FINA Committee Report
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GOVERNMENT RESPONSE TO THE STANDING COMMITTEE ON FINANCE
“TAX EVASION AND THE USE OF TAX HAVENS”
In May 2013, the Standing Committee on Finance tabled the report titled “Tax Evasion and the Use of Tax Havens”. The following represents the Government’s response to each of the report’s eleven recommendations.
Recommendation 1: That the federal government, in an effort to promote transparency and better prevent international tax evasion, continue to pursue tax information exchange agreements with appropriate countries. These agreements should be based on the Organisation for Economic Co-operation and Development’s international standard.
The Government supports this recommendation. The Government is serious about preventing tax evasion and is committed to doing so by actively promoting the implementation of the Organisation for Economic Co-operation and Development (OECD) standard on the exchange of information for tax purposes (the OECD standard). Since Budget 2007, which included measures to promote the implementation of international tax information exchange between Canada and other jurisdictions, the Government has made significant progress in this area through the conclusion of many tax information exchange agreements (TIEAs) that include the OECD standard, and the inclusion of the standard in all of Canada’s new and revised income tax treaties.
The Government agrees that one of the most effective ways to combat tax evasion is to obtain tax information from as many jurisdictions as possible and it continues to negotiate agreements that provide for information exchange with several jurisdictions. To date, the Government has brought 16 TIEAs into force and signed 4 more TIEAs. The Government is currently negotiating 10 new TIEAs. As well, almost all of Canada’s 90 tax treaties currently in force are consistent with the OECD standard. Protocols amending the treaties with Austria, Barbados, Luxembourg and Switzerland have been signed and negotiations for similar protocols with Malaysia and Belgium are in progress.
Recommendation 2: That the federal government provide the Minister of National Revenue with more authority to obtain business identification information, such as in relation to a business’ operating name and legal name, ownership, business activities and contact details. The authority should include the ability of the Canada Revenue Agency (CRA) to withhold certain refunds claimed by a business until the requested information is provided.
The Government supports this recommendation. As part of the tax simplification and compliance measures announced in Economic Action Plan 2013, the Government proposes that the Minister of National Revenue be given the authority to withhold Goods and Services Tax/Harmonized Sales Tax (GST/HST) refunds claimed by a business until the business provides all the prescribed business identification information required as part of the GST/HST registration process. This measure will aid the CRA in its abilities to authenticate GST/HST registrations and will enhance the CRA’s compliance activities by improving the quality of data that the CRA uses to assess compliance risk.
The Minister of National Revenue will exercise this authority to withhold refunds in a fair and judicious manner. The proposed legislative amendment to give effect to this measure is included in Bill C-60, Economic Action Plan 2013 Act, No. 1, which was tabled in Parliament on April 29, 2013, and is proposed to be effective on Royal Assent.
Recommendation 3: That the federal government, consistent with the announcement in the 2013 federal budget, establish a whistleblower program through which the CRA can pay rewards to individuals who provide it with information about major international tax noncompliance that leads to the collection of outstanding tax.
The Government supports this recommendation. Economic Action Plan 2013 included a number of measures designed to combat international tax evasion and aggressive tax avoidance. These measures included the Stop International Tax Evasion Program (SITEP).
Under this program, the CRA may enter into a contract with an individual where information is provided to the CRA that leads to the assessment and collection of additional taxes arising from major international tax non-compliance. A payment for a percentage of the federal taxes collected will be made to the individual, subject to certain conditions.
A dedicated team of CRA experts has been created to fast-track the implementation of the measures to combat international tax evasion and aggressive tax avoidance, including the SITEP.
Recommendation 4: That the federal government require all entities obliged to report under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to obtain information about the beneficial ownership of customers that are corporations, trusts or other entities. The reporting entities should take reasonable measures to ascertain, and keep a record of, this information.
The Government supports this recommendation. The Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) require certain reporting entities to obtain beneficial ownership information in designated circumstances, that is, identification information from all persons who own 25% or more of a corporation or entity.
In January 2013, Regulations Amending the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations were published. These regulations clarify that those reporting entities should obtain beneficial ownership identification information in designated circumstances (that is, identification information from all persons who own 25% or more of a corporation or entity and identification information of trustees, known beneficiaries and settlors of a trust), including information establishing the ownership, control and structure of the entity.
The regulations also clarify that those reporting entities should take reasonable measures to confirm the accuracy of that information by obtaining documentary evidence. These reporting entities are also required to keep records of the information obtained and the measures taken to confirm the accuracy of the information. These new requirements will come into force in February 2014.
Recommendation 5: That the federal government continue to support the efforts of the Group of Twenty finance ministers and central bank governors to develop measures to address base erosion and profit shifting, to take necessary collective actions and to examine the Organisation for Economic Co-operation and Development’s forthcoming comprehensive action plan.
The Government supports this recommendation. The Minister of Finance, together with fellow G20 Finance Ministers, at their meeting in Washington on April 18-19, 2013, welcomed the progress made in the development of an action plan on tax base erosion and profit shifting. This project, led by the Organisation for Economic Cooperation and Development (OECD), is consistent with the Government’s commitment to protect the revenue base and foster confidence in the tax system.
The Government will continue to support G20 efforts in this area and looks forward to the July G20 Finance Ministers’ meeting, where the issue will be discussed on the basis of a comprehensive action plan presented by the OECD to Finance Ministers.
