Thank you, Mr. Chair, for the opportunity to discuss the Canada Revenue Agency's ongoing effort to combat aggressive international tax planning and tax evasion.
The CRA is committed to protecting the integrity of the Canadian tax system by combatting tax avoidance and tax evasion on all levels. Briefly, I'd like to outline what we mean when we refer to tax avoidance and tax evasion.
Tax avoidance involves minimizing tax by contravening the object and spirit of the law but not the letter of the law. It can lead to significant financial penalties in interest. Tax evasion involves a deliberate underreporting of tax payable—for example, by concealing income or assets and making false statements. Tax evasion is a crime. So in addition to being reassessed for taxes, interest, and penalties, taxpayers who are convicted could spend time in jail and pay court-imposed fines of up to 200% of the tax they sought to evade.
The key to the CRA's domestic and international strategy to prevent aggressive tax planning and tax evasion, in addition to active enforcement, is to make it easy for taxpayers to comply with their tax obligations, while ensuring that the consequences of avoiding or evading tax are serious.
The problem of hiding income and assets in foreign jurisdictions is a serious one for many countries around the world, including Canada.
When Canadians don't pay their taxes, they take resources away from health care, child care, employment insurance, pensions and other programs. Companies that don't pay their taxes gain an unfair advantage over businesses that do.
We expect taxpayers to operate in good faith. If they enter into financial transactions where the express purpose is to avoid or evade taxes, we take action. And the consequences are serious.
Canada is not the only country combatting international aggressive tax planning and tax evasion. These are global problems.
Along with our partners in the Organization for Economic Co-operation and Development, Canada is a leader in setting and implementing internationally agreed-upon tax standards. The G-20 leaders, including Canada, announced an end to the era of bank secrecy in April 2009. They publicly committed to taking action against uncooperative jurisdictions, including tax havens.
Canada's close relationship with its international partners exemplifies how countries can use information exchange to uncover information relating to aggressive international tax avoidance schemes and information to combat tax evasion. This close relationship is founded upon Canada's network of 87 tax treaties, one of the largest in the world, which allows us to exchange information with other countries.
We are working hard to increase the flow of information by negotiating new tax information exchange agreements, including updating existing treaties and enhancing administrative arrangements with other countries. The CRA has increased the resources devoted to international tax issues. In the last five years, the number of full-time employees working in the CRA aggressive tax planning area has doubled, and the number of full-time employees working on international audit is up by 44%.
We have staff centres of expertise across Canada with senior audit professionals and specialists in international tax and tax avoidance. Since 2006 we have audited more than 6,700 cases, identifying $3.5 billion in unpaid taxes through our efforts to combat aggressive international tax planning. In 2009 alone, we uncovered $1 billion in unpaid tax involving international activities.
The CRA also combats tax avoidance in the courts. The “unnamed person” requirement is a judicial authorization that allows the CRA to obtain information. We also use it for tax avoidance schemes that rely on bank secrecy in foreign jurisdiction to hide income or ownership and control of assets. Using the unnamed requirement, we are able to require that a person or a company provide information regarding an unnamed third party. The CRA has used the unnamed requirement in many domestic and international cases.
Education is also an important element of our strategy. We use community visits, speaking engagements, publications, and our website to ensure that Canadians are aware of the consequences of evasion.
The CRA has been successful in communicating its message about those consequences. That is an important contributor to the significant increase in the number of taxpayers coming forward with previously undisclosed assets through the Voluntary Disclosures Program (VDP).
When taxpayers come forward through the VDP, and their disclosures meet the criteria requirements required to qualify for the VDP, they are still required to pay all taxes owing, plus interest.
The number of disclosures through the VDP has steadily increased over the past few years. Last year, the CRA received almost 3,000 disclosures resulting in $138 million in unpaid tax revenue, and the results so far this year show a continued increase.
Identifying and addressing international aggressive tax planning and tax evasion is a significant undertaking for the CRA. It requires a long-term commitment to gathering intelligence, building international partnerships and educating Canadians about the consequences of tax evasion and aggressive tax planning.
Each year, the CRA increases its understanding of tax avoidance and evasion schemes, the institutions involved in them and the best ways to bring them to an end.
As taxpayers become increasingly aware of the CRA's expertise and success in this area, the CRA moves closer to its goal of compelling all taxpayers to comply voluntarily with Canada's tax laws.
Thank you again, Mr. Chair, for providing this opportunity to discuss our ongoing efforts to combat aggressive tax planning. We would be pleased to answer any questions you may have.
