When National Revenue Minister Diane Lebouthillier was pressed during question period Tuesday on what the government is doing to crack down on offshore tax havens, her answer included a fat, impressive figure. “Our government is fully committed to fighting tax evasion and aggressive tax avoidance,” Lebouthillier said. “In our last two budgets, we allocated nearly $1 billion to doing just that, and we are on track to recoup $25 billion.”
But that $25 billion isn’t exactly in the bag. The satisfyingly large sum Lebouthillier cited is the broadest possible estimate of what the Canada Revenue Agency’s audits over the past two years have turned up, and declaring that the government is “on track to recoup it” amounts to assuming that every cent the CRA has identified as rightfully Ottawa’s will somehow be raked in.
In a series of email exchanges, CRA explained to Maclean’s that, of the $25 billion it is targeting as the result of two years of audits, about two-thirds of the total relates to what it calls “international, large business and aggressive tax planning activities.” In other words, that’s the portion associated with sophisticated individuals and companies, presumably surrounded by skilled accountants and lawyers who will now be asked to earn their fees.
So is it really reasonable to assume those adversaries will cumulatively cough up the entire amount? Consider what’s lumped into that $25 billion, which CRA labels the “fiscal impact” of its audits. It includes all federal and provincial taxes assessed, all tax refunds that might now have to be paid back by taxpayers as a result of the audits, all the interest CRA plans the charge and the penalties it intends to impose, and all the federal taxes that will be collected out into the future “arising from the compliance actions.”
That’s a lot bundled together there. And over it all looms this serious caveat: CRA officials say that the fiscal impact tally does not take into account any estimate at all for how much of the $25 billion might finally prove to be uncollectible, or any projection for how much the government won’t be able to reap in cases where the CRA’s reassessments are overturned on appeal.
Beyond the question of how much of Lebouthillier’s $25 billion is really likely to be recouped, there’s the matter of how much of it relates to garden-variety tax dodging, and how much stems from the sort of offshore tax evasion that’s currently in the spotlight—the Paradise Paper-type accounts that rich Canadians and their companies set up in tax-haven jurisdictions.
RELATED: Paradise Papers: CRA to investigate new evidence of tax evasion
Maclean’s asked how much of the $25 billion is the result of income sheltered by Canadian taxpayers in offshore tax havens. CRA’s emailed response: “We are not able to provide you with this information as the CRA does not track information in this way.” However, CRA did say it has 990 audits and more than 42 criminal investigations underway related to offshore accounts.
If those criminal investigations result in high-profile, high-stakes charges being laid, Canadian tax enforcement will have turned a corner. In the past, even the most widely publicized revelations about offshore tax accounts haven’t landed Canadian tax evaders in court. That includes the 2007 leak of information about Liechtenstein’s LGT Bank, which raised questions about dozens accounts held by Canadians, and, two years later, the hundreds of Canadian names among clients of the Swiss arm of London-based HSBC, whose account information was turned over to Canada by France.
Asked if charges have been brought against any individuals for tax evasion stemming from those leaks, CRA said “to the best of our knowledge and based on our records” there were no criminal charges laid or prosecutions stemming from the Swiss or Liechtenstein episodes. “We can say, however, that the CRA has tightened its approach to tracking offshore tax evasion and aggressive tax avoidance,” the CRA email added, noting that it is pursuing several criminal investigations that “relate to the 2016 Panama Papers leak.”
The CRA’s avowal that it has more recently “tightened its approach” is supported by some important developments. New tools available to the federal tax agency might signal sleepless nights ahead for international tax cheats. It’s only been since the start of 2015 that financial institutions in Canada have been forced to report international electronic funds transfers of $10,000 or more. CRA calls this “a true game changer,” giving it “millions of reports with insight on Canadians who may be engaged in offshore non-compliance.”
And, starting in 2018, Canada and dozens of other cooperating nations will begin exchanging information under what’s rather blandly called the “Common Reporting Standard,” which should make it easier to identify taxpayers with offshore accounts. The new reporting standard grew out of the Organization for Economic Cooperation and Development’s Global Forum for Tax Transparency, and more than 100 countries are participating.
These key changes point to the real possibility that tax collectors might finally be about to gain some ground on well-heeled tax avoiders. Still, on the notion that $25 billion is already within the CRA’s grasp, it’s best to consider that figure aspirational, rather than actual, until real money starts to show up on the federal accounts.
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