Recommendation 6: That the federal government continue to encourage all jurisdictions to sign the multilateral Convention on Mutual Administrative Assistance in Tax Matters and to support the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes.
The Government supports this recommendation. Canada supports the OECD/Council of Europe Convention on Mutual Administrative Assistance in Tax Matters (“the Convention”) as a vehicle to facilitate, among members, the exchange of information for tax purposes, in order to support on-going efforts to combat international tax evasion. Canada, together with other members of the G20, encourages jurisdictions to sign the Convention.
Recommendation 7: That the federal government continue to maintain taxpayer morale by ensuring clear messaging of ongoing efforts directed to ensuring fairness and transparency in Canada’s tax system.
The Government supports this recommendation. The Government has communicated to the public its commitment to ensuring fairness and transparency in Canada’s tax system. In budgets since 2006, the Government adopted tough rules to close tax loopholes and prevent a select few businesses and individuals from avoiding taxes. Since 2006, and including measures proposed in Economic Action Plan 2013, the Government has introduced over 75 measures to improve the integrity of the tax system.
Economic Action Plan 2013 announced that the Government is also taking steps to strengthen taxpayer compliance and combat international tax evasion and aggressive tax avoidance. These measures will provide Canadians with confidence that the CRA is administering the tax system in a fair and consistent manner.
By closing tax loopholes, addressing aggressive tax planning, clarifying tax rules and reducing international tax evasion and aggressive tax avoidance, the Government will continue to ensure a system that is fair for everyone. In doing so, it will build on the responsible management that has kept taxes low and Canadian net debt the lowest by far among Group of Seven (G-7) countries.
Communicating with Canadians on the CRA’s efforts to protect and continually enhance the fairness, transparency and integrity of the tax system has been and will continue to be a key priority for the CRA.
Recommendation 8: That the federal government continue to examine proposals to improve the caseload management of the Tax Court of Canada and to explore the possibility of further ways in which to facilitate more rapid prosecution of tax evaders.
The Government supports this recommendation. Consistent with this recommendation, Bill C-60, Economic Action Plan 2013 Act, No. 1, which was tabled in Parliament on April 29, 2013, contains proposed amendments related to improving the caseload management of the Tax Court of Canada (Tax Court). In particular, these amendments would (a) update the monetary limits for access to the Tax Court’s informal appeal procedure, (b) remove the requirement for the Tax Court to deal with all issues raised in an appeal of an assessment together and (c) permit the Tax Court to hear a question affecting a group of two or more taxpayers that arises out of substantially similar transactions, and provide that the resulting judicial determination is binding on each taxpayer in the group.
Recommendation 9: That the Canada Revenue Agency commit to applying the General Anti-Avoidance Rule in the Income Tax Act to aggressive international tax planning.
The Government supports this recommendation. The General Anti-Avoidance Rule (GAAR) was introduced to prevent abusive or artificial tax avoidance schemes, and the CRA applies the GAAR when dealing with aggressive international tax planning whenever it is appropriate to do so.
Recommendation 10: That the federal government create an efficient system to identify and prioritize the continuous closure of loopholes and the development of tax legislation to curb egregious forms of tax avoidance.
The Government supports this recommendation. The Government is committed to protecting the revenue base and ensuring public confidence in the fairness and integrity of the tax system. Since 2006, and including measures proposed in Economic Action Plan 2013, the Government has introduced over 75 measures to improve the integrity of the tax system.
The CRA regularly provides the Department of Finance with a list of issues that they view as deserving a high priority. The CRA and the Department of Finance meet regularly to discuss, analyze and prioritize these issues. For example, officials of the Department of Finance, the CRA and the Department of Justice regularly meet to discuss the potential application of the potential General Anti-Avoidance Rule and the potential impact of court decisions that are likely to create or expand a loophole.
As well, where the CRA has an assessing position to respond to aggressive tax planning but considers that the position may be vulnerable to a court challenge, CRA officials identify this for consideration by the Department of Finance with a view to determining whether legislative changes should be recommended at an early opportunity. Officials from these organizations meet regularly to discuss these issues, particularly in respect of measures to be presented for consideration for the annual federal budget.
The Department of Finance has an ongoing consultative process with tax practitioners and other experts outside government. The Department of Finance has an efficient system for recording, tracking and prioritizing legislative issues that are identified in the course of internal policy analysis, by taxpayers or the CRA in the course of applying the law to particular transactions.
Recommendation 11: That the Canada Revenue Agency extend the period of time during which the names of individuals, corporations and trusts convicted of either tax evasion or a failure to file income tax returns are listed on the Canada Revenue Agency’s website. The period, which is currently six months, should be increased to one year.
The Government supports this recommendation. The CRA posts information about convictions in order to achieve specific objectives: demonstrating its commitment to enforcing the tax laws; improving public awareness of the consequences for those who do not comply; and encouraging voluntary compliance.
At the same time, the CRA’s approach must be balanced and fair, recognizing that many taxpayers who have been non-compliant can and do become compliant in meeting their tax obligations. Other federal organizations that post similar information are using a one-year timeframe. The CRA accepts the recommendation to extend its own timeframe to one year. This practice will be formalized as part of the CRA Conviction Communications Guidelines.