Public Accounts Committee on Feb. 26th, 2014

[Richard Montroy]

Thank you, Mr. Chair.

Budget 2013 included a number of measures that will help us in the fight against offshore tax evasion. I referred to a few of them in the opening statement such as the offshore informant tax program, and the electronic funds transfers that we are currently working on to set up a system to be able to receive the information starting January 1, 2015. There are a number of other measures such as streamlining the process to get unnamed person requirements to go to court once as opposed to twice before, and the T1135, which is a form for offshore holdings. Attached to that was the fact that anybody who doesn't do what they're supposed to, fills out the form incorrectly, or does certain things, the legislation extended the period of time for us to uncover and audit these measures. So budget 2013 had a number of very important, significant measures for us on the offshore front.

As I also alluded to a while ago, there was also a number of tax loopholes that were closed that are very important. But again I also have to mention the negotiation of TIEAs that started as far back as mid-2000. The TIEAs are a very important factor in the fight against tax evasion and offshore aggressive tax planning because the more tools we have, the more it gets out there that taxpayers have fewer ways to hide the information. That is why the voluntary disclosures continue to go up, because there are more and more measures that assist us to uncover offshore holdings.

[The Chair, NDP, David Christopherson]

Perfect, thank you so much.

[Jay Aspin, Conservative, Nipissing—Timiskaming, ON]

Thank you.

[The Chair, NDP, David Christopherson]

Monsieur Giguère, you have the floor, sir.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

I would like to thank the witnesses very much for being here.

My first question is for the agency or the Office of the Auditor General, as you wish.

On page 12 there is a table summarizing the terms of the agreement. There is no mention of the obligation to arrest the individual or professional who planned the tax evasion. Am I wrong?

[Richard Montroy]

The Liechtenstein bank list did not have much on those who promote tax evasion. However, it is something we see quite often these days. Fairly harsh penalties are provided for third parties who cooperate in setting up this kind of structure. I do not have the numbers in front of me, but these sanctions are used often and are quite severe.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

I am surprised to hear that because in May 2013, in his report on tax fraud, Mr. James Rajotte, the MP for Edmonton—Leduc, indicated that penalties were not imposed on professionals who participated in that kind of tax evasion. Is it possible that something major has happened since 2013?

The government referred to that document when writing its last budget, and the response from your institution contains five points. However, in those five points, nowhere is it specifically indicated which penalties will be imposed on professionals or financial institutions who actively participate in the planning of tax fraud.

I would like to know where the truth is. Is it with your officials who appeared before the Standing Committee on Finance, which is chaired by Mr. Rajotte, or in the information that you are giving us today?

[Richard Montroy]

I do not have Mr. Rajotte's report in front of me, but I can say that the sections of the Income Tax Act that set out penalties for third parties have been in existence for several years. It is possible that Mr. Rajotte said that it was fairly difficult—let us admit it—to prove that financial institutions, for example, directly participated in a fraud or helped taxpayers commit fraud.

I can also assure you that we regularly impose penalties on people who help others implement a strategy to avoid paying income tax. The penalties imposed on third parties are similar to those concerning tax havens. This is something that we apply fairly regularly.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

You have referred to strawmen. However, in Canada, lawyers and accountants have the advantage of professional privilege. As a tax lawyer, I can tell you that at the Canada Revenue Agency, professional privilege is respected. The only way to break it is to force the taxpayer who is part of an agreement to expose their own lawyer or accountant. However, I have not seen anything about this in your documents.

[Richard Montroy]

I am also a lawyer, so I am very familiar with professional privilege.

If we suspect that something is not entirely aboveboard, we have several means at our disposal to collect information. I spoke about information exchanges with other countries, but as of next year, we will also have access to financial information. We are no longer limited to information protected by professional privilege. We have other means to obtain the information.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

All right.

Could you give us an idea of how big the loss is? It is certainly difficult to establish an exact figure, but how much does your agency lose because of tax evasion?

[Richard Montroy]

That is a very good question which is often highlighted in the media. The problem is trying to calculate tax evasion and determine how much money the government is not taking in because of tax evasion.

It is quite hard to be able to say with certainty what we do not know. I would say that a large majority of OECD countries do not calculate the tax gap. Very few countries analyze the tax gap because, indeed, its true nature is not known, which makes it difficult to calculate or evaluate.

As such, our agency and agencies in most other OECD countries have taken another approach. Instead of undertaking a study that could be completely theoretical, we use our resources to do research on the ground and also to invest in tools that could help us recover this money.

[The Chair, NDP, David Christopherson]

Thank you very much.

Time has expired. Thank you both.

We'll move over to Mr. Woodworth. You have the floor, sir.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

Thank you very much, Mr. Chair.

I would like to thank the witnesses for what they have presented here before us today.

I would like to focus my questions on paragraphs 9.24 to 9.29 of the audit. I will address most of my questions to Ms. McMahon, if that's all right. I'd like to begin by requesting a bit of clarification with respect to paragraph 9.27 where there is reference to two matters being referred to the criminal investigations division. I have the idea that the criminal investigations division is not part of CRA but is part of the justice department. I'm not sure about that and wondered, Ms. McMahon, if you can tell me where the criminal investigations division is situated.

[Marian McMahon]

It is situated in Surrey. It is a division within the agency.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

Did you conduct an audit of the criminal investigations division?

[Marian McMahon]

No, we state in our chapter that we only looked at the division under Mr. Montroy's responsibility. We did note that two were forwarded to this division, but we did not look at the decision made by that division on those two cases.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

That's what I was interested in, thank you. Your audit was limited to the division that Mr. Montroy heads. What is the name of that division? Mr. Montroy can tell us if you can't.

[Richard Montroy]

Sorry, Mr. Chair. I think I need to clarify that the criminal investigations directorate does report to me as well. It's one of six directorates that report to me, but the branch is the compliance programs branch.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

What I'm trying to get at is the scope of the audit. It did not include the criminal investigations division, but it did include the compliance reporting directorate. Is that the term?

[Richard Montroy]

Yes, the audit area.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

The audit area, okay.

I'm asking about that because I think there may be different purposes involved in each division. Would that be your understanding, Ms. McMahon?

[Marian McMahon]

Yes, and we do mention that there are different objectives, as we described in paragraphs 24 and 25. So we did look at the audit division for those files that they did make referrals on, and then we looked at the other six where they did not make referrals to see if they were consistent in applying their decisions to forward it or not.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

What did your audit lead you to conclude would be the objective of the division that you did audit, the audit division, if I could put it that way?

[Marian McMahon]

For the eight cases?