UPDATE: A Lack Of Appetite: The Canadian Government, The CRA, And Tax Avoidance

 

While I have written extensively in the past about tax evasion and avoidance in light of the revelations of both the Panama and Paradise Papers, I felt it was time to do an update. To summarize what I wrote previously, there has been a striking reluctance on the part of our government, compared to other jurisdictions, to go after the entitled who have sheltered so much income in offshore accounts.

Consider, for example, France. as reported in La Monde.

Seven years [after the Panama Papers release] and hundreds of audits later, France has already recovered €195.5 million in tax revenue for the state budget... 

Rendered invisible in offshore arrangements, this money corresponds to 219 taxpayer files, both individuals and companies, caught in the net of the Panama Papers. It's the sum of all financial audits completed by December 31, 2022, as well as regularizations made.

This sum

place[s] France in the club of five countries to have recovered more than €100 million in taxes and penalties thanks to the Panama Papers, along with the UK, Germany, Spain and Australia.

Moreover, the cumulative amount recovered is greater:

All told, from the Offshore Leaks (2013) to the Pandora Papers (2021), the sum recovered today stands at over €450 million. However, this figure will remain incomplete until all checks have been completed.

By contrast, it would appear that the pursuit of tax scofflaws by Canada has been far less vigorous. While is is difficult to find any current reports, two Senate of Canada reports do not paint a rosy picture. The first, from 2019 and written by Senator Percy Downe, has this to say:

The Canada Revenue Agency (CRA) is up to its old tricks: misleading Canadians and not upholding its responsibilities to collect taxes owed to our country by those hiding their money overseas. When tax cheats are not caught, charged and convicted, and money owed isn’t collected, we have less money to invest in our priorities while the rest of us pay higher taxes to make up the shortfall.

Why the federal government allows this state of affairs to continue year after year remains a mystery. The government talks tough, “overseas tax evasion is a high priority”, “we will catch you if you cheat” and other reassuring words. Their results, however, speak for themselves: they have none.

Recently, on the third anniversary of the release of the Panama Papers, we learned that other countries have recovered more than $1.2 billion dollars in fines and back taxes. Australia has recouped $92,880,415, Spain is counting $164,104,468 in their coffers, the United Kingdom has recovered $252,762,000, and even tiny Iceland was able to recover $25,525,959. Some 894 Canadians (individuals, corporations and trusts) were revealed to have accounts in the Panama Papers, but Canada’s Revenue Agency hasn’t recovered a dollar.

A second piece by Downe, written two years later, reported no progress. 

In the immortal words of the Parliamentary Budget Officer, "there are hundreds of millions, if not billions, of dollars in taxes that go undeclared, unreported and that escape Canadian tax authorities, probably on an annual basis...”

The Canada Revenue Agency (CRA) has failed when it comes to collecting any of this money hidden overseas. Notwithstanding the CRA’s highly effective domestic tax collection, they have been an utter disaster on overseas tax evasion. Canadians are allowed to have accounts overseas but it is illegal not to declare the proceeds of those accounts.

This inaction costs all of us, considering how the foregone tax revenue would provide a healthy injection into a myriad of much-needed programs in Canada. 

In Canada, there is no risk to hiding your money overseas because your chances of being charged or convicted range from slim to none. The "hundreds of millions, if not billions, of dollars in taxes that go undeclared ... probably on an annual basis” identified by the PBO will not, by itself, solve our financial problems — but it will go a long way to restore prosperity for Canadians.

The failure to collect taxes owed undermines confidence that everyone is being treated equally. If we are all in this together, then we all pay taxes. Otherwise, there is special treatment for some Canadians with the resources to hide their money, while the rest of us must pay more to make up that shortfall.

There is much work to do. Since nothing else has worked, it’s time for solid action rather than empty words from the Government of Canada.

One is naive to believe that the CRA is truly independent of government influence. One may recall, for example, that Stephen Harper siced it on NGOs that were critical of his government, and despite the promising rhetoric at the beginning of Justin Trudeau's tenure, it is clear that certain entities (think corporate and individual titans) are essentially off-limits. 

I have said it several times here, that Mr. Trudeau has never met a powerful entity he doesn't admire. Perhaps he picked it up through his upbringing or his reported forays to Davos to meet with the world's elite. 

One thing is undeniable, however. His bromance is costing the rest of us plenty, both in terms of a loss of faith in the fairness of our tax system, and the underfunding of programs that could benefit all of us, if only we had access to Canadian elites' tax on their concealed wealth.

UPDATE: The G20 wants to impose a minimum global tax on billionaires. Keir Starmer, Britain's Labour leader, promises no new taxes on the wealthy if elected. I suspect Justin Trudeau shares Starmer's aversion to holding the ultra wealthy to account.

