CRA Response to the Offshore Compliance Advisory Committee Statement on the CRA's Treatment of the Panama Papers and the Paradise Papers

Dr. Colin Campbell
Chair, Offshore Compliance Advisory Committee
Josephine Spencer Niblett Law Building
1151 Richmond Street
London ON N6A 3K7

Dear Dr. Campbell:

Thank you for your correspondence providing me with a statement from the Offshore Compliance Advisory Committee (OCAC) on the CRA's treatment of the Panama Papers and the Paradise Papers. The CRA has been working diligently on these files and I appreciate your review and assessment of the efforts to date.

The letter then provides seven comments and recommendations for the CRA to consider. I can assure you that CRA officials are supportive of this feedback and will carefully consider them and incorporate them wherever possible in their ongoing offshore compliance activities. In particular, in respect of your input on personnel, collections and public awareness, we offer the observations below:

As recognized in the OCAC's previous correspondence, the CRA's compliance function is becoming increasingly data driven. In addition to the tax data supplied by taxpayers on their returns, the CRA now also has additional sources of “big data”, which feed into our risk assessment systems and practices. Investments in technology are allowing the CRA to leverage global cooperation and data sharing, which improves our risk assessment and overall compliance efforts. The importance of data and technology means that the CRA needs and is recruiting professionals other than auditors, for example IT specialists and data specialists. It is also reflected in changes with our organization. For example, the High Net Worth Compliance Directorate (formerly the Offshore and Aggressive Tax Planning Directorate) has a new division to lead the data management and analysis of domestically and internationally sourced third party data. Furthermore, to enhance technical capacity, the directorate has created two teams to provide legislative and policy advisory support to field operations, as well as a section for advanced training and professional development.

The CRA is focussing its compliance resources in the areas with the highest risk. Reassessments of complex cases involving large businesses and high net worth individuals are likely to be contested. Increasing litigation relating to both taxpayer refusals to co-operate and technical positions could be an indication that the CRA is taking a direct approach to significant issues. However, additional legal resources are required at the audit and pre-litigation stages. The CRA has taken initial steps by investing $2.5 million last fiscal year and $4 million in the current fiscal year to bolster legal support and advice from the Department of Justice at the audit stage. Early involvement of counsel assists auditors with legal arguments and questions (both technical and administrative). This in turn will assist the CRA in putting forward strong reassessments that have undergone the rigour necessary to withstand a court challenge.

The CRA is finalizing the corporate income tax gap estimate. This report builds on the work already completed in the first four reports on the tax gap (conceptual study, GST/HST, domestic personal income tax, and international personal income tax). Together, the reports provide a picture of the overall federal tax gap for Canada's major revenue-generating taxes before CRA's compliance actions. Consistent with the OCAC's recommendation, the CRA is establishing a new research team under the Chief Data Officer to study the gaps more closely.

The CRA has processes in place where debts raised through audits conducted under the Offshore, Aggressive Tax Planning, and Related Party Audit Programs are referred directly to dedicated collections officers. Close interaction between Audit and Collections programs on these files ensures that required collection actions are taken in a timely manner. Analysis shows that only a small percentage of uncontested debts from these audits remain uncollected.

In order to assist the CRA with collection actions outside of Canada's borders, Canada has negotiated tax treaties with many countries, six of which include collection assistance agreements. In those rare situations where the only assets available are not located in Canada, the CRA can leverage international agreements to seek assistance from other countries. The CRA recognizes the benefits of the existing treaty collection measures and the value of having a wider network.

The CRA recognizes the importance of public awareness about the work that it has underway to address offshore tax evasion and aggressive tax avoidance. The CRA uses its webpages, public awareness campaigns, marketing and social media to broadly communicate with and inform Canadians. The CRA appreciates the OCAC's ongoing advice regarding the confidentiality provisions of the tax legislation and transparency. Going forward, the CRA will seek new opportunities to disclose more information related to its offshore compliance activities.

Thank you for your ongoing contribution to the CRA's offshore compliance efforts.


The Honourable Diane Lebouthillier

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