OECD Apparently Believes Global Tax Evasion Is A Legacy Issue: A Pigs Will Fly Moment

Tax avoidance is allegedly a ‘legacy issue,’ OECD’s Angel Gurria says

• Gurria was Speaking at the Confederation of British Industry (CBI) conference in London
• He said governments were working hard to stop tax avoidance and evasion
• U.K. Prime Minister Theresa May said her government is continuing to work against tax evasion

Published 12 Hours Ago CNBC.com

Photographer | Collection | Getty Images

Amid another leak of documents revealing large-scale international tax avoidance, the secretary-general of the Organisation for Economic Co-operation and Development (OECD) said Monday that tax avoidance was fast becoming a thing of the past.

“When we’re talking about the ‘Panama Papers’ or ‘Paradise Papers’we’re talking about a legacy that is fast disappearing,” Angel Gurria said.

Speaking at the Confederation of British Industry (CBI) conference in London, Gurria said governments were working hard to stop tax avoidance and evasion.

“When we talk about ‘Double Irish’ or ‘Double Dutch’ (tax avoidance schemes) we’re talking about structures which are no longer there,” she said, adding: “This will not be repeated because of the work you and your governments and the OECD have done in the last few years.”

“There is quite literally no place to hide,” he said, noting that 50 countries had implemented automatic information exchanges regarding tax and that more nations were planning to do the same.

Gurria’s comments come after a leak of millions of documents revealing large-scale tax avoidance by high-profile individuals and companies via offshore financial services companies. The latest tax avoidance leak has been dubbed the “Paradise Papers” and comes after a similar leak in 2016 called the “Panama Papers” that showed how a Panamanian law firm allegedly helped its clients to avoid taxes by using offshore tax havens.

Speaking at the same business conference on Monday, U.K. Prime Minister Theresa May said that her government had continued the work against tax evasion that her predecessor David Cameron had begun.

“He started this work, not only in the U.K. economy but on an international stage. So we have seen more revenues coming into HMRC (the U.K.’s tax-collecting department) over the last few years, with £160 billion extra since 2010,” she said.

More work was being done to ensure “greater transparency” in the U.K.’s dependencies and British overseas territories, May said, and HMRC was already able to access more information about so-called “shell” companies.

“We want people to pay the tax that is due,” she said. That sentiment was echoed by the leader of the opposition Labour party, Jeremy Corbyn, who said that society was “undermined” by anyone that did not pay the tax they owed.

How Canada Got Into Bed With Tax Havens

1980 treaty with tiny Barbados paved way for billions to legally flow offshore

By Zach Dubinsky, CBC News

Canadian companies have flocked to Barbados with their cash for decades in order to legally avoid paying Canadian taxes. (The Associated Press)

On a cold December afternoon in 1980, with MPs’ voices echoing in the mostly empty chamber, the House of Commons debated a piece of legislation that has altered Canada’s economy profoundly.

Bill S-2 aimed to ratify a series of taxation treaties between Canada and countries like Spain, Korea, Austria and Italy. Also on the list: the tiny Caribbean island country of Barbados, population 250,000.

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Before the final vote was called, a fresh-faced Bob Rae, at the time the NDP’s finance critic, rose to speak against it. Necktie askew, he warned that there had been precious little study of the consequences of signing a treaty that, like the one with Barbados, would drastically cut the tax rate for Canadian companies operating abroad.

A fresh-faced Bob Rae, the federal NDP’s finance critic at the time, rose in the House of Commons in December 1980 to warn about tax treaties Canada was signing. (CPAC)

“The government is entering into these tax treaties without being fully aware of the impact they will have on domestic taxation in Canada,” Rae said. “Money that is income and is not being taxed at the corporate level, on which the government receives no revenue, has the unfortunate effect of increasing the load of taxation on the average citizen.”

His protestations didn’t stop the bill. After another hour of tepid debate, with a quick murmur of assent from the Liberal and Conservative MPs, the House passed it and it was signed into law the next week.

Canada’s favorite tax haven

Fast-forward to today: Barbados, a tax haven, is the No. 3 destination for Canadian money going abroad. Corporations and wealthy Canadians have moved nearly $80 billion there — behind only the U.S. and U.K. as an investment destination. There’s more Canadian money parked in Barbados than in France, Germany, Italy, Japan and Russia combined.

The Caribbean island is arguably where Canada first seriously waded into the waters of offshore, legal tax avoidance. Canadian companies you might never expect — Petro Canada, Loblaws, Eldorado Gold — have had affiliates there for years, while Canadian banks have branches on many street corners.

