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NDP Supplementary Report: Canada Revenue Agency’s Efforts to Combat Tax Avoidance and Evasion

  • “Athough the issue is complex, incredibly broad and quite shocking, the facts have been obscured for a long time. If they have gauged the impact of the issue, very few MPs or ministers have raised it, and the ‘relevant’ departments have been short-sighted.” [Translation] − Alain Deneault, speaking on tax evasion 


Tax havens are a serious threat to our economy and to Canadians’ confidence in our system. Over the past eight years, we have witnessed many scandals, such as KPMG and the Isle of Man, the Bahamas Papers and Panama Papers, the tax evasion mechanism of the Swiss bank UBS, the Liechtenstein case and the Luxembourg leaks. It is estimated that aggressive tax avoidance and tax evasion result in an annual loss of $8 billion in tax revenue.

The New Democratic Party (NDP) is pleased that the House of Commons Standing Committee on Finance has undertaken a study of the Canada Revenue Agency’s efforts to combat tax avoidance and evasion. This study was needed to highlight these serious modern-day problems and was especially important given recent revelations about KPMG.

We believe that the main report prepared by the Committee’s analysts fairly and fully reflects the basic testimony heard by the Committee. The NDP’s complementary report will therefore not address the substance of the testimony and information received, but will focus on the process for conducting the study.

Overview of the KPMG case

Since 2012, the Canada Revenue Agency (CRA) has been investigating KPMG clients who allegedly made use of tax avoidance mechanisms. Using an elaborate strategy, the consulting firm set up shell companies on the Isle of Man. Fifteen plans were created, involving 25 Canadians who made non-taxable “gifts” to these offshore companies.

According to documents filed with the Tax Court of Canada, the CRA maintains that the funds were transferred in order to deceive the agency, and the tax structure set up by KPMG was a “sham.” KPMG is doing everything possible to delay court proceedings.  

In March 2016, the CRA was hit by a new revelation in the KPMG case: the agency allegedly offered amnesties to wealthy client who hid millions on the Isle of Man. CBC and the television show Enquête obtained a copy of the nine-page confidential offer dated 1 May 2015, and signed by Stéphanie Henderson, a CRA manager responsible for offshore compliance.

This new scandal has made headlines and seriously shaken Canadians’ confidence.

The role of the NDP

Following the new revelations that the CRA offered amnesty to KPMG’s tax-evading clients, the NDP questioned the Minister of Revenue in the House of Commons Chamber. Her answer caused some confusion: she said that no amnesty had been granted.

The NDP recognized that there was an urgent need to study the issue.

On 14 April 2016, the NDP proposed and received Committee approval of a first motion to invite the Minister of National Revenue, CRA officials, including Stéphanie Henderson, and KPMG representatives appear.

Following the three hearings related to this motion, the NDP tabled a new motion to call additional witnesses. Two additional meetings were subsequently held.

The NDP succeeded in having a total of four motions passed to study KPMG’s tax mechanism on the Isle of Man. Five meetings were held, and the Committee heard from nine groups of witnesses including KMPG, the Canada Revenue Agency, Canadians for Tax Fairness, Réseau pour la Justice fiscal Québec, Chartered Professional Accountants of Canada, and persons appearing as individuals.

Unfortunately, the NDP’s efforts were considerably weakened.

Liberal members of the Committee tried to weaken the NDP’s motions at every opportunity, for example:

  • The NDP’s original motion to convene the Minister of Revenue and several CRA officials was initially rejected. It was then significantly weakened by removing the reference to the Minister. The motion was finally passed as a Liberal motion, following heated discussions.
  • In the case of the NDP motion requesting the Committee to compel KPMG to provide all correspondence between it and the CRA, the government members decided to soften the language and use “request” rather than “compel.”
  • On 19 May, the NDP proposed a new motion to hear from employees and former employees of KPMG and the CRA as well as independent experts. The motion was referred to the subcommittee and, in the end, only independent experts were invited.

