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Co-operation, cryptocurrency focus of new tax enforcement group

News that Canada has joined a new multinational group aimed at combating international tax evasion is a “long overdue” development that will allow law enforcement to fully exchange information as well as focus on digital currency transactions, Canadian tax lawyer David J. Rotfleisch tells AdvocateDaily.com.

Earlier this summer, the Canada Revenue Agency (CRA) announced that it has joined tax enforcement authorities from Australia, the Netherlands, the United Kingdom and the United States to establish a joint operational group called the Joint Chiefs of Global Tax Enforcement (J5), aimed at increasing collaboration in the fight against international and transnational tax crime and money laundering.

The group will focus on building international enforcement capacity by sharing information and intelligence, enhancing operational capability by piloting new approaches, and conducting joint operations, to bring those who enable and facilitate offshore tax crime to account.  

At its first meeting, the CRA says the J5 “brought together leading experts in tax investigations and financial crime, cybercrime and big data analysts from each of the five member countries” to develop tactical plans and identify opportunities to “pursue cyber criminals and enablers of transnational tax crime.”

Rotfleisch, founding tax lawyer with Rotfleisch & Samulovitch Professional Corporation, says the group’s establishment is an indirect response to tax leaks such as the Panama Papers over the last five years.

“These leaks have exposed the creepy crawlies from the underside of the rock to both the public and politicians. There is an increased international emphasis on tax evasion and the formation of this committee is an entirely logical development,” he says.

“Arguably this approach is long overdue. Without full information exchange amongst tax authorities, criminals and tax evaders are able to exploit the gaps in knowledge. Foreign information exchange brings with it the ability for tax authorities to co-operate to tackle cross-border criminal financial issues. There is also a growing recognition that the dark web and cryptocurrency have to be a focus of law enforcement, another objective of this new committee,” adds Rotfleisch.

As Rotfleisch writes in The Lawyer’s Daily, cryptocurrency such as Bitcoin, Ethereum, Dash and others are now firmly in the crosshairs of worldwide tax authorities — the J5’s directive includes sharing information and joint investigations with a view to fight the risk from virtual money on tax administration and collection. 

Rotfleisch says he expects the formation of the J5 will result in increased focus by worldwide tax departments to gain insights into digital currency transactions.

“For example, different tax authorities might simultaneously and strategically demand account information from providers of cryptocurrency wallets,” he writes.

The formation of the J5 group, he adds, should serve as a warning to cryptocurrency users about the need to educate themselves on the tax compliance requirements in their jurisdiction of residence and of the U.S. if they are American citizens.

“Some cryptocurrency users think that cryptocurrency is entirely anonymous and that tax authorities cannot track transactions. This is wrong since the blockchain records every owner of the cryptocurrency.

“Other cryptocurrency participants believe, wrongly, that they need not worry about tax liability until they convert their digital coins into fiat (conventional currency). This is false in Canada since the CRA takes the position that cryptocurrency is similar to a commodity. Any transaction between different cyrptocurrencies gives rise to a tax liability,” Rotfleisch writes in The Lawyer’s Daily.

As Rotfleisch tells AdvocateDaily.com, the main international evasion focus for the last few years has been in demolishing bank secrecy.

“The new phase is going to be greater co-operation amongst tax authorities. I anticipate that this will result in transnational law enforcement's projects focusing on specific types of criminal activities or groups of actors,” he says.

Although the J5’s formation brings an added focus on international information sharing, individuals with unreported offshore income and assets may still have options when it comes to rectifying their situation with the CRA.

“While the Voluntary Disclosures Program has been restricted as of March 1 it is still available in many circumstances and can help Canadians who have not been forthright with their taxes in avoiding criminal prosecution and reducing penalties,” says Rotfleisch.

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