Canada’s tax evaders get easy treatment compared to those in Australia, Europe.

Published on iPolitics, October 11, 2012

In recent years, revelations about wealthy individuals with fortunes in secret tax havens have sparked a flurry of activity throughout the world as governments attempt to recover the money owed their treasuries and bring those responsible to justice. In 2006, an employee of the LGT Bank in Liechtenstein stole a list of bank clients in the well-known tax haven, and then offered the list for sale. The Government of Germany paid him over four million Euros (or over five million Canadian dollars) for the information, and subsequently notified other countries whose citizens had accounts at this bank.

Upon receiving this information, countries all over the world sprung into action: there were hearings on Capitol Hill in the United States; there were police raids in Europe; within six months there were charges laid in the United Kingdom; millions in lost revenue was recovered in Australia and Germany.

 Looking back, the response of the Canadian Government has paled in comparison: five years after the CRA was given the names of 106 Canadians with secret accounts in Liechtenstein – and two years after the Government was given the names of over 1785 Canadians with accounts in Switzerland – there has been little progress on behalf of the CRA in addressing this serious issue. Not one person has been fined or charged for overseas tax evasion.

Recent developments make this a good time to recap the topic of overseas tax evasion and outline what developments have – and have not – taken place. Earlier this year, Elizabeth Thompson wrote a report on iPolitics regarding discrepancies in the records of the Liechtenstein accounts. She had discovered through the Canada Revenue Agency that “CRA’s probe has determined that 51 of the 106 names it received of account holders in the LGT Bank in the tax haven of Liechtenstein were not the true beneficial owners for the account.” As it turns out, the accounts have been handed down from one generation to the next. According to an internal CRA paper:

It appears that holding funds in Liechtenstein is intergenerational in that if the parents or grand parents (sic) started an offshore entity, it is passed to the children or grand children.

The fact that these accounts have been passed down from one generation to the next shows just how entrenched this problem is. These practices go back years. As a result, the Canadian Government may be missing even more revenue than originally thought.

It should be remembered that the reason the CRA learned of these accounts in the first place was that another government handed them to Canada on a silver platter. In other words, this was not the result of aggressive action on the part of the CRA. An explanation for this lack of diligence may be found in an October 2010 report by the Agency’s Corporate Audit and Evaluation Branch that reveals CRA officials avoid pursuing serious cases of tax evasion, because of limited resources or other workload pressures.

If this is the case, and it is a matter of resources, why has the Minister of National Revenue, Gail Shea, not asked for the money to rectify the situation? History would suggest that this would be money well spent: Internal CRA documents obtained by my office reveal that an infusion of $30 million dollars from the February 2005 budget to counter Aggressive International Tax Planning (AITP), yielded a total fiscal impact in excess of $2.5 billion dollars in just four years.

Australia serves as a very good example of what a government can accomplish when it takes the problem of overseas tax evasion seriously. When the Australian Government received the exact same information about their citizens as did Canada, they moved quickly to address the issue and established Project Wickenby in 2006 to “protect the integrity of Australia’s financial and regulatory systems” by cracking down on illegal overseas tax evasion tax havens.

Wickenby was expected to recover around $AUS500 million in wrongfully evaded tax revenue by the summer of this year. Not only was this goal met, but as of June 30, 2012, the Australian Government was able to recover just over $AUS660 million. That’s almost $675 million Canadian dollars. On top of that, 67 people were charged, with 26 convictions. And they’re not done yet.

The Canadian response to the Liechtenstein affair provides a much less impressive example. As of April of this year – five years since information about the accounts came to light – the Canada Revenue Agency had “assessed” just over $16.5 million owed in taxes, penalties and interest. It was later discovered that the amount actually collected was even smaller: only approximately $5 million – less than one-third of what had been assessed.

While CRA idles, there is evidence to suggest that a deterrent effect is taking hold in other jurisdictions. In Australia, their tax office noted:

A recent report by the Australian Transaction Reports and Analysis Centre (AUSTRAC) shows that from 2007-08 to 2010-11 there was a $12 billion decrease in fund flows to the major jurisdictions where Project Wickenby has focused attention…

It is through prevention that countries reap the true benefits of effective enforcement of tax laws, but without a determined and effective effort to find and prosecute overseas tax cheats, there is no meaningful deterrent against this behaviour. The Australians have learned this lesson, and reaped the rewards. It is time for Canada to follow their lead.