Finance Committee on May 5th, 2016

[Andrew Treusch]

Oh, my apologies. That was my fault. I'm sorry.

No, that's true. It wasn't today, but the minister did recently make an announcement. A commitment was made to begin the process of measuring tax gaps going forward.

We are committed to moving down that road. What's important for me, with the Canada Revenue Agency, is that if we do this, we do it well.

I've certainly discussed it with the IRS, and I've discussed with the United Kingdom their approaches. There are areas that are relatively straightforward, and there are areas that are very difficult. I want us to do this in a way that is open and transparent, but in a way that educates Canadians so that these numbers have meaning to them.

[Steven MacKinnon, Liberal, Gatineau, QC]

You take part in events with chartered professional accountants. I believe there was a story in the media about that. I'm going to give you an example. The other day, KPMG representatives told us that they no longer engaged in developing tax shelters, if I'm translating correctly.

Is that the kind of thing you would discuss at meetings or events with chartered professional accountants, either formally or informally?

[Andrew Treusch]

No. Again, all of the employees of the Canada Revenue Agency, whether we're in a conference or a meeting in a boardroom, in whatever setting, social or professional, are bound by section 241 and respect that at all times.

When I was appointed commissioner, my first briefing in the agency was on section 241. When a minister is appointed, it is a minister's first briefing at the agency.

Of course we discuss tax administration. We have messages to impart to tax preparers and it's important for us to have that communication with them. They have issues to raise with us, but senior people don't deal with a taxpayer's specific information unless it's a representative of that taxpayer.

[Ted Gallivan]

I'll give you an example of the kind of thing we discuss.

Recently, we audited the accounts receivable of companies who gave discounts in order to create fictitious losses. They manipulated their financial statements and accounts receivable. They sold those accounts to other companies.

We detected that conduct. We took the matter to court, and our view was confirmed. Then we told accountants that, since the courts had ruled on the matter, they had to stop engaging in the practice. Otherwise, we would initiate legal proceedings.

These kinds of events give us an opportunity to get the word out about compliance issues to better prevent these kinds of things and influence accountants' behaviour.

[Steven MacKinnon, Liberal, Gatineau, QC]

Thank you.

Now I'm going to switch topics. We are very short on time.

How was Ms. Brooks selected?

[Andrew Treusch]

We put out a contract. A number of names were developed within the agency of people who had considerable expertise in tax law, people of good reputation, and then those who were available in the timelines we had. Ms. Brooks was either at the top of the list, or close. She was contacted. She was available.

[Steven MacKinnon, Liberal, Gatineau, QC]

You can appreciate, I'm sure, why the process for selecting the individual who is going to review a government agency's behaviour needs to be transparent. I think it's a good idea to make that clear.

I want to pick up on the Auditor General's 2013 report. He made two recommendations.

[The Chair, Liberal, Wayne Easter]

You're over time.

[Steven MacKinnon, Liberal, Gatineau, QC]

My apologies. The two recommendations were actually made in the spring 2014 report.

Could you provide us with an update on how progress is coming along on your commitments to address the recommendations?

[Ted Gallivan]

Since we are short on time, I will just say quickly that our two commitments are up to date, particularly as regards the calibration of our risk assessment model. You can see the results. Our risk assessment model is working well.

[Steven MacKinnon, Liberal, Gatineau, QC]

Thank you very much.

Thank you, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Thank you both.

Ms. Raitt, you have five minutes.

[Lisa Raitt, Conservative, Milton, ON]

Thank you very much.

Thank you for being here today, and I'm sorry that I may be repetitive because I wasn't here at the beginning. I was responding to the minister's introduction of the budget implementation act.

I'd like to understand a little more of your internal process. I asked the witness from KPMG the other day, how many actual prosecutions are ongoing or happen in a year with respect to tax cases. I'm wondering if you can give me an idea. What I'm looking at is specifically what our preponderance is to proceed to prosecution as opposed to settlements.

[Andrew Treusch]

Earlier on I spoke about the broad numbers. I spoke of 5,000 cases in litigation. I spoke about the cases that go to court, about 2,200. Of those where a settlement is reached, it is about 3,000.

On prosecutions, we haven't touched upon what's an important distinction between instances of tax avoidance and aggressive tax planning versus tax evasion, tax evasion being a criminal matter. These two are often blurred in public commentary and discourse, but for the revenue administration it's a very material distinction.

For a criminal offence, tax evasion, there's a very high evidentiary burden on the crown. To successfully prosecute we have to prove beyond a reasonable doubt that the taxpayer made false or deceptive statements. We will have to take that case to the public prosecutor, who will ultimately decide whether to prosecute.

