Cracking down on offshore tax evasion and aggressive tax avoidance
Offshore tax evasion and aggressive tax avoidance impacts all Canadians
Canada has one of the highest voluntary compliance rates in the world; most Canadians file and pay their taxes on time. But, a small minority still choose to not pay what they owe. This is not fair and has to stop. Tax schemes deprive all levels of government of tax revenues that provide essential services to all Canadians.
In order to ensure a tax system that is responsive and fair, the CRA is cracking down on offshore tax evasion and aggressive tax avoidance.
The Canada Revenue Agency (CRA) has a robust system in place to tackle tax cheating, both domestically and internationally. This system includes information sharing and collaboration with international and domestic partners, new tools to analyze intelligence at its disposal, and experienced audit and investigations teams.
The CRA continues to build on its capacity to detect and crack down on offshore tax cheats and ensure that those who choose to break the law, face consequences for their actions. In Budgets 2016 and 2017, the Government of Canada invested nearly $1 billion in the CRA. This investment will ensure that the CRA has the resources to continue its compliance efforts, step up enforcement and improve the fairness and integrity of the tax system for all Canadians.
We are seeing early signs of success. See results.
There are also ways you can contribute and do your part in the effort to combat offshore non-compliance.
What the CRA is doing to crack down on offshore tax evasion and aggressive tax avoidance
Offshore Compliance Advisory Committee (OCAC)
OCAC was established in April 2016 to provide advice to the Minister and to the Canada Revenue Agency (CRA) on administrative strategies to deal with offshore compliance. The committee has reviewed the Voluntary Disclosure Program (VDP) and presented a report to the Minister with recommendations on how it could be improved. The CRA benefitted from that advice as it conducted its comprehensive review of the VDP program. Changes to the VDP were announced following a consultation with Canadians. These changes go into effect in March 2018. OCAC has also offered five recommendations on the CRA’s use of big data in its compliance activities. The CRA fully supports the recommendations and will continue implementing them.
Reviewing money transfers as they cross borders to and from Canada (Electronic Funds Transfers (EFTs) over $10,000)
Since January 2015, the Government of Canada has required financial institutions to report international EFTs of $10,000 or more to the CRA, to help identify taxpayers who may be participating in aggressive tax avoidance or who may be attempting to conceal income and assets offshore. Audits of the highest-risk taxpayers moving money between Canada and four jurisdictions and/or financial institutions of concern are underway. The CRA is committed to reviewing four jurisdictions and/or financial institutions in fiscal year 2017-2018 to identify high risk taxpayers.
Collaborating and sharing information with international and domestic partners
The CRA is working closely with partners here at home to crack down on tax cheats. The CRA is increasing cooperation and strengthening relationships with its domestic partners such as the Department of Justice, the Royal Canadian Mounted Police, and the Public Prosecution Service of Canada, to more effectively crack down on tax evasion.
Tax evasion and aggressive tax avoidance are issues that go beyond our borders, and combatting these require close collaboration and the sharing of information with Canada’s international partners. Canada is working with the Organisation for Economic Co-operation and Development (OECD) and the OECD’s Forum on Tax Administration (FTA), to promote international tax standards, reduce tax barriers, create better opportunities for Canadian businesses, and increase transparency around global tax issues.
Canada works closely with the Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC), a network of tax administrations in over 35 countries. This ongoing collaboration is a key component of the CRA’s work to develop strong relationships with the international community, which will help it refine the world-class tax system that benefits all Canadians.
Identifying promoters of aggressive tax schemes
With its strong team of tax professionals, the CRA is unravelling new schemes by identifying and taking action on the promoters of these schemes. Those who choose to promote these schemes can face serious consequences, including paying penalties, and potentially criminal prosecution, fines, and jail time.
Want to learn more about the consequences of promoting tax schemes? Go to Tax Cheating. There are consequences.
Identifying international non-compliance and abuses through the exchange of information within a large treaty network
Canada has one of the largest treaty networks in the world composed of 93 tax treaties, 22 tax information exchange agreements (TIEAs), and the multilateral Convention on Mutual Administrative Assistance in Tax Matters in force.
Another source of information will come from the Common Reporting Standard (CRS). The CRS is a new international standard for the automatic exchange of financial account information between tax administrations to use in fighting aggressive tax avoidance and tax evasion and to promote voluntary compliance with tax laws. Canada and close to 100 other jurisdictions are committed to its implementation. The CRA is committed to implement the CRS in 2017 with the first exchanges of financial account information to occur in 2018.
These treaties and agreements promote greater international cooperation through the exchange of information, thereby allowing the CRA and tax agencies around the world to identify non-compliance practices and take action to stop them. These tools help tax administrations uncover offshore tax evasion and aggressive tax avoidance.
Combatting avoidance by big multinational companies through actions set in the Base Erosion and Profit Shifting (BEPS) Project
The CRA is working with its international partners to improve global tax transparency and address aggressive international tax avoidance and evasion. Canada is a part of global efforts through its active engagement in the G20, Organisation for Economic Co-operation and Development (OECD), BEPS Project, and Exchange of Information initiatives, including various automatic exchange mechanisms.
With the BEPS project, Canada and its OECD partners are working to address aggressive international tax avoidance strategies used by some multinational enterprises to inappropriately minimize their tax obligations. The project identifies domestic and international recommendations to ensure profits are taxed where economic activities occur, including preventing the use of shell companies to hide profits offshore and schemes that artificially shift profits.
Country-by-Country reporting (CbCr) is a component of the BEPS Project and will increase transparency and improve the consistency of transfer pricing documentation on a worldwide basis. The CbCr will be used to enhance the CRA’s risk assessment process. The reports will be exchanged with other countries beginning in 2018. Form RC4649, Country-by-Country Report is now available on the CRA website. A guidance document has also been developed in support of taxpayers affected by the CbCr reporting filing obligations imposed under Canadian legislation.
Invoking the General Anti-Avoidance Rule (GAAR)
The CRA is committed to ensuring a tax system that is responsive, fair and where all taxpayers pay their part. As such, the CRA can invoke the General Anti-Avoidance Rule when a taxpayer exploits loopholes in the tax system and unfairly gains benefits by using these loopholes that go against the spirit of the law. An information circular is available to inform taxpayers and their representatives on the application of GAAR.
What can you do?
There are serious consequences to tax cheating. To learn more, go to Tax Cheating. There are consequences.
Be aware of your reporting obligations
- Taxpayers must report certain assets with a total cost of more than $100,000 on Form T1135, Foreign Income Verification Statement, by the filing due date of their income tax return. They must also make sure that they have properly reported any foreign income and gains on their income tax return.
Submit information to the Offshore Tax Informant Program (OTIP)
- Are you aware of a situation or do you have information regarding international tax avoidance? To learn more, go to How to submit information to the Offshore Tax Informant Program.
Backgrounder: Offshore Compliance Advisory Committee
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