purposes. Through the administration of Canada’s network of tax treaties, the CRA is involved in a variety of tax information exchange agreements and international tax conventions (collectively referred to as “International Agreements” in this report).

Internationally, the exchange of information (EOI) with foreign tax administrations can be broken into two broad groups:

• Specific exchange of information – Under its International Agreements, the CRA facilitates incoming and outgoing EOI regarding specific taxpayers, on a case-by-case basis. These exchanges can be related to a specific request for information or completed on a spontaneous basis. Examples of spontaneous exchanges include the Exchange of Tax Rulings^{footnote 4} and information exchanged by No or Nominal Tax Jurisdictions^{footnote 5}.

• Bulk exchange of information (Automatic) – The CRA sends, receives and uses significant amounts of bulk data related to taxpayers, including non-residents. For example, the CRA is committed to transmitting large bulk data each year under both the Intergovernmental Agreement for the Enhanced Exchange of Tax Information (IGA) related to the U.S. Foreign Account Tax Compliance Act and under the Convention on Mutual Administrative Assistance in Tax Matters (MAC) and the Common Reporting Standard (CRS) Multilateral Competent Authority Agreement (CRS MCAA) related to the CRS^{footnote 6}. Similarly, the CRA receives bulk data from the United States Internal Revenue Service under the IGA and from its CRS exchange partners under the CRS MCAA.
  
  

  The CRA also automatically exchanges other forms of bulk information with its treaty partners, including:

  • country by country (CbC) reporting^{footnote 7} information;
  • information concerning data leaks, e.g. the Panama Papers and the Paradise Papers; and
  • information on various types of income paid to non-residents, such as income from immovable property, business profits, employment, dividend, interest, royalty, pension, government service, artists and athletes, and capital gains paid to individuals or corporations (information is also shared regarding the acquisition and/or disposition of real property by non-residents).

While the CRA’s domestic and international information-sharing agreements and obligations are both numerous and complex, involving a substantial amount of information, the nature of its tax administration mandate and its network of agreements is such that the potential risk of mistreatment is proactively mitigated through well established standards and procedures such as strict confidentiality requirements and limitations on the use of the information (e.g. only for the use of tax administration) that are embedded within its information-sharing agreements. In addition, regular peer reviews through the Global Forum on Transparency and Exchange of Information for Tax Purposes ensures compliance with international standards and confidentiality of the information exchanged.

Information Exchange Advisory Section

In 2021, the CRA established a dedicated team within the Compliance Programs Branch (CPB), the Information Exchange Advisory Section (IEAS). The IEAS is responsible for the overall implementation of the Act and Directions. This includes:

• conducting country-level assessments as well as reviewing mistreatment risk assessment (MRA) for potential information exchange;
• advising CRA officials who engage in EOI;
• the development and regular updating of the framework for consulting with CRA senior management and other government departments and agencies as well as related policies, procedures and other guidance;
• serving as the secretariat body for internal governance structures put in place to support implementation of the Act and Directions;
• consulting with other government departments and agencies including participating in the Public Safety-led Information-Sharing Coordination Group (ISCG);
• preparing annual and other reporting required under the Act and the Directions; and,
• providing awareness and training sessions.

Exchange of Information Services sections

The CRA’s Exchange of Information Services Sections (EOI Sections), in the CPB, support the CRA’s efforts to combat tax avoidance and evasion by managing the exchange of taxpayer information with foreign tax administrations in accordance with Canada’s International Agreements. These agreements provide for the sharing of tax-related information for both civil and criminal tax law purposes, and impose strict confidentiality requirements and limitations on the use of the information obtained thereunder. Except for the EOI activities under the Mutual Legal Assistance Treaty (MLAT) undertaken by the Criminal Investigations Program, all of the CRA’s EOI activities with international partners pursuant to International Agreements are streamlined through a designated Competent Authority for each party.

Information is shared under Canada’s International Agreements on the condition that the information will be used solely for purposes related to the assessment or collection of the taxes covered by the agreements. The CRA is under no obligation to provide information to a foreign jurisdiction where there are:

• indications that the data will not be kept confidential;
• no assurances it will be used solely for taxation purposes;
• indications of corruption or bribery; or
• other administrative practices that would raise concerns that the information would be misused.

The EOI Sections also support and collaborate with officials in CRA Headquarters and field offices who rely on this information for international and domestic compliance purposes.

International Relations and Treaties Office

The International Relations and Treaties Office (IRTO), in the Legislative Policy and Regulatory Affairs Branch, acts as the Competent Authority in resolving interpretative issues with respect to Canada’s International Agreements, and assists the Department of Finance in negotiating these agreements as well as formulating treaty policy.

IRTO is also responsible, in collaboration with other stakeholders, for the negotiation of bilateral Competent Authority Agreements in regards to EOI under International Agreements and the selection of exchange partners under the CRS and CbC MCAAs.