With tax avoidance and aggressive tax planning, the burden on the agency or on the crown is lower. That's where we're looking for a taxpayer who has received a benefit that is contrary to the objective or the spirit of the Income Tax Act. We can then reassess them on that basis. A tax court ultimately could then be called upon to review the validity. That's based on a civil standard of proof and balance of probabilities.

[Lisa Raitt, Conservative, Milton, ON]

How many cases do you end up sending off to the Public Prosecution Service?

[Ted Gallivan]

I would say 200 a year are referred.

[Lisa Raitt, Conservative, Milton, ON]

Are they solely for tax evasion?

[Ted Gallivan]

They would be 100% for tax evasion. In 2013 we made a strategic shift to focus more on offshore assets and promoters. In the two years prior to that shift, we had 26 convictions. Since then, from 2012 to 2015, we've had 30 convictions, but what's important is the jail terms. The jail terms are up by 95%.

[Lisa Raitt, Conservative, Milton, ON]

What's the timeline usually? Having some experience of submitting files with the Public Prosecution Service, what's your timeline from the time you deliver the brief to when they make a decision? Do you have to meet certain deadlines yourself? Are there limitation periods?

[Ted Gallivan]

I think it's more interactive than that. The recent budget gave us money to imbed legal counsel with our investigation teams because I think we don't want to waste a lot of hours on a file just to find out that we don't have what we need.

But you're correct. Prosecution often takes three, four, or five years from the date we make the referral to our investigation function until we are before a judge.

[Lisa Raitt, Conservative, Milton, ON]

Yes. That's what I thought.

I have quick question on post-employment duties. KPMG testified the other day that they too take very seriously the fact that an oath is taken by your folks. I'll tell you what they said. They said they make sure that these folks self-identify, and self-acknowledge whether or not they are abiding by an oath that follows them into employment with an outside force, meaning that there's not a cooling-off period. Once you take that oath, you have to promise never to use information that is not publicly available. I think it is a difficult task on a day-to-day basis trying to figure out what's there or not. KPMG takes the view that it's the individual's responsibility.

Does CRA do anything in terms of monitoring post-employment practices? Here's the reason I'm concerned about this. It's one thing to act as if you are the employee of a competitor or another company going to a different firm. It is another when, as a public servant, you take an oath to the Canadian public not to do anything to harm the trust that's imposed upon you in the public service.

With that, I'm wondering whether or not the CRA does anything to monitor and/or track what happens to your folks who leave after a wonderful career in the public service.

[Andrew Treusch]

I'll ask Diane, but I want to put some numbers here in context. I think it's important for the public record.

There was a media report focusing on former CRA employees who went to work for the Big Four firms. In that report, 21 former CRA employees were identified by name. The media report shows that the reporter went back to people who departed in 2001, so we're talking about a 15-year period, which was the basis for the story.

I would indicate that while we take very seriously our obligations to have rigorous post-employment policies, I don't know that any post-employment regime would follow employees 15 years after their departure. A court, I would assert, referring to the Supreme Court decision of 2009, would find it an unreasonable, unjustifiable infringement on the right to a livelihood of a tax professional or a chartered accountant if they were asked to forego their livelihood for up to 15 years.

Remember we're an agency of over 40,000 people. Over the period of time that was the subject of the report, 25,000 people left the agency. The vast majority left to retire. We're talking about less than 0.1%. I would say, by point of comparison, that we have more former employees who are proudly serving in Haiti and developing countries under the World Bank and the IMF than those who go to these firms. They are in places of hardship.

I have more employees now who are supporting the community volunteer income tax program helping low-income people. I have Suzanne Lachance-Maas in Winnipeg who was given the Governor General's Caring Canadian Award for her 25 years of service under that program. Those stories aren't news are they?

[The Chair, Liberal, Wayne Easter]

Diane, would you like to make a quick point before Mr. Treusch takes all your time?

[Diane Lorenzato]

Our post-employment policy makes it very clear to our current employees that they have to respect the oath. When they leave the agency we have a post-employment letter that they must sign and they agree that we are going to share the letter, which provides the restriction of those employees to their new employer.

Therefore, we have two avenues. One is to ensure that the new employer is aware of the restriction so they can monitor, but also when we are made aware that they are in breach of that permanent restriction we can file legal proceedings.

[Lisa Raitt, Conservative, Milton, ON]

Thank you. That's very helpful. I appreciate that.

I was trying to clear up the facts for you all, that's all.