Evidence of meeting #18 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was cra.
A video is available from Parliament.
Liberal
The Chair Liberal Wayne Easter
If I could have members' attention, we'll call the meeting to order. Pursuant to Standing Order 108(2), we will continue the study of the Canada Revenue Agency's efforts to combat tax avoidance and evasion.
For the first hour, we'll be dealing with the Canada Revenue Agency and Commissioner Andrew Treusch.
Did you have a point of order, Pierre-Luc?
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
On a point of order, Mr. Chair, just to clarify this, at the end of the last meeting we left a motion on the table. I would like to dispose of it right now. I don't have any changes to it. I would like to ask for the consent of the committee to do it right now. I think it will be fast.
Liberal
The Chair Liberal Wayne Easter
It was our intent as a committee to try to find 30 minutes at the end of the meeting to deal with committee business, but it's your right to put the motion on the floor if you want. You're asking if there's consent to put it on the floor at this time.
Do we have the consent of the committee to deal with it now?
Liberal
Raj Grewal Liberal Brampton East, ON
I think we should respect our witnesses' time. I think there will be ample time afterwards to debate the motion. The debate might go longer and—
Liberal
The Chair Liberal Wayne Easter
Okay. I'm not hearing consent. It will be the first item we deal with in the last 30 minutes.
Mr. Commissioner, the floor is yours. I would say to start on the KPMG-Isle of Man-CRA issue. I've been a member for a long time, quite a long time, and I've had as many calls on this issue as I have had on any other. I think Canadians are quite frustrated. They believe, whether it's right or wrong, that there is unfairness in terms of how the wealthy and people who can afford accountants are treated under our tax system, versus those who are doing it on their own and have to deal with CRA on an individual basis.
I will say up front that from an MP's perspective—and I think most of us are getting the same kinds of calls that I am—this is an extremely serious issue from an ordinary Canadian's perspective, if I can put it that way. I just state that so you know that this isn't an issue that we as committee members are taking lightly.
The floor is yours.
Andrew Treusch Commissioner of Revenue and Chief Executive Officer, Canada Revenue Agency
Thank you, Mr. Chair.
I should indicate that I'm happy to stay for the duration of the meeting.
If I may, I will say at the outset, on behalf of all CRA employees, that all our prayers and thoughts are with the people of Fort McMurray and the first responders there.
With me today are Mr. Ted Gallivan, the assistant commissioner of the international, large business, and investigations branch; Ms. Stéphanie Henderson, the manager of the offshore compliance section; Ms. Lynn Lovett, the assistant deputy minister of the Department of Justice tax law services portfolio; and, Ms. Diane Lorenzato, the assistant commissioner of the human resources branch.
Canada's tax system features a level of voluntary compliance that's among the highest in the world, but offshore tax evasion and aggressive tax avoidance remain a challenge, requiring both concerted action here at home and global strategies.
Increases in international trade and globalized investment flows have resulted in complex multinational corporate structures, use of offshore jurisdictions of concern, and profit-shifting schemes that challenge all tax administrations.
The CRA is responding through a four-point action plan to effectively target this globalized tax environment and related non-compliance. Our plan includes: first, better access to information; second, a more focused organization targeting offshore non-compliance; third, increased resources to deepen our capacity; and fourth, more effective international collaboration.
More than two-thirds of the $11 billion that the CRA assesses through audits—over $7 billion—involves our international and large business programs and aggressive tax planning, including high net worth individuals and multinationals.
These results, and our ability to identify non-compliance by those using offshore schemes have never been better. In large measure, this is because we've significantly improved our information tools. Since January 1, 2015, financial institutions are required to report international electronic fund transfers of $10,000 or more. This information is invaluable in helping the agency target jurisdictions and financial institutions of concern.
Second, the process for using the unnamed persons requirement, which enables the CRA to pursue information through the courts on taxpayers using offshore jurisdictions, has been streamlined to give us authority to obtain information from third parties such as banks. Yesterday, we applied for authorization to issue an unnamed persons requirement to the Royal Bank of Canada for information about RBC clients linked to the Panamanian law firm Mossack Fonseca, subject of the Panama papers. RBC has informed CRA it will not oppose the court application. With court approval, the CRA will receive this information expeditiously.