 

 

Our Timid Canadian Revenue Agency

Over a year ago I posted about the sad record of the CRA in pursuing offshore tax cheats as revealed by the Panama Papers. It seems that little has changed since then.

In a Policy Options article, Senator Percy Down asks, Why can’t the Canada Revenue Agency catch tax cheats?

Recently, on the third anniversary of the release of the Panama Papers, we learned that other countries have recovered more than $1.2 billion in fines and back taxes:

Australia has recouped $92 million.
-Spain is counting $164 million in its coffers.
-The United Kingdom has recovered $252 million.
-Even Iceland, with a population of roughly 350,000 people, was able to recover $25.5 million.

Of the 894 Canadians (individuals, corporations and trusts) revealed by the Panama Papers to have accounts, the Canada Revenue Agency hasn’t recovered a dollar.

While the CRA talks a good game, its results tell a different story:

The agency talks tough every time there is a public leak of information from some bank or law firm operating in a tax haven. Nevertheless, not one person has been charged with overseas tax evasion, much less convicted, fined or sentenced since the 2006 information leak we know the most about, from a bank in Liechtenstein, where 106 Canadian-held accounts were found to contain more than $100 million.

In fact, as reported by the Auditor General, the CRA “waived referrals for potential criminal investigation to gather information.” In other words, the agency promised not to charge the people involved in that tax scheme in exchange for them explaining to the CRA how it actually worked and agreeing to pay what they owed.

This strange acquiescence to tax evasion is contrasted by other jurisdictions that have worked hard to discourage such criminality:

Compare this to Australia, for example, where not only are back taxes and penalties paid, but individuals are charged with committing a crime and in many cases convicted, fined and jailed, and the country uses those convictions to warn citizens that it is serious about tax evasion.

“As a result of Project Wickenby’s focus on preventing the abusive use of secrecy havens,” a 2012 audit of an Aussie anti-tax evasion task force noted, “Australia is presently less attractive for international tax fraud and evasion than it otherwise would have been. After a slow start, the project has achieved substantial results from its activities, which contribute to protecting Australia’s revenue base.”

And make no mistake. We are all paying for the Canada Revenue Agency's laxity:

Because Canada has not recovered any money, three things have happened. One, we don’t have that money to fund our priorities without incurring a deficit; two, the rest of us have to make up the shortfall by paying more taxes; and three, Canadians are wondering why we have a two-tier justice system for tax evasion. Try to cheat on your domestic taxes, and the CRA will likely find you, charge you, convict you and force your repayment. Hide your money overseas, and you likely will never be charged or convicted. The odds are good you will get away with it, and your federal government allows this double standard to continue.

Like the Harper government before it, the Trudeau administration seems to be using the CRA for its own purposes. Is it too much of a leap to conclude that one of those purposes is to protect its friends in high places?

If This Doesn't Enrage You

... check for a pulse.



Most people, I think, understand that proper taxation is essential to a viable society. All they ask is that the burden be shared equitably.

However, the CRA does not appear to share that philosophy of fairness, if the following is any indication:

Sometime in the first six months of 2018, the agency wrote off more than $133 million in taxes owed by one taxpayer. It's not clear whether the recipient of the writeoff was a person or a corporation.

The amount was for unspecified excise taxes or excise duties; the CRA has offered no further details.

The massive writeoff is cited in a Sept. 14, 2018 internal CRA memo to explain a big jump in the total tax dollars declared uncollectible, compared with the total for the same period a year previous.

"The above total amount submitted for writeoff represents an increase of $209M in comparison to the first submission of the 2017-2018 fiscal year," says the memo, obtained by CBC News under the Access to Information Act.

"The increase is attributable to a few large writeoffs, including one for $133M."

The federal government applies excise taxes on fuel-inefficient vehicles, automobile air conditioners and some petroleum products.

Despite the fact that this writeoff is tantamount to a subsidy the rest of us must bear, the CRA will not identify the offending entity, citing confidentiality provisions under the law. Apparently, however, this is not an isolated incident.

The Canada Revenue Agency in 2017-18 wrote off $2.7 billion in taxes owed. That's the largest single-year sum written off by the CRA since the $2.8 billion it abandoned in both 2014-15 and 2013-14.

The agency says that writing off a tax debt does not relieve a taxpayer of the obligation to pay — but it does mean no legal action will be taken unless the taxpayer's situation improves.

Only the very naive would believe that the CRA operates independently of government direction. One has only to recall how Stephen Harper sicced the agency on non-profits whose activities challenged his policies.

Now, all of Justin Trudeau's stout defenders need to start asking some hard questions about their man. His sympathies clearly lie with the corporate agenda, and he has a habit of going to extraordinary measures, both covertly and overtly, to meet his masters' needs. One need only look to the SNC-Lavalin affair to appreciate that sad fact.

