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 actively pursuing wealthy individuals and businesses who engage in willful non-compliance and tax crimes in Canada and abroad.

• Sophisticated tools are used to risk assess all large business corporate tax returns and detect high risk transactions, so the CRA can focus audit resources on the highest risk situations.

• The CRA detects and deters the most serious cases of non-compliance by using business intelligence, advanced data analysis, legal tools, enhanced risk assessment approaches and international collaboration.

  • The CRA also works with the Department of Finance and the Department of Justice to evaluate and propose new tax legislation and policy, to close tax loopholes.

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

Tax evasion and avoidance have often revolved around secrecy and hiding assets, transactions, income, and wealth.

Tax evasion:
When an individual or business falsifies records and claims, hides income or inflates expenses in order to intentionally avoid complying with Canada’s tax laws, it is considered tax evasion.

Tax evasion, unlike tax avoidance, has criminal consequences. A criminal investigation may result in prosecution in criminal court, which could lead to court imposed fines, imprisonment, and a criminal record.

Tax avoidance:
When tax planning reduces taxes in a way that is inconsistent with the overall spirit of the law, the arrangements are referred to as tax avoidance. The CRA's interpretation of the term "tax avoidance" includes all unacceptable and abusive tax planning. Aggressive tax planning refers to arrangements that push the limits of acceptable tax planning.

The wealthy and large enterprise population is well resourced, and 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, which creates significant compliance challenges in the information gathering process for these taxpayers; hence the CRA’s collaboration with international partners plays an important role 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.

Financial investments have allowed the CRA to 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. The government has also introduced legislative changes to close tax loopholes. This allows the CRA to increasingly work with international partners and to strengthen tax enforcement that will stop MNEs from avoiding paying what they owe in Canada.

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 and combatting international tax evasion and avoidance. It also helps to ensure that taxpayers report their income from all sources and appropriately disclose their offshore assets and holdings.

The CRA collaborates internationally through the Forum on Tax Administration (FTA) of the Organisation for Economic Co-operation and Development, where 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 related to taxation.

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