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Send tips on this or any other tax haven story tozach.dubinsky@cbc.ca

“Barbados was like the entrance to the offshore network,” said Alain Deneault, a Quebec sociologist and university lecturer who has written several books about tax havens.

“You create a subsidiary in Barbados. You send to that subsidiary some assets, and from there on you may transfer the assets, once more, to another tax haven, to another subsidiary where Canada has no link.”

Part of the draw is Barbados’s corporate tax rate of between one and 2.5 per cent. And once that modest amount is paid, thanks to the 1980 tax treaty any leftover profits earned at a subsidiary based or linked to there can be brought back to Canada tax-free.

So while Apple routes its non-U.S. profits through Ireland and into the British Virgin Islands to avoid tax, and Google stashes its foreign earnings in Bermuda, the legal tax haven of choice for Canadian businesses’ foreign operations for many years was Barbados.

Alarms raised, but nothing done

It’s meant potentially huge revenue losses for the Canadian government — which federal auditors general have taken pains to point out multiple times.

In 1992, Auditor General Denis Desautels dedicated an entire section ofhis annual report to the “schemes” companies use to shrink their tax bills.

He pointed to a company, not named, that shifted $318 million in investments to a subsidiary in Barbados. The investments earned $37 million over just six months, on which a sliver of income tax was paid to Barbados. The rest could be sent back to Canada tax-free, and then paid out as dividends to the company’s shareholders — who themselves would enjoy generous dividend tax credits. Meanwhile, the parent company, having borrowed money to fund its subsidiary, deducted the interest it was paying as an expense and ended up with a loss on its books in Canada — so it paid no tax here.

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“These tax rules are being used to … move Canadian corporations’ income offshore, and convert income of Canadian corporations into tax-free income,” Desautels wrote. “It is reasonable to conclude that hundreds of millions of dollars in tax revenue have already been lost.”

Parliament held hearings in the wake of those concerns, and small tweaks were made, but nothing to shut down the free flow of money from Canada into the Caribbean.

A decade later, the next auditor general, Sheila Fraser, again flagged the issue, writing that Canadian companies took in “$1.5 billion of virtually tax-free dividend income from their affiliates in Barbados” in 2000. “Tax arrangements for foreign affiliates have eroded Canadian tax revenues of hundreds of millions of dollars over the last 10 years,” she said.

More havens, not fewer

Groups of MPs have tried several times over the years to staunch the tax bleeding. In 2005, Bloc Québécois MP Guy Côté introduced a motion, in vain, to shut down the Barbados schemes. His party has another, similar measure in front of Parliament now.

But instead of curtailing legal, offshore tax avoidance, Canada has effectively broadened it.

Since 2009, Ottawa has signed a rash of deals with two dozen other tax havens. Called tax information exchange agreements, they are designed to compel offshore locales such as the Cayman Islands, Liechtenstein and the Isle of Man to cough up details on Canadians who have money and accounts there.

In exchange, Canada grants each of those countries the same treatment as Barbados — Canadian companies are able to set up subsidiaries there and bring home business profits tax-free.

The outflow of money from Canada into tax havens has only proliferated.

Since Canada put in force a new series of accords with tax havens in 2011, billions of dollars have shifted from here to those countries. This graph shows total amounts parked in those tax havens, by year. (CBC)

Sociologist Deneault says it’s fundamentally unfair.

“These corporations benefit from public infrastructures. They use roads, they have access to water, to electricity. Their employees are trained by the state. They benefit from the social system. But they don’t pay for it,” he said. “They don’t pay their fair share and they know how to manage it so they don’t.”

Rae: 1980 view ‘still stands’

Looking back, Bob Rae feels vindicated. Watching the footage of his younger self during an interview last week, he said the argument he was making 36 years ago in the Commons “still stands.”

“You have a means for people who are rich enough and people who are shrewd or clever enough, they can move their money around from one jurisdiction to another depending on the tax rates and the tax treatments of that money, whether it is individuals or companies,” he said.

“And eventually in order to pay the bills, [governments] have to increase personal taxation.”

Wealthy KPMG Clients Offered Amnesty in “Offshore Tax Sham” – CBC

In a continuation of the story first reported by the CBC some months ago, and also reported here, the CBC has discovered a secret CRA amnesty offer to fifteen wealthy KPMG Canadian clients. There is no “quid pro quo” included in the amnesty offer, requiring that the individuals provide evidence or testimony in the current CRA case against KPMG in the Courts.  It should be noted that the UK government is also pursuing prosecutions of at least four KPMG partners in the United Kingdom. KPMG settled out of court in a similar case in the United States. The Swiss government has also successfully prosecuted UBS for a similar tax haven scheme.