Moreover, certain individuals demonstrated a clear lack of cooperation and goodwill in their testimony. It was almost impossible to receive full answers from KPMG officials (who hid behind attorney-client privilege) or the CRA (who cited privacy concerns).

An exchange between NDP MP Pierre-Luc Dusseault and Stéphanie Henderson, a CRA manager responsible for offshore compliance, went in circles.

  • Mr. Dusseault:
    • Madam Henderson, can you confirm that you signed that letter that is posted on the CBC website?
  • Ms Henderson:
    • Although the signature appears to be my signature, I can't confirm the source of the information on the website, so I cannot confirm the origin of the document and whether it would be mine or not.
  • Mr. Dusseault:
    • Can you confirm that you signed that letter?
  • Ms. Henderson:
    • No, I cannot, because I do not know the source of the document.
  • Mr. Dusseault:
    • Why would your signature be on that letter if you didn't sign it?

This questioning was followed by a bizarre exchange between NDP Finance Critic Guy Caron and National Revenue Minister Diane Lebouthillier.  

  • Mr. Caron:
    • Ms. Lebouthillier, I would like to come back to the letter by Ms. Henderson. I asked you a question on the subject, but did not get an answer. Could you provide a yes or no answer? Is the letter before us genuine, or not?
  • Ms. Lebouthillier:
    • I am unable to confirm the authenticity of the document posted online by the CBC.
  • Mr. Caron:
    • Did you make efforts to find out, and did you conduct an investigation into the letter to ascertain whether it's genuine?
  • Ms. Lebouthillier:
    •  I'm unable to confirm the authenticity of the document.
  • Mr. Caron:
    • We have a letter that supposedly does not exist, but we know 16 letters of agreement were signed with 25 clients. The CBC/Radio-Canada investigation confirms it. Can you confirm that this is indeed the case?
  • Ms. Lebouthillier:
    • I cannot confirm the authenticity of the document to you.
  • M. Caron:
    • Can you confirm that 16 agreements were signed?
  • Ms. Lebouthillier:
    • Mr. Gallivan, could you please answer the question?
  • Mr. Gallivan:
    • I believe the number is 15. Initially, 21 cases were before the courts, and there are now six.

We have a letter that no one will say is genuine, yet they acknowledge that 15 people signed it.

In addition, acting through the legal firm Osler, Hoskin & Harcourt LLP, KPMG has managed to impede the study and restrict its scope by issuing two letters to the Committee expressing its concerns about compliance with the sub judice convention. According to these letters, any discussions referring specifically to KPMG should be avoided since they could prejudice matters before the courts.

The sub judice issue was discussed in camera. When the meeting resumed, counsel from the House of Commons was called in to assist the Committee Chair. Witnesses and committee members were required to limit their comments, which caused obvious unease. After being warned by the Committee Chair, André Lareau said that he was asked to appear to speak about KPMG but he would try to limit himself to more general comments.

In addition, Michael C. Hamersley, who had originally agreed to appear as a witness, declined the invitation, which was a significant loss for the study. He explained his reason for doing so in a letter:

In light of the actions taken by the Committee on June 7, 2016, including the substantial constraints placed on the scope of member statements and witness testimony in deference to the sub judice convention, I must now respectfully decline the Committee's invitation to appear and request that the Committee remove my name from the list of expert witnesses who are participating in the Committee's study.

It is fair to say that this committee study has raised more questions than it has answered. The recommendations in the report are weak and will not shed light on the serious problem of tax avoidance and tax evasion. Worse still, the study has not helped to explain and find solutions to the systemic problems that are rampant at the CRA.

Things could have been different. The House of Commons and its committees have considerable powers, and the House of Commons has the role of “Grand Inquest of the Nation.” These powers surpass even attorney-client privilege. They should be exercised with great care, but they belong to Canadians’ elected representatives and they must be used when necessary.