For further evidence, consider that since the release of the Panama Papers, $1.2 billion in fines and unpaid taxes have been collected worldwide, while the CRA has revealed it should recoup more than $11 million in federal taxes and fines from 116 audits. In other words, a mere pittance compared to countries like the United Kingdom (more than $252 million), France ($136 million), and Australia (more than $92 million). Even tiny Belgium puts Canada to shame (over $18 million).

The critical thinker must ask why Canada lags so egregiously behind. Some of those thinkers may very well see a pattern of our government running interference for some very powerful interests, as Trudeau apparently did in accepting the word of Edgar Bronfman, a Liberal fundraiser, when the latter stated he never funded nor used offshore trusts. This, despite the fact that an investigation linked him to a $60-million US offshore trust in the Cayman Islands that may have cost Canadians millions in unpaid taxes.



I could go on, but I trust I have provided enough food for thought here.

The play Hamlet states that something is rotten in the state of Denmark. It would seem that Scandinavian country now has ample company in Canada.

Enemies Of The People

I hardly think that is too harsh a description of both those who park their money offshore to avoid taxes and those who facilitate such evasions. Indeed, an open letter signed by some of the world's leading economists makes the cost of such selfish and criminal behaviour eminently clear:

As the Panama Papers and other recent exposés have revealed, the secrecy provided by tax havens fuels corruption and undermines countries’ ability to collect their fair share of taxes. While all countries are hit by tax dodging, poor countries are proportionately the biggest losers, missing out on at least $170bn of taxes annually as a result.

... we are agreed that territories allowing assets to be hidden in shell companies or which encourage profits to be booked by companies that do no business there, are distorting the working of the global economy. By hiding illicit activities and allowing rich individuals and multinational corporations to operate by different rules, they also threaten the rule of law that is a vital ingredient for economic success.

To lift the veil of secrecy surrounding tax havens we need new global agreements on issues such as public country by country reporting, including for tax havens. Governments must also put their own houses in order by ensuring that all the territories, for which they are responsible, make publicly available information about the real “beneficial” owners of company and trusts.

The impact of such behaviour is felt everywhere, but never more than in developing countries:

... while estimates put the cost to Canadian tax coffers at between $6- and $7.8-billion per year, the effects on developing countries is far greater, said Haroon Akram-Lodhi an economist and professor of international development at Trent University.

“The amount of capital flight from sub-Saharan Africa is absolutely huge and it’s all going into these tax havens,” said Akram-Lodhi, one of the signatories of the letter. “This is reducing the ability to fight poverty on a global scale.”

Will governments merely go through the motions of doing something, and then go back to the old ways once the fierce glare of the public subsides? I don't know, but I am somewhat dubious of any substantive changes, since the rich and powerful are, well, rich and powerful.

Now that a searchable database is online, this interview with The Star's Marco Chown Oved sheds some light on what can be found there:



One hopes against hope that real change is in the offing.

We Are All Capuchin Monkeys

Or at least I suspect we will feel like the one on the left in the following video, once the Panama papers releases its database of tax cheats and avoiders this afternoon.

Panama Papers Aftermath

While the revelations thus far about offshore holdings for the purpose of tax avoidance or evasion have provided us with a glimpse into the lives of those well beyond our pay grade, whether or not they have any lasting effect depends largely, not on the reactions of you and me, but rather those of the world's governments. And while public outrage may be high right now, whether those governments will simply ride out that outrage with sanctimonious promises to "go after the tax cheats" and do little, or enact substantive measures to curb this most foul and unpatriotic practice, remains to be seen.

Canada seems to be promising action, with National Revenue Minister Diane Lebouthillier promising substantial resources to go after those who put their own extreme personal wealth above the common good:

With an extra $444 million promised in the March budget, the CRA plans to hire additional staff to target what it dubs “high-risk” taxpayers and corporations. In return, the agency expects to collect an additional $2.6 billion in tax revenues over the next five years.

It also plans to boost its information technology capabilities to better sort the overseas financial transactions to detect tax fraud. The agency already tracks all financial transactions worth more than $10,000 — about a million a month.

Now it plans to focus its attention on all transactions involving individual jurisdictions known to be tax shelters — starting with the Isle of Man, off the west coast of England. Three other jurisdictions will also be targeted this year but agency officials refused to say which ones.

While all of this appears to be a good start, a couple of things puzzle me. It is estimated that between $6 and 7.8 billion is lost to our treasury annually through undeclared offshore holding. Yet, our government is promising only that the initiatives announced will collect an additional $2.6 billion in tax revenues over the next five years. Huh?

Secondly, our government has announced which offshore haven it will be examining first, the Isle of Man:

The first is the Isle of Man, which past transactions involving some KPMG clients have already been flagged by the agency. Quebec Liberal MP François-Philippe Champagne said $860 million in funds were transferred there in the last year along. Sixty audits already underway in relation to investments held in the Isle of Man. The CRA intends to contact another 800 taxpayers and corporations to obtain more information about their holdings.

