Canada’s federal government is accelerating its fight against offshore tax evasion, acting on several fronts at once and pouring money into those initiatives. Among other measures, the government has increased the number of investigations and audits being performed and joined forces with global counterparts to combat this pervasive problem.

The amounts that could be recovered are not small: Dennis Howlett, executive director of the Ottawa-based advocacy group Canadians for Tax Fairness, estimates that taxes lost in this manner could be as much as $7.8 billion.

Howlett estimates that based on information from Statistics Canada, about $270 billion is held by Canadians in offshore accounts located in major tax havens. But, he cautions, this amount mostly is corporate holdings and does not include information on unreported accounts held by individuals.

Not all offshore accounts are designed to evade taxes, a clear breach of Canadian tax legislation. Some accounts, according to the Canada Revenue Agency (CRA), are designed for aggressive tax planning aimed at reducing, deferring or avoiding taxes. Such transactions “comply with the letter of the law, but contravene the spirit and intent of the law,” the CRA states.

The topic has drawn intense global scrutiny since the release of the Panama Papers earlier this year. That incident involved a leak of some 11.5 million documents related to more than 200,000 offshore entities in 21 tax havens. Those documents included information on the accounts of more than 600 Canadian individuals and corporations.

Although the Panama Papers have helped to spur Canada to increase its efforts, the initial trigger for the current drive against offshore tax evaders was a leak in 2013, known as the Offshore Leak. That event saw 2.5 million leaked files with confidential details from 10 offshore tax havens, including the names of 450 Canadians. It “brought the issue into the public eye,” says David Rotfleisch, Canadian tax lawyer and principal at Toronto-based law firm Rotfleisch & Samulovitch Professional Corp.

Partly as a result of the Offshore Leak, the CRA announced the launch of the Offshore Tax Informant Program (OTIP) in 2013. “This is, in effect, a snitch program that gives informants up to 15% of taxes collected for reported tax evasion,” says Rotfleisch. As of July 31, the OTIP had received 868 calls from informants and 361 written submissions, according to the CRA. As a result, 180 taxpayers are under audit within the parameters of the OTIP.

In 2013, the CRA also launched an investigation into an Isle of Man-based tax avoidance scheme allegedly facilitated by the accounting firm KPMG LLP. This controversial case is still before the courts.

“The KPMG case provides an excellent opportunity for the CRA to take a different approach and send a message to facilitators of tax evasion by opening an investigation,” says Howlett.

And, in January 2015, the CRA implemented the requirement for Canada’s banks and financial services intermediaries to report all electronic fund transfers (EFTs) of $10,000 or more. This year, that change bore fruit: in April 2016, the CRA reported that 3,000 EFTs totaling $860 million related to the Isle of Man were reviewed within a 12-month period. Those investigations led to the CRA contacting 350 individuals and 400 businesses, and initiating 60 audits of taxpayers involved – with more to come.

Acting on information contained in the Panama Papers, the CRA also announced that it is conducting dozens of audits, pursuing criminal investigations and executing search warrants on parties identified in the leaked documents. In fact, the 2016 federal budget announced an additional $444.4 million in funding for the CRA’s pursuit of tax evaders, an effort that is expected to bring in tax revenue of $2.6 billion over a five-year period.

Canada’s federal government also created an independent advisory committee, composed mostly of academics, to examine and make recommendations on dealing with offshore tax evasion and aggressive tax planning.

International co-operation regarding tax evasion also is ramping up. Canada, along with 100 other jurisdictions, has adopted the Organisation for Economic Co-operation and Development’s common reporting standard (CRT), commencing July 1, 2017. The CRT is aimed at addressing international tax evasion and improving tax compliance.

The exchange of financial information under the CRT will begin in 2018. Foreign tax authorities will provide information to the CRA relating to accounts in their jurisdictions held by Canadian residents.

The CRA will reciprocate by providing corresponding information on accounts in Canada held by residents of those foreign jurisdictions.

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