Creating a special committee

Given the lack of response, sometimes contradictory statements, vague answers and unsatisfactory recommendations, we believe this study to be incomplete, as was the latest one in 2013. Tax evasion and aggressive tax avoidance cannot be examined part-time or lost among the Finance Committee’s numerous other studies. Studies based on five hearings go nowhere. The NDP recommends that Parliament make a full and clear commitment by establishing a special committee and giving it all the necessary resources (including a team of legal and tax advisors). The committee would focus exclusively on this issue for two or even three years and present a report and recommendations that the government could no longer ignore. Recommendation 14 by the NDP is as follows:

That the government establish an all-party special parliamentary committee on tax evasion, tax havens and aggressive tax avoidance to: (a) assess the scope of the problem, including related issues such as transfer pricing, tax treaties, tax information exchange agreements; (b) study possible government action on the global stage; (c) report its findings and recommendations to the House of Commons by December 1st, 2018.

As long as politicians continue to be so fearful and reluctant to use their powers, there will be no effective means to combat the serious problems of tax evasion and aggressive tax planning. The NDP wants the government to promptly establish an all-party special parliamentary committee on tax evasion, tax havens and aggressive tax avoidance.


Canada Revenue Agency’s efforts to combat tax avoidance and evasion

Recommendation 1

That the federal government quantitatively and qualitatively reassess its tax information exchange agreements, particularly with regard to the lifting of banking secrecy.   

Recommendation 2

That the Auditor General launch a study on Canada Revenue Agency operations, including: (a) the efficiency of the voluntary disclosure program; (b) the consistency of the protocol that sets penalties; (c) the efficiency of tax treaties and tax information exchange agreements; (d) the relationship between the Agency’s auditors and accounting firms.    

Recommendation 3

That the Canada Revenue Agency expand its efforts to prosecute tax experts that create aggressive tax planning schemes and commit to tougher penalties. 

Recommendation 4

That the Information Commissioner and Privacy Commissioner launch a study on Canada Revenue Agency operations, including the level of transparency required to ensure the accountability of the Canada Revenue Agency, with regard to privacy protection.   

Recommendation 5

That the federal government amend the voluntary disclosure program to account for penalties that no longer exist, drawing on the American programs: Offshore Voluntary Disclosure Initiative (OVDI) and Streamlined Filing Compliance Procedures (SFCP).

Recommendation 6

That the federal government examine and measure, as accurately as possible, Canadian tax loss resulting from the use of tax havens and international tax evasion, to determine the federal tax gap.   

Recommendation 7

That the federal government enact legislation requiring tax experts and accounting firms to register all fiscal products with the Canada Revenue Agency, as is the case with the Internal Revenue Service in the United States. 

Recommendation 8

That the federal government take steps to improve coordination between the Canada Revenue Agency, which investigates possible tax evasion, and the Department of Justice, responsible for prosecutions.     

Recommendation 9

That the government ensure that the Canada Revenue Agency stop the systematic negotiation of reduced penalties for tax evaders under the pretext of reducing costs to the justice system, depriving Canada of jurisprudence and creating a regime in which law enforcement becomes the subject of bargaining.     

Recommendation 10

That the government launch an independent study on Canada Revenue Agency investigations into cases of tax avoidance or evasion, to determine the number of investigations that result in convictions or settlements, as well as the penalties and interest rates imposed.    

Recommendation 11

That the federal government re-examine paragraph 5907(11) of the Income Tax Regulations that allows Canadian companies to transfer assets into tax havens before repatriating them without paying taxes, in cases where the country in question negotiated a TIEA with Canada.

Recommendation 12

That the Office of the Conflict of Interest and Ethics Commissioner launch an investigation into unusual hospitality practices by members of the Canada Revenue Agency’s senior management.

Recommendation 13

That the federal government clarify professional secrecy status in accounting firms, because tax avoidance mechanisms developed and proposed by accountants (without official professional secrecy) often seem to fall under the status as soon as they are reviewed by a lawyer from their own firm.

Recommendation 14

That the government establish an all-party special parliamentary committee on tax evasion, tax havens and aggressive tax avoidance to: (a) assess the scope of the problem, including related issues such as transfer pricing, tax treaties, tax information exchange agreements; (b) study possible government action on the global stage; (c) report its findings and recommendations to the House of Commons by December 1st, 2018.