The Canadian Minister of National Revenue announced the formation of a committee of third-party experts in April 2016, the Offshore Compliance Advisory Committee (the committee), to advise it on administrative strategies to deal with tax non-compliance.
The committee's first report, which was issued in December 2016, looked into Canada's voluntary disclosure programme (VDP) and recommended a reduction in the relief available under that scheme – particularly for taxpayers who use sophisticated offshore structures in their tax planning.
The release of the report coincides with an increasing focus by the Canada Revenue Agency (CRA) on improving offshore tax compliance. In particular, the Canadian federal government announced in 2016 that it would commit an additional C$444 million ($339 million) over five years to improve tax compliance. This initiative includes implementing a review of all international electronic funds transfers (EFTs) over C$10,000 between Canada and four foreign jurisdictions for each year of the programme. According to the CRA, 3,000 EFTs totalling C$860 million between Canada and the Isle of Man were reviewed under this initiative over a 12-month period, resulting in approximately 350 individuals and 400 entities being contacted and 60 audits launched.
Under Canada's VDP, if a taxpayer's voluntary disclosure satisfies specified conditions, criminal prosecution and civil penalties are generally waived, and partial relief for accrued interest on unpaid tax may be given. However, all unpaid tax must be paid. In its report, the committee echoed the recommendation of an OECD report on VDPs that said a VDP be designed to make taxpayers who voluntarily disclose their non-compliance pay (1) more than they would have paid if they had not allowed their compliance to lapse (by imposing penalties and interest on unpaid tax), but (2) less than taxpayers who do not voluntarily disclose their non-compliance.
As noted, the committee recommended that the available relief be curtailed, including where:
- There has been deliberate or wilful default or carelessness amounting to gross negligence;
- The taxpayer made active efforts to avoid detection through the use of offshore vehicles or other means;
- Large dollar amounts of tax were avoided;
- The taxpayer has a record of multiple years of non-compliance;
- The taxpayer has made repeated use of the VDP;
- The taxpayer is sophisticated; or
- The taxpayer's disclosure was motivated by statements by the tax authorities of an intended focus of compliance or by broad-based compliance campaigns.
The committee also recommended that any individual making a voluntary disclosure should be required to disclose the identity of advisers who assisted with non-compliance by, for example, assisting in the establishment of offshore accounts or structures. The report noted that these advisers may be liable to third-party penalties or may be charged with an offence under applicable tax legislation. The report also voiced a concern that certain VDPs may not be undergoing a suitable level of review by tax authorities and recommended that in appropriate cases (for instance, involving aggressive tax planning) the disclosures be reviewed by more senior or more specialised personnel than was previously the case.
The committee's report is part of a shifting tax landscape in Canada and elsewhere, which has seen tax authorities focusing increased attention on identifying and preventing perceived domestic and offshore aggressive tax planning.
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