KPMG offshore 'sham' deceived tax authorities, CRA alleges
Multi-millionaire KPMG Canada clients paid virtually no tax in Isle of Man scheme, court documents show
A wealthy Victoria, B.C., family paid virtually no tax over a span of eight years – and even obtained federal and provincial tax credits – while being involved in an offshore tax "sham" developed by one of the country's most respected accounting firms, the Canada Revenue Agency alleges.
The Canada Revenue Agency (CRA) believes there may be many more like them.
Court documents obtained by CBC News and Ici Radio-Canada show that in 2000, Peter Cooper and his two adult sons, Marshall and Richard, signed up for a KPMG tax product in the Isle of Man that targeted "high net worth" Canadian residents, promising they would pay "no tax" on their investments.
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In 2013, the CRA obtained a judicial order demanding KPMG hand over the names of all the wealthy clients who set up shell companies in the Isle of Man, a small, self-governing territory in the Irish Sea between England and Ireland.
KPMG Canada is fighting that decision in federal court.
Documents show that between 2002 and 2010, the Cooper family paid little or no tax, despite receiving nearly $6 million from an offshore company. KPMG lawyers claim any money the Coopers received were "gifts" and therefore non-taxable.
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The CRA alleges that the KPMG tax structure was in reality a "sham" that intended to deceive the taxman – and that both the Coopers and KPMG knew that $26 million hidden in offshore accounts actually belonged to the Coopers.
"The parties to the structure willfully presented its transactions as being different from what they knew them to be," the Revenue Agency said in tax court filings in Vancouver.
The CRA also alleges that the Coopers received federal and provincial tax credits during the years they were not declaring the income from the Isle of Man. In 2009, for example, Richard Cooper claimed the full home renovation tax credit on a home in Victoria.
The CRA has slapped the Cooper family with an order to repay millions in unpaid taxes and penalties in a "grossly negligent" scheme the CRA says was set up to "avoid detection" by tax authorities.
'I'm being drawn into this'
"I went to the best people in the country. I'm being drawn into this, and I don't think I should have been in the first place," he says.
Cooper referred inquiries to KPMG, which is also representing the Coopers in their appeal in tax court.
KPMG declined to speak to CBC News about the allegations.
"Professional standards and obligations preclude us from disclosing, responding to, or discussing any matters that involve clients," Kira Froese, KPMG Canada's director of communications, wrote in an e-mail. "It is inappropriate for us to comment on matters that may be before the courts."
KPMG Canada, which is both a tax and auditing firm, is perhaps best known for helping the federal government crack down on public misspending. Yet in the Coopers' court case, it is alleged the accounting giant's Offshore Company Structure intentionally deceived the federal government. The structure "is a sham and was intended to deceive the Minister," the CRA alleges in court documents.
'For internal use only'
Documents filed in court by the CRA also shed light on a secret internal KPMG marketing campaign that had escaped the scrutiny of tax collectors for more than a decade.
As far back as 1999, a "product alert" was sent to all KPMG tax practitioners across the country and strictly marked "for internal use only - not for distribution or circulation outside the firm."
The memo outlined a plan that would "target" wealthy Canadian residents worth at least $10 million. It offered them "confidentiality," protection from creditors and the ability to receive money "free of tax."
In return, KPMG would take a 15 per cent cut of the taxes dodged. Successful KPMG sales agents and accountants were referred to as product "champions."
Dennis Howlett, the executive director of Canadians for Tax Fairness, wants to know exactly how much KPMG Canada and its sales agents profited from the offshore scheme.
"They were given the incentive that they could collect 15 per cent of the taxes avoided," he said. "We're talking about millions of dollars here."
KPMG did not respond to specific CBC queries about how many multi-millionaires invested in their "Offshore Company Structure" nor how much money the accounting firm made in sales and commissions.
Marshall Cooper told CBC News he believes there are many more like him. "It's huge - huge," Cooper said, speculating the CRA may find many more KPMG OCS clients.
Millions in undeclared 'gifts'
According to CRA documents filed in court, Marshall Cooper lived in a posh home in Victoria but paid only $3,049 in total taxes between 2002 and 2011.
He even received tax credits worth $5,420, the CRA alleges.
- KPMG statement
- Peter Marshall Cooper Notice of Appeal, March 9, 2015
- Marshall Cooper Notice of Appeal, March 9, 2015
- Richard Cooper Notice of Appeal, March 9, 2015
- CRA vs. RICHARD COOPER Amended Reply, July 10, 2015
- CRA vs. PETER MARSHALL COOPER Amended Reply, July 13, 2015
- CRA vs. MARSHALL COOPER Amended Reply, July 13, 2015
Government auditors discovered the family invested in excess of $26 million back in 2002 and 2003 with help from KPMG. The money was handed to an offshore company called "Ogral" set up in the Isle of Man, but registered in other people's names.
The CRA alleges the Coopers first "purported to gift their wealth" to the offshore company. However, for years they received millions in non-taxable "gifts" back from Ogral that the CRA alleges were never reported on tax returns.
In their court filings, the Coopers insisted they obtained "substantial professional advice" when KPMG helped to set up the company in the Isle of Man. In their defence, the Coopers also say they consulted the law firm Fraser Milner Casgrain (now Dentons) before proceeding.
In the Cooper case, one CRA court pleading notes KPMG collected $300,000 in fees from the family between 2002 and 2008 based on the amount saved through the tax shelter.
KPMG lawyer Mark Meredith is representing the Cooper family in tax court. In a recent CRA court filing, however, the tax agency names Meredith, as well as now-retired KPMG tax partner Barrie Philp, as being the very ones who "developed the idea of an offshore company structure."
Dalhousie tax professor Geoffrey Loomer says that if the allegations against KPMG hold up in court, the case may have implications for the entire accounting industry.
"It seems to me it's bad from the point of view of the advisors involved, but it's also just, you know, an instance of a larger problem where you have high-wealth, high-income taxpayers arguably not paying their fair share," Loomer says.
"So it just means that more of the tax burden is borne by the middle class."
For more on this story, tune in to The National in the days to come for the documentary "The Isle of Sham."