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.
Canadian taxpayers should not be burdened with paying for those who do not pay their fair share. In order to ensure a tax system that is responsive and fair, the CRA is making proactive efforts to crack 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 Budget 2017, the Government of Canada built on its Budget 2016 investment by investing an additional $523.9 million in the CRA. These historic investments 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.
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
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.
As of March 31, 2017, the CRA has analyzed over 41,000 transactions, worth over $12 billion, to and from four jurisdictions and financial institutions of concern.
Collaborating and sharing information with international and domestic partners
Domestically, 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. The CRA participates in two expert groups within JITSIC on the Panama Papers, leads the working group on intermediaries, and participates actively in other expert groups. 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. In January 2017, Government of Canada representatives participated in the largest ever simultaneous exchange of information at a JITSIC meeting to share finds related to the Panama Papers leak.
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.
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 addressing abusive international tax avoidance and evasion. Canada is part of these global efforts through its active engagement in the G20, Organization for Economic Co-operation and Development, the 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 plan identifies domestic and international recommendations to address tax avoidance and ensures profits are taxed where economic activities occur, including preventing the use of shell companies to hide profits offshore and schemes that artificially shift profits offshore.
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 and 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 filing obligations imposed under Canadian legislation.
Reviewing and modernizing existing programs
Through consultation with experts and Canadians, the CRA is working towards ensuring a more innovative, responsive and fair tax administration. Whether through consultation with the public, the CRA is always looking for ways to improve the tax system for all Canadians. The valuable input provided, helps to inform the government’s next steps and to ensure that the best interests of Canadians are met. For example, the government has committed to look more closely at the Voluntary Disclosure Program so that it is delivered in a fair and effective manner.
Encouraging Canadians to come forward if they have information pertaining to cases of offshore aggressive tax avoidance through the Offshore Tax Informant Program (OTIP).
What can you do?
You can do your part to help us tackle offshore tax evasion and aggressive tax avoidance.
- 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 aggressive tax avoidance? Learn more.
We are cracking down on offshore tax evasion and aggressive tax avoidance. Regarding offshore tax havens, there are over 820 audits and over 20 criminal investigations underway. In four jurisdictions of concern, there are over 41,000 transactions in review worth over twelve billion dollars.
Did you know?
- As of April 30, 2017, the OTIP has received 1047 calls and 448 written submissions from potential informants. Due to information received through this program, over 227 taxpayers are currently under audit.
Backgrounder: Offshore Compliance Advisory Committee
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