Reblogged from CBC INVESTIGATES

Canada Revenue offered amnesty to wealthy KPMG clients in offshore tax ‘sham’

Federal authorities demanded secrecy in no-penalty, no-prosecution deal to high net worth Canadians

By Harvey Cashore, Dave Seglins, Frederic Zalac, Kimberly Ivany, CBC News Posted: Mar 08, 2016 5:00 AM ET Last Updated: Mar 08, 2016 9:38 AM ET

The Canada Revenue Agency offered amnesty to multi-millionaire clients caught using what’s been called an offshore tax “sham” on the Isle of Man — a reprieve that was supposed to remain secret and out of the public eye until it was uncovered by a CBC News/Radio-Canada investigation.

Canada Revenue officials demanded, and offered, secrecy in a no-penalty, no-prosecution deal to high net worth clients of accounting giant KPMG involved in a dodgy offshore tax scheme. (CBC)

The amnesty allows for “high net worth” clients of the accounting giant KPMG to be free from any future civil or criminal prosecution — as well as any penalties or fines — for their involvement in the controversial scheme.

The clients simply had to agree to pay their back taxes and modest interest on these offshore investments, which they had failed to report on their income tax returns.

Documents show that the scheme had attracted at least $130 million.

CBC/Radio-Canada obtained a copy of the confidential nine-page offer, signed on May 1, 2015 by CRA’s manager of offshore compliance, Stephanie Henderson.

It promised KPMG clients that the CRA would not impose any penalties for taxes dodged in a scheme that lasted more than a decade.

The offer was made despite CRA uncovering the KPMG scheme, which had at least 26 wealthy clients each investing a minimum of $5 million using shell companies on the Isle of Man.

Before offering the deal, the tax agency had already assessed huge penalties against a handful of the earliest clients, alleging the scheme was “grossly negligent” and had “intended to deceive” the minister of revenue.

CRA would not discuss any details of the leaked document with CBC News, let alone say how many of the high net worth KPMG clients decided to accept the offer.

Ted Gallivan, CRA’s assistant commissioner of compliance, says this case is still ongoing. But he said he had not seen the agency’s amnesty offer to KPMG clients, in particular its confidentiality clause, until CBC showed it to him. (CBC)

But a letter filed in court in September 2015 by a KPMG lawyer stated that 15 clients had “self-identified” to the federal tax authorities. Why they might have come forward remained a mystery until CBC News obtained a copy of the secret agreement.

A spokesman for Canada Revenue told CBC News that the CRA frequently resolves tax disputes through settlements.

“CRA practice also recognizes that the earliest possible resolution of disputes is in the public interest, as lengthy litigation is costly to all parties and the outcome of complex, tax-related litigation processes may be difficult to predict,” media relations officer Philippe Brideau said in a statement.

• For confidential tips on this story please emailinvestigations@cbc.ca or contact Harvey Cashore at 416-526-4704

Secret offer ‘outrageous’

CBC showed the secret CRA amnesty offer to a number of tax lawyers.

Toronto tax lawyer Duane Milot, who represents middle-income Canadians in disputes with the CRA, says his clients are routinely dragged through the courts for years by Canada Revenue.

“It’s outrageous,” he told CBC News after reading the leaked document. “The CRA appears to be saying to Canadians, ‘If you’re rich and wealthy, you get a second chance, but if you’re not, you’re stuck.'”

Jonathan Garbutt, a veteran Bay Street tax lawyer says the CRA may be looking to avoid a long, costly court battle with KPMG’s multi-millionaire investors as it lacks resources for these kinds of fights.

Bay Street lawyer Jonathan Garbutt says CRA is probably looking to avoid a long, costly battle in this case, given that these are very wealthy investors. (CBC)

“These are much bigger names. These people have money. They can fight, they can afford to hire the best legal defence money can buy,” Garbutt said.

“There’s a lot more money at stake in these bigger cases, and it’s going to cost them more to be able to fight them. So CRA will gladly say thank you very much for the money, and move on to the lower-hanging fruit,” Garbutt said.

Confidentiality clause

Whatever the reason behind the offer, it’s clear the CRA didn’t want anyone else to find out about the amnesty deal.