IRTO also works in partnership with various CRA program areas and the Department of Finance on a range of international tax cooperation and policy issues. Examples include work on standards for automatic EOI, updates to the Organization for Economic Cooperation and Development (OECD) Model Tax Convention and the OECD/G20 project to develop a solution to address the tax challenges arising from the digitalisation of the economy.

Criminal Investigations Program

The CRA’s Criminal Investigations Program (CIP), in the CPB, investigates significant cases of tax evasion, fraud and other serious violations of tax laws, including cases with an international element. The CIP works closely with the Royal Canadian Mounted Police, provincial and local police, and other law enforcement agencies on tax cases to maintain the integrity of the tax system. CIP shares knowledge and expertise with domestic and international partners, including through the Joint Chiefs of Global Tax Enforcement (J5)^{footnote 8}. The CIP’s intelligence gathering capabilities enhances its ability to identify and address global tax evasion. To obtain foreign evidence, the CIP uses well-codified channels such as MLAT requests or engages the EOI Sections.

Implementation of the Directions

The CRA is responsible for determining the level of risk associated with the disclosure to, or request or use of information from, a foreign entity, mainly foreign tax administrations, and applying mitigating measures where appropriate.

Interdepartmental coordination

The CRA is an active participant in the Public Safety-led Information Sharing Coordination Group. The members of this group are working to ensure that the implementation of their respective Directions is consistent across all implicated federal departments and agencies. As a member of this group, the CRA endeavours to ensure that it approaches the assessment of risk of mistreatment in a manner consistent with other ISCG participants, and within the Government of Canada’s larger international framework.

The three primary objectives of ISCG are to:

• establish best practices;
• share information among its membership; and,
• coordinate the development of policy documents and responses for inter-departmental issues.

Updating policies and procedures related to the Directions

While the CRA has a longstanding historical practice of considering human rights conditions and the risk of mistreatment (in consultation with Global Affairs Canada and other federal departments and agencies where appropriate) in the course of conducting its EOI activities, the CRA has made modifications to its operational policies and procedures to strengthen compliance with the Directions since they were issued. The CRA also promotes the use of continuous improvement principles and practices in its workloads and as such these policies and procedures remain evergreen, and are adapted as needed on an ongoing basis.

The CRA has finalized its formal Policy and Operational Guidelines on Implementing the Directions to the Commissioner of the Canada Revenue Agency for Avoiding Complicity in Mistreatment by Foreign Entities with an effective date of January 1, 2023. That being said, the document merely codifies and formalizes the processes and procedures that have already been developed and put in place since the issuance of the Directions. The document will be reviewed and updated regularly (e.g. as the CRA incorporates any new best practices that are identified in the course of its participation in the ISCG, through internal reviews or in response to any amendments to the Act or the Directions). Detailed procedures will be developed over the coming months to supplement the policy.

Mistreatment risk assessment

The CRA conducts country-level assessments using a standardized methodology, including input from other Government of Canada partners, to assess the human rights records and related risks of its information exchange partners, so that CRA senior management can make an informed decision on whether to disclose information to, or request or use information from, an exchange partner.

These country-level assessments have been incorporated into the CRA’s Mistreatment risk assessment (MRAs), which are prepared for each EOI.

All EOI activities, including those that fall under the CIP, are subject to MRAs prepared at the working level by the IEAS team.

Following IEAS’s completion of the MRA, for EOI related to higher risk countries the MRA is reviewed and approved by appropriate CRA senior management before information could be disclosed to, or requested or used from, an exchange partner. Approval authorities are commensurate with the level of risk assessed; MRAs can be escalated to a higher approval authority, if necessary, and a denial may happen at any level. All MRAs elevated to the Commissioner must be reported to the Minister of National Revenue, the National Security and Intelligence Review Agency, and the National Security and Intelligence Committee of Parliamentarians in accordance with the Act, and the Directions.

In 2022, IEAS introduced “standing authorities” for low-risk EOIs. Low-risk EOIs include those where, for example, the nature of the data or the intended exchange partners are inherently low-risk and do not meet the threshold for substantial risk under the Act. Instead of requiring a case-by-case review, through these standing authorities, IEAS is able to process these low-risk EOIs more efficiently. Standing authorities are reviewed annually at a minimum.

Awareness and training

The Directions were announced and distributed to affected CRA officials shortly after they were issued.

CRA employees who regularly conduct information-sharing activities, or those whose responsibilities may bring them into information-sharing scenarios, receive training on information-sharing tailored to their particular roles and responsibilities. This approach ensures that training is commensurate with risk. Awareness of the Directions is now a standard component of most EOI activities and consultations.

Additional awareness and training are provided to impacted CRA employees as required (i.e. as new issues arise).

Activity Report – January 1, 2022, to December 31, 2022

Between January 1, 2022 and December 31, 2022, there were no CRA information exchanges that generated a substantial risk of mistreatment that required a referral to the Commissioner in accordance with the Order in Council Directions.

 

Bob Hamilton
Commissioner of the Canada Revenue Agency