Question Period Note: TAX AVOIDANCE AND EVASION: HIGH NET WORTH AND LARGE ENTERPRISES

What is the CRA doing to ensure that large enterprises and wealthy individuals are paying their share?

• The Canada Revenue Agency (CRA) is committed to protecting the integrity of the Canadian tax system by
  o combating international tax evasion and avoidance on all levels;
  o pursuing wealthy individuals, promoters, corporations, and entities who try to avoid and evade taxes and conceal assets and income offshore.

• The CRA has strengthened its ability to detect and deter the most serious non-compliance by enhancing risk assessment approaches to audits, leveraging legal tools and data sources, and increasing international collaboration.

• The CRA works diligently with the Department of Finance and the Department of Justice to evaluate and propose new tax legislation and policy that closes loopholes used by promoters and tax advisors to help their clients avoid paying the appropriate amount of taxes.

  • By using electronic tools to conduct risk assessments of the corporate tax returns of all large businesses, the CRA is improving its ability to detect high-risk transactions and focus audit resources in the areas of highest risk.

• The CRA continues to identify and shut down illegitimate tax shelters and tax schemes by targeting those promoting the schemes, improving intelligence gathering and enhancing communication with taxpayers.

The Canada Revenue Agency (CRA) is committed to protecting the integrity of the Canadian tax system by combating international tax evasion and tax avoidance on all levels. This commitment includes tightening the net around wealthy individuals, promoters, corporations, and entities who try to avoid and evade taxes and who conceal assets and income offshore.

Tax evasion and avoidance have often revolved around secrecy and hiding assets, transactions, income, and wealth. The high net worth and large business population is well resourced, which requires specialized knowledge and technical expertise regarding their tax structures and non-compliance schemes. This population, specifically, represents a challenge as it has the means at its disposal, should it be inclined to do so, to:
• Hide their assets offshore and shroud their residency status, thus creating significant compliance challenges in the gathering of information for these taxpayers; hence our collaborations with international partners is very important in exchanging tax information pertaining to this population.
• Use their wealth to create complex tax arrangements, which continue to evolve and increase in complexity.
• Initiate litigation and use delay tactics to avoid providing documents and information to the CRA during an examination, audit, or investigation.
• Use wealth management professionals, thereby being able to distance themselves ethically from tax planning arrangements.

Historic budget investments are allowing the CRA to hire more auditors and strengthen technical support for high-risk audits, including providing legal resources to support audits and to defend against appeals to the courts by Multinational Enterprises (MNEs) and wealthy taxpayers.

In addition to the financial investments, legislative changes have also been announced in recent Federal Budgets to close tax loopholes, to work with international partners, and to strengthen tax enforcement that will stop MNEs from avoiding paying what they owe in Canada. Some of these legislative changes include:
• Implementing all minimum standards from the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting project to tackle international tax avoidance including:
o Ratifying the Multilateral Convention to Implement Tax Treaty Related Measures
o Enhancing Canada's transfer pricing and mandatory disclosure rules
o Strengthening the rules on interest deductibility limits for large corporations
o Eliminating the tax benefits of hybrid mismatch arrangements
• Modernizing Canada’s General Anti-Avoidance Rule to ensure it is sufficiently robust for tax authorities and courts to address sophisticated and aggressive tax planning.
• Introducing major reforms to the international tax system as it applies to MNEs, titled the two-pillar plan, which will ensure MNEs pay their taxes in Canada and level the playing field for Canadian businesses.

The CRA has also enhanced its information sharing with international partners, for example, the use of the Common Reporting Standard (CRS), a global standard for the automatic exchange of financial account information between tax administrations annually. Canada and over 100 other jurisdictions have implemented the CRS. It is an important tool for promoting tax compliance, combatting international tax evasion and avoidance, and helping ensure that taxpayers report their income from all sources and appropriately disclose their offshore assets and holdings. Since the CRA started exchanging information under the CRS in 2018, over six million records have been exchanged.

Finally, the CRA also collaborates internationally through the Forum on Tax Administration (FTA) of the OECD, over 50 tax administrations work together to share best practices and emerging trends, deal with international risks, and improve compliance and the overall delivery of tax administration. As a group, the FTA works together to put in place the global standards that help to ensure greater tax certainty, transparency, and fairness, as well as prevent tax evasion and avoidance. This helps to create a global level playing field in tax.

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