Now, I know nothing about the arcane world of tax evasion and avoidance, but is it possible that by signaling its intent, the government is also giving the fiscal malefactors an opportunity to move their lucre to other havens not currently under the CRA's scrutiny?

I think these are legitimate questions to ask, given the fact that the CRA has previously treated tax scofflaws with great consideration. A Star editorial provides reasons we should be a bit cynical:

...while agencies such as the CRA and the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) are happy to name the small fish they catch breaking the laws and regulations, that hasn’t always been the case with bigger fish.

Just last week FINTRAC, which tracks money laundering and terrorist financing among other things, announced it had levied a stiff $1.1-million penalty on a Canadian bank for failing to report a suspicious transaction and various money transfers. But it declined to name the institution involved. Meanwhile it is busy naming players who have been slapped with fines of $15,000 or less.

And CRA has drawn criticism for quietly offering an amnesty deal to unnamed multi-millionaire clients of the KPMG accounting firm who were allegedly involved in tax avoidance on the Isle of Man. The Canadian Broadcasting Corp. reported that the group was required by CRA only to pay back the taxes they owed, plus interest. Yet the CRA routinely prosecutes and names people who fail to file tax returns or otherwise run afoul of the law.

For more details about how the CRA has one approach for most of us and another for the monied class, click here; you may also want to watch the following video:



To close, I'll leave you with this excerpt from the Star editorial that likely sums up how so many of us feel:

If the government hopes to “give Canadians greater confidence that the tax system is fair to everyone,” its agencies should be prepared to publicly name offenders. Cutting deals to spare Ottawa the trouble of prosecuting, or to preserve the “good name” of financial institutions and their wealthy clients, isn’t going to reassure anyone other than the scofflaws themselves.

Ottawa shouldn’t be in the business of shielding those who have gone to extraordinary lengths to insulate themselves and their assets from public scrutiny.

The Panama Papers

Marie over at A Puff of Absurdity offers a very good overview of something that is certain to have long-lasting reverberations, The Panama Papers. Be sure to check out her post.

The Toronto Star reports the following:

In the largest media collaboration ever undertaken, more than 370 journalists working in 25 languages dug into 11.5 million documents that revealed Mossack Fonseca’s [a Panamanian law firm renowned internationally for establishing shell companies] inner workings and traced the secret dealings of the firm’s customers. The more than 100 news organizations involved shared information and hunted down leads generated by the leaked files using corporate filings, property records, financial disclosures, court documents and interviews with money laundering experts and law-enforcement officials.

Significantly, the only Canadian media organizations to participate in the consortium undertaking this massive investigation are The Toronto Star and the CBC/Radio Canada. At least someone in our country is concerned about the public good.

Why is this such an important investigation? First and foremost, it identifies a panoply of individuals and companies whose main motivation is tax avoidance. Their allegiance to themselves and, in the case of corporations, their shareholders, is paramount.

It should be stressed here that the vast majority of those involved in these schemes are doing nothing illegal, merely taking advantage of loose tax laws that permit such avoidance. But to me, this points to an incontrovertible truth about some wealthy individuals and many corporations: they feel no obligation to pay the country of their residence their fair share of taxes. In other words, they are putting their own financial security and profits above the land that nourishes and hosts them, the land that provides them with an educated workforce and the infrastructure that make their wealth possible.

And that should serve as a cautionary tale of great magnitude as we contemplate, for example, signing both the CETA and TPP free trade deals. The Investor-State Dispute Settlement provisions of such trade agreements give priority to corporations over state sovereignty so that should a country's laws impinge upon a company's profits, that company can sue the government. Given that The Panama Papers will confirm that loyalty and patriotism are concepts foreign, indeed, inimical, to those who pursue profit at almost any cost, there is surely reason for real caution.

The investigation is a wake-up call for governments to amend tax laws that in fact aid and abet theft from national treasuries. Here at home,

... Canadians have declared $199 billion in offshore tax haven investments around the world, according to Statistics Canada.But experts say that figure is a small fraction of the Canadian offshore wealth that goes undeclared.

The precise annual cost to Canadian tax coffers is unknowable. But credible estimates peg Canada’s tax losses to offshore havens at between $6 billion and $7.8 billion each year.

One need not have an especially rich imagination to consider how an increase in federal coffers of that size could be used for the benefit of all.

Every so often, thanks to circumstance and the indefatigable efforts of investigative journalists, the curtain is pulled aside and we are able to get a peek at an underlying and ugly reality. Ours is a world in which selfishness and evil often prevail, thanks to the complicity of far too many and the shield of darkness behind which much of this takes place.

Perhaps The Panama Papers can help to bring some much-needed light and eventual reform to this shameful and unjust state of affairs.