Third, the foreign income verification statement, form T1135, was significantly strengthened in 2013 to established more detailed and rigorous reporting requirements for Canadian taxpayers holding foreign property and assets. The volume of these reports has subsequently increased by 50% as a result of our measures to strengthen our scrutiny of offshore activities.
Fourth, we are undertaking a comprehensive study of tax gap measurement over the next year to determine how this could be applied to Canada in estimating the tax gap. A better understanding in this regard may help us target our compliance activities more effectively.
Finally, Canada is very active in sharing information with our international treaty partners. We have one of the world's most extensive treaty networks, with 92 tax treaties and 22 tax information exchange agreements in place. These measures also help us identify and pursue non-compliance as never before.
Through our action plan, we have better focused the CRA to target offshore non-compliance. In 2013, we created several specialized teams across Canada and launched a dedicated offshore compliance division.
In 2014-15, we reviewed nearly 13,000 international large business files, reviewed nearly 10,000 aggressive tax planning files, and fielded almost 2,000 calls through the offshore tax informant program where we identified 110 cases for active review. In the last three years, we also reorganized our criminal investigations division to focus on the more severe cases of tax evasion, and those who promote schemes that enable them. These measures are paying dividends. As a result of these measures, $1.57 billion in additional revenues has been assessed. That's three times the initial estimate.
In April of this year, we created a new agency branch headed by Mr. Gallivan to focus exclusively on international tax, aggressive tax planning, large business, criminal investigations, and strategies to combat offshore tax avoidance. Our organizational changes are supported by a third element of the plan, namely, increased resources. Today, we have more than 6,400 auditors. That's a 20% increase from 2006 at a time of ongoing fiscal restraint.
Budget 2016 includes an unprecedented $444 million investment in measures that will increase the CRA's capacity to combat offshore tax avoidance and evasion. This includes a special program to pursue those who create and promote tax schemes for the wealthy. We anticipate this to result in a 12-fold increase in the number of tax schemes examined by the CRA.
As Minister Lebouthillier recently announced, the agency will also use the funds to hire more auditors and specialists, increasing the number of examinations focused on high-risk taxpayers from 600 to 3,000 per year. And we'll bring in 100 additional auditors to audit high-risk multinational corporations.
As a result, the federal government anticipates that its investment in the CRA will generate an additional $2.6 billion in revenues over 5 years.
Finally, our efforts on the domestic front must be complemented by collaboration with our international partners, the fourth element of the plan. Canada plays a central role in international fora to address non-compliance, such as the OECD forum on tax administration. We recently ratified a Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which further expands our international information-sharing network.
Through our partnerships in the OECD we are active in several global initiatives: the OECD's base erosion and profit shifting, or BEPS, project, which aims to address international tax plan strategies used by multinational enterprises to inappropriately minimize their tax; country-by-country reporting for multinational corporations; and implementation of a common reporting standard in 2018.
Canada participates in the joint international tax shelter information and collaboration, or JITSIC, network, working with the G8 and G20 on measures to tackle tax avoidance and aggressive tax planning. We recently participated in a JITSIC meeting in Paris to coordinate next steps related to the Panama papers. Based on our own sources of information, we've initiated 40 audits related to Mossack Fonseca prior to the Panama papers release. Through more recent efforts, the CRA now has tens of thousands of records from multiple sources. The agency will use this and any other data collected from various sources to ensure that all Canadian taxpayers identified from the Panama papers are pursued.
The Auditor General concluded in 2013 that CRA had done a good job of following up on information received about offshore accounts in the Liechtenstein case and improved its process for identifying taxpayers with unreported income.
In 2014, the Auditor General also found that the CRA had the tools to detect, correct, and deter the use of aggressive tax plans. Since then, our toolbox has expanded considerably.
Next week, I will also be joining tax commissioners from 46 countries at a meeting of the forum on tax administrators, in Beijing, China, where we will further strengthen international efforts.
