Canada: Canadian government reaffirms commitment to combatting domestic and offshore tax avoidance and evasion
On February 22 2017, the Canadian government responded to the recommendations made in the sixth report of the Standing Committee on Finance entitled: The Canada Revenue Agency, Tax Avoidance and Tax Evasion: Recommended Actions (standing committee report). The response generally supported all 14 recommendations of the standing committee report and reaffirmed the government's commitment to cracking down on tax evasion and perceived "aggressive tax avoidance".
Notable comments included the following:
The government will consider whether the reportable transactions legislation should be expanded;
Recommendations from the Offshore Compliance Advisory Committee's first report to the minister will be used to review the voluntary disclosures program (VDP). The review will be completed by March 31 2017 and will likely result in changes to narrow the criteria for acceptance into the VDP;
Guidelines used to determine whether to pursue litigation or to seek a settlement with taxpayers that have engaged in tax avoidance or tax evasion are being reviewed;
The Canada Revenue Agency (CRA) will review the informant leads program and the offshore tax informant program in order to encourage informants to come forward, as well as to modernise intake and interaction with information;
Canada's exchange of information relationships are being, or will be, reviewed to ensure that bank secrecy or lack of a domestic tax interest cannot be used to deny information exchange;
The government will strive to work closely with other jurisdictions to fight offshore non-compliance and international tax evasion and avoidance; and
A report providing practical guidelines for the implementation of a base erosion and project shifting (BEPS) action item related to risk assessment and reporting by large multi-national enterprises will be released in spring 2017.
Despite setting out the differences between tax evasion, a potentially criminal offence, and tax avoidance, a minimisation of tax liability within the letter of the law, the government's response sometimes failed to clearly distinguish between the two. This is concerning when considering how the standing committee report's recommendations will be implemented, particularly when a number of the recommendations contemplate the review of tax compliance mechanisms and penalties.
The government has clearly reiterated its dedication to cracking down on tax evasion and aggressive tax avoidance. The government's response, as well as the standing committee report, indicates that offshore compliance will be a focus of these efforts. In the press release announcing the tabling of the government's response, the CRA indicated that it is criminally investigating 20 cases of tax evasion related to offshore accounts. In addition, the government's response mentions that 60 taxpayers are under audit as a result of review of the 'Panama Papers' scandal.
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