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Are the Canada Revenue Agency tax evasion raids a public relations exercise?

Highly public raids called extraordinary, very rare by tax experts

Author: Colin Ellis

OTTAWA, February 15, 2018 – Tax experts say yesterday’s highly public raids by the Canada Revenue Agency, in connection with Panamanian law firm Mossack Fonseca and the Panama Papers data leak, are “incredibly rare,” and they question whether the CRA’s “extraordinary measures” are an exercise in public relations.

“While I agree that the public needs to know that tax enforcement is taking place, I can't help but think this news release is largely a PR exercise,” says tax lawyer and accountant David Rotfleisch of Toronto-based Rotfleisch & Samulovitch. “After two years, three search warrants are served. Is this really significant news?”

On Wednesday, approximately 30 criminal investigators from the CRA, assisted by the RCMP and local police officials, executed search warrants in Calgary, West Vancouver and the Greater Toronto Area. In a press release, the CRA stated that, during the course of an offshore tax evasion criminal investigation, it “identified a series of transactions involving foreign corporations and several transfers through offshore bank accounts used allegedly to evade taxes.”

Public nature of raids a rarity in Canada

CBC News reporter Zach Dubinsky told national viewers on Wednesday that, “For offshore tax evasion cases, experts tell us it’s incredibly rare that the CRA takes the kind of extraordinary measures we see in a more typical criminal investigation. If you ask the CRA, they’ll tell you that they have already executed a number of search warrants with respect to the Panama Papers. But I’ve pressed for details on that for more than a year now and have never been able to verify any of their claims.”

Says Rotfleisch, “CRA  said in November 2016  that it data-mined over 11.5 million documents from the Panama Papers, and identified 2,600 with a Canadian link. Based on those links, it commenced tax investigations into 85 Canadians, executed search warrants in some cases and has instituted 60 tax audits.” But, says Rotfleisch, “CRA did not give details of previous search warrants.”

Dubinsky’s comments underscore the unusually public nature of the raids. “Based on information we can actually point to,” said Dubinsky, “this is a very rare measure, and this is certainly the first time ever — in terms of an offshore tax evasion case, where the CRA got its hands on a leak — this is the first time we’ve ever seen the CRA take public steps to announce publicly on the day that its happens that they’ve conducted raids and they’ve seized material.”

Timing of the CRA raids

The raids come almost two years after the publication of the Panama Papers, on April 3, 2016. “As a tax lawyer who has seen CRA abuse of taxpayers far too often, I am pleased that CRA has taken the time to investigate thoroughly prior to executing search warrants,” says Rotfleisch. “I am not particularly concerned about the length of time taken. It is important that due process is followed and that search warrants are only issued when there is strong evidence to suspect tax evasion has been committed.”

The raids, however, came just one day after the CRA made a surprise announcement that it will release data required by the parliamentary budget office (PBO) to calculate Canada’s so-called tax gap. The CRA had been accused of “stonewalling” the PBO over successive requests over a five-year period for the data required to calculate the tax gap.

As reported by the Toronto Star, three different parliamentary budget officers over a period of six years requested federal data from the CRA to calculate the difference between taxes due and those actually collected. Parliamentary Budget Officer Jean-Denis Fréchette had indicated that, if the CRA did not turn over the data by February 28, he would explore other options, including legal ones.

More than a dozen developed countries, including the U.S. and U.K., measure and publicly report their country’s tax gap. The U.S. has done so for more than 50 years. Estimates of the cost of tax avoidance and evasion to Canada’s coffers have ranged from $8.9 billion to $47.8 billion annually.

"The tax gap will measure the difference between taxes collected versus what should have been collected," explains Rotfleisch. "In other words, it provides a measure of the underground economy, and how successful CRA is in fighting it. My suspicion is that it will provide disturbing reading to honest taxpayers. We should know by the end of the year."

Colin Ellis is the managing editor of Canadian Accountant.

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