We are making progress, but work remains to be done as we continue to refine and build upon our tools and the most recent investments. It is worth noting that the agency's record has been reviewed twice in recent years, and in both cases was good.
In conclusion, we've provided the committee information very relevant to your study and your opening remarks, Mr. Chair: the summary findings of a recently completed independent review into the CRA's management of the KPMG file. The agency undertook this review to ensure that due diligence was followed in our approach to this case. The CRA is in the difficult position of being unable to fully discuss details of the KPMG file due to ongoing litigation and our confidentiality provisions. Having said that, the review, conducted by Ms. Kim Brooks, former dean of Schulich School of Law at Dalhousie University, confirms that the CRA acted appropriately in its management of the KPMG file.
I conclude now, and we welcome your views and questions on how we can make better progress in identifying, addressing, and deterring offshore non-compliance.
Thank you.
Liberal
The Chair Liberal Wayne Easter
Thank you very much, Mr. Treusch.
I take it that, rather than splitting into two one-hour sessions, we're going to go an hour and a half. The commissioner has agreed to stay, so we'll try to get everyone in.
Thank you very much, Commissioner, and thank you for the review as well done by Ms. Brooks.
We'll start then with the government side.
Mr. Ouellette, you have seven minutes.
Liberal
Robert-Falcon Ouellette Liberal Winnipeg Centre, MB
Thank you very much, Mr. Treusch, for coming here, and also the other officials. It's very much appreciated.
Concerning the agreement between KPMG and the CRA, I was wondering if there were any internal complaints or concerns by members of the CRA concerning this deal.
Commissioner of Revenue and Chief Executive Officer, Canada Revenue Agency
Thank you for the question.
I'm just looking here at the findings of Ms. Brooks. I think she actually spoke on this point.
She said:
The review found that each of the audit files appears to have been carefully completed by diligent staff and that the practices used in pursuing the KPMG case were compliant with established CRA policies and procedures.
Now to your point, sir, Ms. Brooks continued:
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. While vigorous discussion about approaches to a file would not necessarily be problematic, there was no evidence of disagreement within the Agency on actions taken.
Liberal
Robert-Falcon Ouellette Liberal Winnipeg Centre, MB
How do you come about, then, making the decision whether to pursue with legal proceedings or to negotiate a settlement?
Commissioner of Revenue and Chief Executive Officer, Canada Revenue Agency
I won't speak about any particular case, but in general all tax administrations in their compliance work litigate, and litigation can end in court, or litigation can end in a settlement.
In our case, the numbers, broadly speaking, are about 5,000 cases. Of that over 2,200 would go to a court, and about 3,000 would end in some settlement.
The determination in each case is built upon the hundreds of hours of our audit team, the specialists who review the facts particular to each and every case, aided by the Department of Justice that provides legal advice in what is in the best interest of the crown and what is the appropriate treatment under the law.
Liberal
Robert-Falcon Ouellette Liberal Winnipeg Centre, MB
Would financial consideration also enter into that calculation, the amount of man- or woman-hours involved in calculating out an agreement?
Commissioner of Revenue and Chief Executive Officer, Canada Revenue Agency
It is a part of the calculation, but first is what is the appropriate treatment under the law, what is in the public interest, and what is in the interest of the crown. So it's not a simple calculus.
If you go to court, obviously, you have an extended process, you have additional legal costs, and I want to underscore this, you have an uncertain outcome. We cannot assume, in going to court, that the crown will win. What is of significance is a loss before the court and a judgment that may set back the crown's ability to pursue these schemes.
All those things are balanced: the facts of each case, as well as the legal analysis.
Liberal
Robert-Falcon Ouellette Liberal Winnipeg Centre, MB
If you go to court and the crown loses the case, who is now responsible for the legal fees of the client?
Commissioner of Revenue and Chief Executive Officer, Canada Revenue Agency
Mr. Gallivan.
Ted Gallivan Assistant Commissioner, International, Large Business and Investigating Branch, Canada Revenue Agency
That would depend on the case, but absolutely some taxpayers do see costs, and in cases where the CRA refused a reasonable settlement, costs will be awarded to the taxpayer; in other words, the government would have to pay the taxpayer's legal costs. That does happen.
