The Canadian Bar Insurance Association

Success of CRA crackdown on offshore tax evasion unclear

Although the Canada Revenue Agency (CRA) claims the Panama Papers scandal has allowed it to showcase how the agency has changed its tactics, Canadian tax lawyer David J. Rotfleisch tells it remains to be seen how effective the taxman’s measures will be when it comes to fighting international tax evasion.

In a recent interview with the Toronto Star, CRA assistant commissioner Ted Gallivan discussed the "more aggressive CRA," noting, “There’s a bit of a paradigm shift for us: no voluntary disclosures and a lot more criminal investigations. That reflects a shift to more severe consequences for people who are participating in aggressive tax avoidance or tax evasion."

The article says those identified in the Panama Papers will not be allowed to file a voluntary disclosure. The CRA will also fingerprint those charged with tax evasion, which could affect their ability to travel, says the Star.

But as Rotfleisch, founding tax lawyer at Rotfleisch & Samulovitch Professional Corporation, says, “It's not clear to me that the statements made by assistant commissioner Ted Gallivan about the CRA being more aggressive are entirely correct.”

As part of his broader mandate for the CRA in late 2015, says Rotfleisch, newly elected Prime Minister Justin Trudeau set out the priorities for new Minister of National Revenue Diane Lebouthillier, which included investing in “additional resources to help the CRA crack down on tax evaders and work with international partners to adopt strategies to combat tax avoidance."

“This mandate predates the Panama Papers by several months,” says Rotfleisch.

In addition, he says, the Star article notes that prosecutions have been decreasing annually since 2011/12.

The article reports that the number of criminal convictions for tax evasion has dropped dramatically from 137 in 2011-12 to only 17 so far in 2016-17, although fines imposed have climbed from an average of $46,000 to more than $123,000. CRA data shows that the average sentence was 18 months in 2011-12, increasing to 26.5 months in 2016-17.

Additional tax collected by CRA audits is up from $8.7 billion in 2011-12 to $12.6 billion in 2015-16, but the Star reports that in terms of cases linked to the Panama Papers specifically, 75 audits and several criminal investigations are underway though no charges have yet been laid.

As Rotfleisch explains, “The past few years have seen a flurry of tax protester prosecutions. If you remove those prosecutions, then general and international prosecutions are a smaller part of the statistics.

“I think the Panama Papers scandal has put pressure on the CRA to fight what the public perceives as international tax abuse by wealthy Canadians, but it will remain to be seen how real and effective its measures will be,” he adds.

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