Directions for Avoiding Complicity in Mistreatment by Foreign Entities (Commissioner of the Canada Revenue Agency) – 2020

Annual Report 2020

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 ActFootnote 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 second annual report describes the implementation of the Directions for the period January 1, 2020, to December 31, 2020, and includes:

Information-Sharing Practices and Arrangements at the CRA

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:

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 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 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 by September 30Footnote 3  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 (FATCA) and under the Convention on Mutual Administrative Assistance in Tax Matters (MAC) and the CRS Multilateral Competent Authority Agreement (CRS MCAA) related to the Common Reporting Standard (CRS). 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:

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 and the Compliance Liaison Office

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

The Compliance Liaison Office (CLO), in collaboration with the EOI Sections, manages CRA’s participation in numerous projects and exchanges of information with exchange partners within the OECD’s Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) network; these exchanges are also made in accordance with Canada’s International Agreements.

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:

The EOI Sections and the CLO 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 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 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 4 . 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.

Implementation of the Directions

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

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. 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:

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.

In 2021, the CRA will finalize 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. Finalization of this document was delayed due the suspension of some business activities as a result of the COVID-19 pandemic. That being said, the document will merely codify and formalize 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, or in response to any amendments to the Act or the Directions).

Mistreatment risk assessment

Since January 2020, the EOI Sections have completed a mistreatment risk assessment (MRA) for each potential information exchange, including the use of information received from the CRA’s information exchange partners. Each MRA must be reviewed and approved by appropriate CRA senior management before information can be disclosed to, or requested or used from, an exchange partner. Approval authorities are commensurate with the level of risk assessed; MRA’s can be escalated to a higher approval authority, if necessary, and a denial may happen at any level. All MRA’s elevated to the Commissioner are reported to the Minister of National Revenue, the National Security and Intelligence Review Agency (NSIRA), and the National Security and Intelligence Committee of Parliamentarians (NSICOP) in accordance with the Act and the Directions.

In 2020, the EOI Sections formed a Risk Assessment Working Group (RAWG). The RAWG developed a methodology to assess the human rights records of its information exchange partners, so that CRA senior management can make an even more informed assessment of the risk of mistreatment to an individual when deciding whether to disclose information to, or request or use information from, an exchange partner. These country-level assessments have been incorporated into the MRA prepared for each information exchange since mid-2020, and also factor heavily into the determination whether bulk data can be shared with our exchange partners under the IGA and CRS MCAA.

In 2020, the CIP also initiated the development of MLAT risk assessment (MLAT RA) procedures tailored to its own information exchange activities (i.e., obtaining or sharing evidence in the course of domestic and foreign investigations), which will be finalized in 2021. For all exchanges of information made under MLATs in the reporting period, including exchanges that predate the implementation of the MLAT RA procedures, the CRA considered the requirements of the Directions in determining whether the exchange could be made.

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. Awareness of the Directions is now a standard component of most EOI activities and consultations.

Additional awareness and training sessions will be provided to impacted CRA employees as required (i.e., as new issues arise).

Dedicated Team

It is anticipated that the development and regular updating of country-level assessments, and the preparation of individual-level risk assessments will transition to a new dedicated team housed within the CPB, in summer 2021. This new team will also be responsible for creating the framework for consulting with CRA senior management and other government departments and agencies, advising CRA officials who engage in EOI, preparing annual and other reporting required under the Act and the Directions, providing awareness and training sessions, and continuously improving documentation, policies, guidance, and procedures.

Activity Report – January 1, 2020 to December 31, 2020

Cases of substantial risk requiring a determination by the Commissioner under the Directions
Type of case: Number of cases requiring Commissioner Determination:
Disclosure of information 0
Request for information 0
Use of information 0

Restriction of arrangements

The CRA had 0 cases of restrictions being applied to any arrangement due to concerns related to mistreatment for the period January 1, 2020 to December 31, 2020.

Bob Hamilton

Commissioner of the Canada Revenue Agency

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