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

From: Canada Revenue Agency

Introduction

This report by the Commissioner of Revenue ("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.

As the Directions were issued by Her Excellency the Governor General in Council on September 4, 2019, this first annual report describes the implementation of the Directions for the period September 4, 2019 to December 31, 2019, and includes:

• an overview of the types of information shared by the CRA with its information exchange partners;
• an overview of the impacted areas of the CRA;
• a description of the activities that support the CRA’s compliance with the Directions; and
• details on substantial risk cases where the Directions were engaged, if any, including the number of cases.

The CRA and Information-Sharing

The CRA administers tax, benefits, and related programs, and ensures compliance on behalf of governments across Canada, thereby contributing to the ongoing economic and social well-being of Canadians. The CRA’s mandate is to make sure Canadians:

• pay their required share of taxes; and
• receive their rightful share of benefits.

As Canada’s tax administrator, the CRA exchanges information with a variety of domestic and international partners for various purposes, including the administration of Canada’s network of tax treaties, tax information exchange agreements ("TIEAs") and international tax conventions (collectively referred to as "International Agreements" in this report). The CRA also exchanges information with provincial and local police, other law enforcement agencies (including international partners), and certain Government of Canada partners with a national security mandate. In addition, the CRA at times shares information with international bodies in the course of trade dispute adjudication and litigation.

The CRA is one of two known federal departments and agencies that are senders, receivers and users of bulk data related to taxpayers. For example, the CRA is committed to transmitting large bulk data by September 30 of 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 the Common Reporting Standard ("CRS"); similarly, the CRA receives bulk data from the United States Internal Revenue Service under the IGA and from its exchange partners under the CRS. The CRA also automatically exchanges other forms of bulk information with its treaty partners, including:

• country by country ("CbC") reporting information; 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).

Under its International Agreements, the CRA also facilitates incoming and outgoing exchanges of information ("EOI") regarding specific taxpayers, on a case-by-case basis. Furthermore, the CRA will spontaneously exchange information regarding specific taxpayers with other tax administrations, including certain tax rulings that could potentially give rise to base erosion and profit shifting ("BEPS") concerns.

While the CRA has numerous domestic and international information-sharing agreements and obligations and manages a substantial amount of information, the nature of its tax administration mandate and its network of agreements is such that the CRA assesses its information-sharing holdings as predominantly low-risk in terms of possible association with mistreatment.

Exchange of Information Services Sections

The CRA’s Exchange of Information Services Sections ("EOI Sections") in the Compliance Programs Branch 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.

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 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.

Competent Authority Policy and Treaty Advisory Section

The Competent Authority Policy and Treaty Advisory Section ("CAPTAS") 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 and in formulating treaty policy.

CAPTAS is also responsible, among others, for the negotiation of bilateral Competent Authority Agreements in regards to EOI under International Agreements, including the CRS Multilateral Competent Authority Agreement ("MCAA") and the CbC MCAA, as well as the selection of exchange partners under these MCAAs.

CAPTAS 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, and the Organization for Economic Cooperation and Development/G20 BEPS project insofar as it concerns International Agreements.

Criminal Investigations Program

The CRA’s Criminal Investigations Program ("CIP") in the Compliance Programs Branch 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. 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 Mutual Legal Assistance Treaty ("MLAT") requests or engages the EOI Sections.

Interdepartmental Coordination

The CRA has been an active participant in the Public Safety-led Information-Sharing Coordination Group ("ISCG"). 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. Through this group, the CRA has leveraged the other members’ country risk assessments to ensure that the CRA is approaching risk of mistreatment in a manner consistent with similarly-mandated partners, and within the Government of Canada’s larger international framework.

The objective of the ISCG is to provide an opportunity for partners to collaborate with an aim to:

• establish standards for consistent risk assessment at a country level;
• establish or update information-sharing arrangements between members to set out common approaches to implementation; and
• ensure awareness and, where required, consistency in any relationship restrictions.

New Policies, Guidance, and Procedures related to the Directions

Informed by its participation in the ISCG, the CRA has undertaken to draft 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 ("Policy"). It is anticipated that the Policy will be finalized and fully implemented in the first half of 2020.

The CRA is drawing upon historical information-sharing experience as well as the experience of other Canadian government organizations to ensure the development of a robust Policy that can be consistently applied across all CRA operations. The Policy will outline the roles and responsibilities of all relevant CRA officials involved in information-sharing activities covered under the Directions. In addition, the EOI Sections are enhancing current procedures and providing input into the guidance offered to other areas of the CRA, such as front line staff, who have questions pertaining to information-sharing, including sharing that could engage the Directions.

As an interim measure, pending finalization and implementation of the Policy, if substantial risk of mistreatment of an individual is suspected as a result of an international request for information, officials considering obtaining foreign evidence have been asked to consult on a case-by-case basis with advisors of the CIP and the EOI Sections at CRA Headquarters for guidance on policies and procedures and assistance in obtaining legal advice.

Awareness and Training

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

CRA employees regularly conducting 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.

Additional awareness and training sessions will be provided to impacted CRA employees when and if warranted (i.e., as new issues arise), including when the Policy is finalized and ready for implementation.

Activity Report – September 4, 2019 to December 31, 2019

The following section outlines by category of activity any cases that required the CRA to engage the Directions for the reporting period September 4, 2019 to December 31, 2019:

Bob Hamilton
Commissioner of the Canada Revenue Agency