Finance Committee on May 5th, 2016

[Ted Gallivan]

Again, we can't confirm that the agreement posted on the website is an actual agreement. However, we would enter into that kind of agreement because, in the agency's judgment, in consultation with the Department of Justice, after hundreds of hours, we believe there is some legal risk, first, that we would not obtain the identity of the participants, and second, that our tax assessment could be challenged and may not stand up in court. We would look at the facts and evidence we and the taxpayer have. We would look at legal precedents and then we'd make a judgment.

I'd like to correct two other things. First, in this case, if one did a hypothetical calculation, the interest would represent a 25% surcharge. Second, a careful reading of the document on the CBC website indicates there is no immunity from criminal prosecution. Third, going back 15 years effectively doubles the bill for a taxpayer versus our traditional six-year aggressive tax-planning audit.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you.

Mr. Gallivan, you say you don't think this letter is real.

Madam Henderson, can you confirm that you signed that letter that is posted on the CBC website?

[Stéphanie Henderson, Manager, Offshore Compliance Section, Canada Revenue Agency]

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.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Can you confirm that you signed that letter?

[Stéphanie Henderson]

No, I cannot, because I do not know the source of the document.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Why would your signature be on that letter if you didn't sign it?

[Andrew Treusch]

Mr. Chair, I think it would be important to hear from legal counsel. We wish to be as forthcoming as we can be, but I want members of Parliament to understand the legal constraints. We are bound by the law as approved by Parliament.

I'll ask our legal counsel to explain, if I may.

[The Chair, Liberal, Wayne Easter]

Go ahead, Ms. Lovett.

We'll not take away from your time, Mr. Dusseault.

[Lynn Lovett, Assistant Deputy Minister, Tax Law Services Portfolio, Department of Justice]

I'll be short.

Section 241 of the Income Tax Act prohibits officials from disclosing information that is taxpayer information and, as such, Ms. Henderson isn't in a position to talk about any of the details of the particular letter to which you refer.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you, Mr. Chair.

There's a letter that is signed, but you cannot confirm that it was signed, just so I understand it correctly. It's surprising. Who signed off on that offer?

I think, Madam Henderson, maybe you were not alone writing that letter. Someone wrote it at some point. Who wrote that letter and who was superior to you who signed off on that action?

[Stéphanie Henderson]

I can't speak to the specifics of the case in question, or to the letter you're referring to. Settlement privilege would preclude me from discussing that matter.

If you would let me speak generally to the matter, with any case, I review the facts of the case and I consult with our justice counsel. They provide me with legal advice as to what the risks are and what issues we may be concerned with in regard to legal precedence. Together we would come up with a draft position.

I would then approach my director and in turn my assistant commissioner. I would present it to them, and then we would move forward.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

That's how it happened. You did all that process and came with the letter that is on the CBC website. That's the process you used.

[Stéphanie Henderson]

That would be the general process I would use with any agreement that we may consider in regard to taxpayer agreements.

I'd just point out that in the Auditor General's report they did an extensive review in 2013 of offshore agreements, and concluded they were effective and efficient, and we were using them appropriately and ensuring national consistency.

[Andrew Treusch]

Mr. Chair, there is a more direct answer that is available from Ms. Brooks' summary findings. I quote, “While senior management was appropriately consulted and briefed, decisions were made by the CRA team assigned with carriage of the file, with due consultation with the Department of Justice.”

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you.

I would like now to turn to the voluntary disclosure program. It appears on the letter, which is on the CBC website, that you asked the taxpayer to use the voluntary disclosure program.

In the information circular on the voluntary disclosures program, it says that disclosure must be voluntary, and I quote:

A disclosure will not qualify as a valid disclosure…under the “voluntary” condition if the CRA determines: the taxpayer was aware of, or had knowledge of an audit, investigation or other enforcement action set to be conducted by the CRA or any other authority or administration, with respect to the information being disclosed to the CRA….

How can you allow a voluntary disclosure that violates the rules governing voluntary disclosure? The taxpayer who received the letter through KPMG knew that the CRA had suspicions about their activities. In this case, how was the taxpayer able to take advantage of the voluntary disclosures program?

[The Chair, Liberal, Wayne Easter]

Mr. Treusch.

[Andrew Treusch]

Mr. Gallivan.

[Ted Gallivan]

We can't confirm that the document on the website is from the CRA. But, generally speaking, in a settlement case, the process is completely separate from the applicable voluntary disclosures program.

In the case of a settlement, we consider the facts, the legal risks, and the country's tax interests. Then we make a determination. In some cases, when the issue is principle-based, we don't enter into a settlement agreement. If a legal precedent can be set, the CRA does not negotiate a settlement agreement.

When we are 100% sure of the facts, we do not enter into a settlement agreement. It's the legal risk, where applicable, of not having the names—

[The Chair, Liberal, Wayne Easter]

No, sorry. I was signalling to Mr. Dusseault because he was out of time.

Finish your answer, Mr. Gallivan.

[Ted Gallivan]

Sorry, Mr. Chair. I thought that was a signal to hurry up, which I was endeavouring to do.

[The Chair, Liberal, Wayne Easter]

Thank you, both. I believe, Mr. Treusch, you indicated you could provide a paper that was your view of the scheme. Was that what you said earlier in a question?

[Andrew Treusch]

I think I was citing the summary findings of the independent review of the KPMG thing, which has been furnished to the committee, I trust.

[The Chair, Liberal, Wayne Easter]

Which we already have and you already quoted from. Okay, just so we're clear on that.

Ms. O'Connell, thank you.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you, Mr. Chair. Thank you for your appearance here today.

I'm going to focus my questions based on the summary findings, in item 2, in regard to the finding that the deal with KPMG was not inappropriate because of its consistent treatment of taxpayers in similar situations. I want to focus on this because I have, like the chair stated at the outset, serious concerns with how taxpayers working with CRA tend to be treated. I'm talking about the average taxpayer.

What are the criteria to enter into a settlement versus litigation or going to collection services?

[Andrew Treusch]

Thanks for the question.

I want to be very careful with Ms. Brooks' summary. I will cite from it, but these conclusions are her own. It's not for me to read into her findings. She obviously is looking at tax law, in which she is an expert. She is looking at jurisprudence. She's looking at decisions of the court and how they bear upon her review of it. This is her opinion. I am citing it.

Going back to the remarks I made earlier, each and every case has its own determinative facts. That is why auditors spend hundreds of hours assembling the facts on each and every case to find the right treatment for that case. That's why they work with Justice. Justice understands the law and they're active in understanding the jurisprudence, the decisions, and the risk or benefit of going to court. They have to make that decision on each and every case.

That is why you have Ms. Henderson here and her team. There would have been a team of a few people that worked on this file for many months. They would have been working, seeking legal advice to make an appropriate determination, as we would with any taxpayer.