Thank you for inviting me to appear before the committee today.
Several years ago, I met the journalist Laurent Laplante. He told me that you can't control what you can't see. That sums up the topic of my presentation today, which will primarily focus on KPMG's planning in the Isle of Man.
I'll make an analogy with chefs. When you want to make a recipe, you use various ingredients, which are all good. However, when put together, these ingredients can yield a surprising and sometimes disappointing result. That's exactly what happened with KPMG's tax planning.
The ingredients were the incorporation of a company in a tax haven. People donate money to a company. The company then invests the money and gives the returns back to the investors in the form of donations. The individual ingredients aren't a problem. The incorporation of a company isn't an issue, and neither are the donations. However, when you put all this together, it creates an unbelievable trick that looks like fireworks. It doesn't work.
Brian Arnold, a professor at Western University in London, Ontario, once said that KPMG's strategy was like a tax‑free savings account, or TFSA. It was a TFSA without a cap and designed exclusively for wealthy people. Professor Arnold also asked another person, with whom he was taking a walk, what they had to say about KPMG's planning.
The person had this to say about the planning:
“So let me get this straight. You give several million dollars to strangers on some island somewhere, but whenever you want some of that money, you can get it and you don't pay any Canadian tax. It seems too good to be true.”
In my experience, most things that seem too good to be true turn out to be untrue.
KPMG said that it set up the scheme 16 times. The firm charged a fee of at least $100,000 for each strategy, and even more, because amounts were also payable annually on the returns. Did KPMG use this strategy anywhere other than the Isle of Man? We don't know. KPMG refuses to answer this question.
In their testimony, Greg Wiebe and Lucy Iacovelli said that the firm realized back in 2003 that it had to stop using this strategy. We're now told that this strategy was used up until 2014. This strategy wasn't used up until 2010, as we thought, but up until 2014 and maybe even 2015. We even know that KPMG received fees for the strategy at least until 2008, according to a letter sent by Mark Meredith from KPMG to Cecilia Jenkins from the Canada Revenue Agency, or CRA, on January 6, 2012.
The Cooper family is the only family that challenged the notice of assessment. The Cooper family members not only went to court to challenge the notice, but they later took the bold step of making a voluntary disclosure, because they continued to use the strategy until 2015. On December 31, 2015, through their counsel, they submitted a voluntary disclosure application. The Canada Revenue Agency told them that their application was inadmissible because they were under investigation. Their counsel even submitted a request to have the Federal Court review the Canada Revenue Agency's decision. The entire Cooper family case was subsequently settled.
We've recently heard a great deal of talk about the #MeToo movement. This movement is making people aware that criminal acts aren't subject to the statute of limitations. A criminal act doesn't stop being criminal over time. The crime committed isn't any less serious after time has passed. Economic crimes must also be prosecuted, even after all these years.
In the case of KPMG, the court must be involved. The extent of any tax evasion must be verified. I don't need to share my conclusion, which you know. However, the court must look into this matter.
A theory was created in 2012 in the Meeds v. Meeds case before the Court of Queen's Bench of Alberta. The theory is called organized pseudolegal commercial arguments, or OPCA. This theory suggests that people use arguments detached from a given reality to convince individuals that they're right.
Maybe you know the Fiscal Arbitrators. These people decided to file tax returns for clients. They would then charge them a fee. However, they created fictitious losses for them. The creator of Fiscal Arbitrators is in prison today and is serving a six‑year sentence.
Is there really a difference between the creator of Fiscal Arbitrators, who promised losses that didn't exist, and KPMG's strategy, which promised donations that didn't exist? Those donations didn't really exist.
The Meeds decision states as follows:
A court or legal professional can explicitly and clearly respond to this category of pseudolaw. However, some OPCA pseudolaw, “Otherlaw,” is entirely disconnected from “mainstream” law, and represents a “something else” category of thought, belief, and behaviour.
That's exactly what happened here.
In conclusion, I would say that a public inquiry must be held in the KPMG case. Subsection 231.4(1) of the Income Tax Act states that a public inquiry may be necessary to shed light on this situation.
If, in their wisdom, the courts conclude that there wasn't any tax evasion, so be it. However, people are currently outraged by this planning.
Thank you for your attention.