Mr. Speaker, the Canada Revenue Agency, CRA, has included the following contextual information to provide a framework for its response to the honourable member’s question.
Canada is part of a global trade and financial system. Countries compete to attract investors and trade partners, and this competition extends to tax systems. Countries offer tax concessions and favourable tax rates to all or some industries/investors. Some of these competing countries are tax havens. Every country has the right to structure its tax system to meet its needs and these are issues of tax policy for each country, not for tax administrations.
Residents of Canada must report and pay tax on their worldwide income. The CRA has no view on where Canadian businesses or individuals invest so long as they report their income and pay taxes as required under Canada’s tax laws. The CRA’s concern lies with the abusive use of tax havens; i.e., when taxpayers use bank secrecy laws, or the absence of effective exchange of information with other countries, to conceal assets and income that should be taxed.
The abusive use of tax havens is an element of what is known as “aggressive tax planning”. Aggressive tax planning consists of transactions that offend the object and spirit of the Income Tax Act, the Excise Tax Act, or of treaties. As part of the strategy to combat aggressive tax planning, the CRA established 11 “centres of expertise” across the country in 2005-2006, and created teams of experts from the specialized audit areas of international tax and tax avoidance to, among other things, combat aggressive tax planning and the inappropriate use of tax havens and tax shelters, both domestic and international.
a) In the context mentioned above and at any given time, the CRA has a number of active audit cases of corporations whose business transactions include offshore jurisdictions (though not necessarily lower rate jurisdictions and/or tax havens). As of the end of November 2006, there were 305 such audits underway. (Please note that the CRA uses the term “investigations” to describe suspected cases of criminal tax fraud, whereas “audits” are carried out to ensure compliance with tax laws.)
b) In this context, the CRA refers to “additional taxes assessed” rather than “recoverable taxes”. The value of additional taxes assessed is only known when audits are completed. In 2005-2006, the CRA assessed additional taxes of $174 million directly related to aggressive international tax planning and, in the first six months of 2006 2007, the CRA assessed additional taxes of $215 million.
c) As the number of audits, auditors, and the amount of time spent each day on any specific file can vary at any given time, the CRA does not monitor the cost per day of carrying out its compliance activities. Rather, the CRA captures the total audit time on a file.
d) While the CRA does capture information on the component parts of additional tax assessed for each completed audit, it does not aggregate each of the components across all 300,000 plus compliance actions each year. The CRA does report additional tax assessed in total and for each of its programs such as large business and GST/HST audits in its annual report.
It should be noted that the 2005 federal budget allowed for specific funding for the aggressive international tax planning program. In 2005-2006, the CRA began tracking results related to aggressive international tax planning separately. Statistics are not available for years prior to 2005.
During 2005-2006, the CRA assessed additional taxes of $174 million directly related to aggressive international tax planning and, in the first six months of 2006 2007, the CRA assessed additional taxes of $215 million.