Liberal
Robert-Falcon Ouellette Liberal Winnipeg Centre, MB
Then there is another thing that's going around in the media. People are concerned about perhaps the ethics of the CRA. I guess some people don't like the tax man or the tax woman, but there have been some issues, for instance, surrounding the whole idea of cocktails and parties with accountants. I even have Mr. Gallivan, I believe, on record. I have a quote here. You said, “We try to have a culture in CRA where executives are trying to be responsive to the citizens that we serve, which includes large accounting firms. I don't think it's a problem.”
Is this an accurate description of the CRA's mandate and culture? Do they serve accounting firms that are engaged in tax avoidance on a large scale?
Commissioner of Revenue and Chief Executive Officer, Canada Revenue Agency
I'm very pleased to be able to hopefully provide some illumination on the record here.
I've spoken to three previous CRA commissioners, and as far back as I can tell the Canada Revenue Agency works with tax intermediaries. For over 70% of the interactions between Canadians, whether individuals or businesses, large or small, there is a tax intermediary. It's pretty important that we work with bodies like the Canadian Tax Foundation, which is a body of the institute of chartered accountants. The Canadian Bar Association has accountants, academics, and tax professionals—10,000 members.
The Chartered Professional Accountants, which is Canada's national accounting professional body, which certifies accountants, including CRA employees who are chartered accountants—
Liberal
Robert-Falcon Ouellette Liberal Winnipeg Centre, MB
For instance, if someone under the CRA were under investigation for some wrongdoing, or under suspicion, they could essentially curtail the investigation by resigning from the CRA and then going to work for another accounting firm. Is that correct?
Commissioner of Revenue and Chief Executive Officer, Canada Revenue Agency
No, that is not correct. If we have someone under internal investigation and we find a criminal offence, we will suspend the employee or we will terminate the employee. Sadly, I have been called upon to do that during my tenure.
If it's a criminal matter, we will refer it to the RCMP, and the RCMP will prosecute.
In terms of post-employment, I believe the Canada Revenue Agency has the strongest, most rigorous, most effective post-employment directives and policies. I am quite happy to benchmark myself against other government departments. I am happy to benchmark us against other tax administrations around the world. We're quite happy to table here, in the committee, our integrity framework, our directive on conflict of interest, on post-employment, on gifts and hospitality.
What I would particularly draw the committee's attention to is the letter, which Diane can take the committee through, on the obligations that we put on our employees in post-employment, including a one-year prohibition.
Liberal
Robert-Falcon Ouellette Liberal Winnipeg Centre, MB
Mr. Chair, I have some other questions. Are we able to give those questions in and then have them...?
Liberal
The Chair Liberal Wayne Easter
I think you're out of time.
To clarify on that, in layman's terms, Commissioner, you're saying that when an employee leaves the CRA, they cannot go to a firm or another business that is in a similar line of work, if I could put it simply, for one year?
Commissioner of Revenue and Chief Executive Officer, Canada Revenue Agency
I'll ask Diane Lorenzato to explain the provisions.
Diane Lorenzato Assistant Commissioner, Human Resources Branch, Canada Revenue Agency
The one-year provision applies to all employees at CRA, the 40,000 employees.
The one year is really based on the activity that the employee was doing prior to leaving. An employee cannot accept a position with a firm that they were dealing with 12 months prior to leaving the agency. They cannot be appointed to a board of directors if they were dealing with that company 12 months prior. They cannot represent that company if they were dealing with that company 12 months prior.
We always have to look at the position the employee occupied during the 12 months prior to leaving and which files they interacted on, which will dictate whether they will be allowed to take further employment. That limitation is for 12 months.
There are permanent limitations for our CRA employees, which fall under the Income Tax Act, section 241. Those prevent all CRA employees from sharing and divulging information pertaining to a taxpayer or any file they've dealt with during their career. These are criminal offences, and they can be put forward for legal proceedings. They can end up with a fine or imprisonment.
Liberal