Offshore Compliance Advisory Committee – Minutes – June 8, 2018

Friday, June 8, 2018

List of Participants

OCAC Members

Colin Campbell

Kimberley Brooks (by phone)

Committee Members

  • Catherine Brown
  • Larry Chapman
  • Daniel Thornton

CRA Attendees

Assistant Commissioner, International, Large Business and Investigations Branch
Ted Gallivan

Executive Director, Offshore Compliance Liaison Office
Gina Jelmini

Coordinator, Offshore Compliance Liaison Office
Stephanie Weber

Director General, Agency Change and Innovation Directorate
Mireille Éthier

Director, Accelerated Business Solutions Lab
André Patry

Manager, Strategic Research and Tax Gap
Michelle Gouchie

Principal Policy Analyst, Strategic Research and Tax Gap
Stephanie Gan

Director General, Criminal Investigations Directorate
Johanne Charbonneau

Director General, Offshore and Aggressive Tax Planning Directorate
Sue Murray

Corporate Services Officer, Offshore and Aggressive Tax Planning Directorate 
Amy Siu

Manager, Offshore Workload Development
Anne Lee

1. Opening remarks, résumé of Committee’s contributions and look ahead

Ted Gallivan opened the meeting, expressing appreciation for the Committee’s advice, and provided some comments as context for the Committee’s work in the new term.

He noted that generally, while there continues to be some concern and media coverage around tax leakage, the climate now enables the CRA to be more proactive than reactive on matters related to offshore non-compliance.  He observed on a more balanced dialogue in the multinational space flowing out of the BEPS initiatives and measures for improved tax certainty with respect to the large and multinational programs. He also noted that there was still some room for Canadians to gain a better understanding of the CRA’s intensified focus and early results on the highest risk files and a need for enhanced communications which will improve the narrative on international tax non-compliance in the T1 population.

He highlighted that the Agency’s focus on risk assessment and the importance of business intelligence is enabling more insight into taxpayer behaviours and permits a broader range of treatment options. He outlined certain priorities around tax assurance, disclosures, the legal landscape and consequences.

The discussion on new members was held later.

2. Minutes of November 17, 2017 meeting

The Committee requested an edit on point three to better capture their views regarding the importance and necessity of the information obtained from a random audit program to support tax gap estimations. The minutes were approved with this revision.

3. Changes to the terms of reference and letter of agreement, other administrative matters

Members reviewed the updated terms of reference. The Committee requested an edit to the scope statement to include advisors as follows:

The scope includes both businesses and high net worth individuals, and their advisors.

Members reviewed the updated letter of agreement. The Committee had no changes.

Ted Gallivan put out the call to the Committee to recommend new members noting that different perspectives enrich the discussions as would regional representation. Ideally, the Committee would aim to strike a balance of strong academic focus and practical experience.

4. Tax Gaps - Presentation (T1 international) and discussion

The CRA gave a presentation on its study of the international component of the personal income tax gap. This latest report is due to be published in late June 2018 and is the fourth report in a series that began with the release of the conceptual study in June 2016.

The report was well-received by the Committee. Members engaged actively with the presenters on points of methodology, data, inclusions and definitions, and observations that emerged in the study.

The Committee suggested the CRA may want to consider also identifying the related penalty and interest amounts, albeit separately, as additional reference for the magnitude and impact of the tax gap.

5. Update on Panama Papers and Paradise Papers - Presentation and discussion (seeking the Committee’s input on CRA process)

The CRA gave a presentation on the work that has been done to-date on the Panama Papers and Paradise Papers, including metrics on the numbers of entities involved, an overview of the types of structures that are being seen, the various sources of data that support the identification and risk assessment of the implicated individuals, and the challenges faced throughout the process which remains predominantly manual and time/resource intensive at this point in time.

A chronology of events and actions in response to the leaks was provided also which included those undertaken by the CRA at the global level through its participation in JITSIC (Joint International Taskforce on Shared Intelligence and Collaboration). Results in the form of risk assessment and audit metrics were also provided.

Members took the opportunity to pose questions and the ensuing discussion was framed by the disparity between the CRA’s progress versus perceptions in the public and media. The Committee observed that impressions in the media are not aligned with what the Agency has done and that public perception is that the Agency is further behind. The Committee further noted there are valid reasons for slower progress such as rights of taxpayers to due process and to challenge the Agency in court.

Members took some time and effort to understand the metrics that were presented. The Committee suggested the CRA may benefit from full disclosure of the numbers and was of the view that a more simplified way of presenting the numbers and how the subsets relate could be developed.

Members also paid particular attention to the disparity between the actual data that the CRA gets in the International Consortium of Investigative Journalists (ICIJ) downloads—which consist of lists that have been compiled by third parties who have made certain categorizations based on their review of the documents—and the full documents the ICIJ has in their resources. These categorizations must then be validated by the Agency.  The CRA only exceptionally gets the actual documents if the ICIJ has released them for a story or if the Agency has obtained them from another source. The Committee recognized a public misperception that the Agency has access to the full documents package. 

Members thought that the Committee could and should help tell the story to properly inform Canadians. The Committee discussed the possibility of issuing a statement on the CRA’s work on these data leaks to acknowledge the progress that has been made and address some of the challenges and constraints faced by the Agency.

6. Limits of s. 241 and transparency - Presentation and discussion (seeking the Committee’s recommendations).

The CRA gave a presentation to introduce the topic of discussion highlighting constraints on its ability to defend its actions and correct the record when faced with negative, misleading or erroneous media coverage.

Section 241 of the Income Tax Act (ITA) outlines strict confidentiality provisions, the breach of which can lead to criminal prosecution, fines and imprisonment, and disciplinary action including termination, if the breach is made by CRA employees/officials.

While the confidentiality of taxpayer information is paramount, these restrictions can result in the CRA being vulnerable to undue criticism and ridicule in the public discourse, from which it is unable to defend itself.

These constraints also limit deterrence opportunities as the CRA is restricted from publicly reporting on significant events involving specific taxpayer files such as the laying of charges or actions that are before the courts, despite the fact that this information is publicly available through court documents. Further the CRA generally is reluctant to even point to specific court documents and when it does, it retrieves the documents in person for review before referencing them.

Reference was made to the Australian Taxation Office (ATO) and the Taxation Administration Act 1953 which includes an exception provision that permits the ATO to respond using protected information to correct the record in specific circumstances.

In-depth discussion followed on the relevance, utility and appropriateness of having a comparable exception provision in the ITA, on aspects of the ITA confidentiality provisions and on possible solutions to the CRA’s constraints. Views differed among members as to where the solution may lie, as well as on the risks, benefits, and rights of individuals versus the common good when public perceptions on the integrity of the tax administration and fairness are at stake.

The Committee agreed it is a complex issue that may be considered for further research and discussion in future. The Committee suggested that the Section 241 constraints could be part of the statement it plans to issue.

7. Next steps / forward agenda, closing remarks and in camera discussion

There was a quick recap of the priorities first outlined and noting of additional possible topics for future discussion that emerged during the day such as disclosure of uncertain tax positions, a look at the United States’ Internal Revenue Service provisions that help to scope audits, and the UK regime on limited liability.

The next meeting will be held in August, September or early October at the latest. Planning should begin in July. Members were encouraged to bring forth discussion items of interest.

The Chair thanked everyone for their participation and the meeting was adjourned. The members then held their usual short in camera discussion.

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