Accounting for Law

CRA search for offshore tax evasion aided by database, bank info

Although the searchable database at the centre of the Panama Papers data leak may have made it easier for authorities to crack down on unreported offshore accounts, it is likely that the taxman will increasingly look to the banks for this information, Toronto tax litigation lawyer David J. Rotfleisch tells

As previously reported, the International Consortium of Investigative Journalists (ICIJ) has released a searchable database that allows the public to look up names and companies contained in the Panama Papers, detailing more than 214,000 offshore companies, trusts and foundations administered by Panama-based law firm, Mossack Fonseca.

As Rotfleisch, founding tax lawyer at Rotfleisch & Samulovitch Professional Corporation, explains, the database contains “information about specific individuals and companies and is accessible and searchable by anyone, both media representatives and ordinary Canadians, who may want to check on an employer, neighbour, landlord or celebrity.

“For example, if a building is owned by a corporation, the database can be accessed to see if that corporation is listed, and if it is, what information, such as owners, is available.”

One issue that has been largely unreported, says Rotfleisch, is that the Panama Papers database has been integrated with offshore tax haven information leaked by the ICIJ in 2013. This, he explains, makes it easier for the Canada Revenue Agency (CRA) and its counterparts around the world to track down the information they are looking for.

Some Panama Papers information has been added to the previous database. It makes the searching more powerful since all of the information is combined,” says Rotfleisch.

In terms of how the CRA might use this information, Rotfleisch says one can only speculate that when the agency has the names of Canadians who are implicated — through the release of bank information or otherwise — it will search the database to see what information is available.

“I would be very surprised if that level of data mining was not taking place,” he adds.

The consequences for individuals found to have evaded taxes offshore, he says, are significant.

“There will be civil tax penalties at a minimum, and I fully expect tax evasion prosecutions whenever CRA can put together strong enough evidence.”

At the same time, Rotfleisch says searchable databases are likely to be the exception, rather than the norm, when it comes to the release of offshore account information in future.

“Release of names by banks by way of CRA-specific requests is the more common way for CRA to obtain information about offshore activities. For example, recently the Federal Court of Canada has approved federal requests for seven years' worth of transaction information from the Royal Bank of Canada and Citibank, N.A., related to accounts in the name of Cayman National Bank Ltd.,” he says.

As Rotfleisch explains, the recent Federal Court ruling is just the “latest round in the CRA’s battle against unreported offshore income and offshore assets.

“As I've pointed out before, the window for a voluntary disclosure continues to close. Under the Voluntary Disclosures Program, taxpayers with unreported income or unreported offshore assets can avoid prosecution and tax penalties.”

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