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Days of bank secrecy for offshore accounts 'long gone'

In the wake of the 'Panama Papers' data leak, there has been a concerted international effort to catch offshore tax evaders — which taxpayers should take as a clear sign that the era of secrecy is over for these types of accounts, Toronto tax litigation lawyer David J. Rotfleisch tells AdvocateDaily.com.

As a result of the U.S. FATCA (Foreign Account Tax Compliance Act), which requires financial institutions all over the world to report accounts held by U.S. citizens, and the aggressive actions of the U.S. Department of Justice (DOJ), Rotfleisch, founding tax lawyer at Rotfleisch & Samulovitch Professional Corporation, explains that foreign banks can no longer offer secrecy to hide accounts from tax authorities. 

For example, Swiss banks have been fined by the U.S. DOJ for their involvement in past tax evasion by U.S. citizens, and are now all co-operating with tax authorities.

“Swiss banks now require evidence of domestic tax compliance by their clients, or they will shut the account. Data mining by tax authorities is now easier than ever,” he says.

Another example of the increasing lack of secrecy came in September — a few months after the International Consortium of Investigative Journalists (ICIJ) released the ‘Panama Papers’ searchable database that allowed the public to look up more than 214,000 offshore companies, trusts and foundations administered by Panama-based law firm, Mossack Fonseca — as Rotfleisch says there was a new leak from the Bahamas. 

“The data from that leak was also co-ordinated by the ICIJ and added to the existing searchable database that contains info from both the Panama Papers leak and the previous ICIJ tax haven leak in 2013 called ‘offshore leak,’” he says.

As previously reported, the September leak reportedly shows that RBC, CIBC and Scotiabank have registered nearly 2,000 offshore companies and private foundations in the Caribbean tax haven of the Bahamas. The leaked Bahamian registry was published online in a searchable database containing 1.3 million files that include the names of international politicians and business leaders, the Toronto Star reports.

Following the Panama Papers leak, reports said the Canada Revenue Agency (CRA) had access to the records, and was investigating a number of Canadian names revealed. 

“CRA has announced that it has already commenced 85 tax audits of Canadian taxpayers and has executed search warrants in a number of the 85 cases under tax audit, with more search warrant raids still being planned,” says Rotfleisch.

In another example of the crackdown on unreported offshore accounts, the CRA recently took the Canadian arm of giant accounting firm KPMG to court to reveal the names of clients who were new Canadian immigrants and for whom KPMG had sold and set up offshore tax structures in the Isle of Man tax haven designed to avoid Canadian taxes on income, says Rotfleisch.

“The conclusion is clear, the days of bank secrecy for offshore accounts are long gone,” Rotfleisch explains.

Canadians, he warns, are required to report their worldwide income and offshore assets in excess of $100,000. 

“Failure to do so is tax evasion subject to civil tax penalties and possible tax prosecution."

At the same time, Rotfleisch says, although the CRA has indicated that the taxpayers named in the more than 2,500 ‘Panama Papers’ files identified for review will not qualify for the CRA Voluntary Disclosures Program (VDP or tax amnesty) to avoid tax evasion prosecution and eliminate civil tax penalties, he says the agency “is not necessarily correct in this assertion.”

“If a taxpayer has unreported offshore income or undisclosed offshore assets and CRA has not yet started an audit they may still qualify for the CRA Voluntary Disclosures Program,” he explains.

Anyone in this position, he says, should ‘come in from the cold’ using a Canadian tax lawyer-submitted voluntary disclosure. 

“By going to CRA before it starts a tax audit or tax investigation they will avoid tax prosecution as well as civil tax penalties.”

Ultimately, Rotfleisch says, there is a concerted international effort to catch offshore tax evaders, and Canada is part of this effort. 

“Certainly many people still have a mindset that they don't want to pay their fair share of taxes. But the increasing focus and enforcement may be having some effect in, at a minimum, scaring would-be tax evaders, and in some cases, making them realize that their actions are socially unacceptable.”

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