The leaked document includes the clause CONFIDENTIALITY in capital letters in paragraph 18.

“The taxpayer agrees to ensure the confidentiality of the offer and will not inform any person of the conditions of the offer,” the letter states.

“This doesn’t pass the smell test,” Milot said. “This is exactly the type of government behaviour that erodes the public’s confidence in the system, these type of secret deals. Everybody should be treated equally.”

Toronto tax lawyer Duane Milot says the Canada Revenue Agency routinely drags his less wealthy clients through the courts for years when there is a dispute, and that there shouldn’t be a double standard. (CBC)

The document is silent on whether KPMG itself will avoid civil or criminal penalties for setting up and selling the Isle of Man arrangement to at least 26 clients.

But experts consulted by CBC News raised concerns that the large accounting firm, with close ties to the federal government, could also be off the hook.

In an on camera interview last Friday, Ted Gallivan, the CRA’s assistant commissioner of compliance, said it would be inappropriate for him to say whether KPMG also was offered amnesty over the offshore scheme.

“The CRA is still actively pursuing this matter, and so I really can’t comment about what decisions we may or may not have made,” he said.

CRA ‘priority’

Gallivan has previously said that going after companies that promote tax avoidance is a priority for the Canada Revenue Agency.

“Right now, we are keeping a close watch on those promoting aggressive programs and taking advantage of them,” he told a parliamentary committee in December 2014.

Five months after these public remarks, however, the CRA’s offshore compliance division sent the secret settlement offer to KPMG.

Gallivan, who became assistant commissioner only seven weeks ago, said he was unaware of the details of the agency’s settlement offer to KPMG. He said he did not know about the CRA-imposed gag order.

“You’ve provided me with written text from a taxpayer specific file, text that I have never read before, and it would be utterly irresponsible of me to comment on something that I’ve never read before out of context,” he told CBC News/Radio-Canada after being shown a copy of his own department’s document.

 CRA’s Ted Gallivan on ‘confidential’ deal

Gallivan says the CRA has a good track record recovering money from offshore tax avoidance schemes, pointing to its voluntary disclosures program, which allows taxpayers to avoid potential criminal or civil penalties in exchange for paying back taxes and interest.

However, tax experts have told CBC News that the KPMG clients should not have been eligible for the voluntary disclosure program because it was the CRA who encouraged them to come forward — and only after it already had those wealthy Canadians on its radar.

Tax experts say the program was designed for taxpayers who, on their own initiative, approach the CRA to pay back taxes.

Otherwise, they say, everyone under investigation would use the program as soon as the CRA starts in on them for evading or avoiding taxes.

KPMG took cut of taxes dodged

The KPMG scheme, which the accounting firm began marketing to wealthy Canadians as far back as 1999, had clients worth more than $5 million use shell companies set up by the accounting firm in the Isle of Man, famous for its corporate secrecy and very low taxes.

KPMG’s internal memos, now part of the court record, show that the scheme was promoted within the firm to all of its Canadian tax practitioners, and that the accounting firm would collect 15 per cent of the taxes dodged.

CRA auditors in Victoria first caught wind of the scheme at least four years ago after conducting an audit of a Victoria-based family.

Auditor Russ Lyon then obtained a judge’s order in early 2013 to force KPMG to hand over the names of the clients involved as well as documents related to the scheme, which authorities alleged was “intended to deceive” the taxman.

KPMG refused to hand over the documents and instead fought the CRA in court, appealing the judge’s order.

KPMG Canada is a member firm of KPMG International, which has 155,000 employees working in 155 countries around the world, according to the KPMG Canada website. (KPMG website)

CBC News reported last September that the case against KPMG had been stalled for more than two years as talks went on outside the courtroom.

The secret agreement, leaked to CBC producer Harvey Cashore in a brown envelope, reveals that the amnesty offer was made to these high net worth Canadians even before the CRA knew who they actually were.

The May 1, 2015 offer letter was sent to KPMG and was then passed on to its clients, 15 of whom appeared to accept the offer.

There are believed to be six more high net worth clients whose identities continued to remain a mystery.

The agency says it is now proceeding with the court case to obtain the remaining names.

“I really don’t want to say anything that could jeopardize or hamper our ability to pursue it. I’ll just emphasize that our work is far from done and we intend to pursue this as far as possible,” the CRA Gallivan said.

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For confidential tips on this story please email investigations@cbc.ca or contact Harvey Cashore at 416-526-4704, or visit CBC Secure Drop to send documents to the attention of Harvey Cashore.