Business·CBC Investigates

Critics want public hearings into Canada Revenue amnesty for KPMG offshore tax dodgers

Liberal Revenue Minister Diane Lebouthillier should withdraw the CRA's amnesty offer for KPMG's offshore tax scheme, critics said in the wake of a CBC News exposé. Keeping the secret deal would make Canada 'worse than a tax haven,' one tax authority said.

Liberal revenue minister should withdraw amnesty offer for Isle of Man 'sham', tax professor says

Canada Revenue offered amnesty to wealthy KPMG clients in offshore tax 'sham'

8 years ago
Duration 12:52
The CRA offered amnesty to multi-millionaire clients caught using what's been called an offshore tax "sham".

The federal government should call public hearings into why the Canada Revenue Agency offered amnesty to the high net worth clients of KPMG who were involved in an offshore tax avoidance scheme, prominent tax groups, politicians and other legal experts said in the wake of a CBC News/Radio-Canada exposé. 

In fact, Laval University tax professor Andre Lareau says the new revenue minister, Diane Lebouthillier, should undo the deal as soon as possible.

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"The offer should just be withdrawn right now," Lareau said. In effect, he says, the CRA is saying to these wealthy clients "we're giving you absolution."

In question period yesterday, NDP leader Tom Mulcair called on Prime Minister Justin Trudeau to launch a probe into the secret offer.

"Stop protecting the rich, start protecting a tax system that's fair for all," Mulcair said. "How many other times has this happened, and is the prime minister going to call an investigation?"

Revenue Minister Diane Lebouthillier wouldn't discuss the specifics of the KPMG offer, saying it was before the courts. But, under questioning in question period, the prime minister said the government would look into it. (Chris Wattie/Reuters)

Dennis Howlett, the head of Canadians for Tax Fairness, also wants the new Liberal government to hold public hearings into CRA's "no-penalties" deal with KPMG's multi-millionaire clients.

"I would like to call on the new government to launch a full investigation," Howlett said, after reviewing the leaked document, obtained by CBC News/Radio-Canada, about what had been a secret deal.

"Who was responsible for this? What kind of deals were made? At what level?

"The best way to get to the bottom of this is a full public inquiry," Howlett said.

Howlett also pointed out that the Liberals campaigned on a platform to overhaul the Canada Revenue Agency, pledging an additional $80 million over four years to crack down on tax avoiders and evaders.

"So here's the opportunity to show us that they're serious about those promises and that they will deliver. And boy oh boy is there ever a need for that now."

'Worse than a tax haven'

The secret CRA offer was dated May 1, 2015 and allowed for some of KPMG's elite clients, who had invested in a KPMG-directed Isle of Man tax shelter, to avoid the normal penalties by simply paying back taxes and some modest interest on income they failed to declare.

The scheme had been going on for more than 10 years, but CRA auditors only discovered it in 2012. Soon after they began court proceedings to try to get KPMG to divulge the identity of those involved.

That case was never concluded, but documents filed in court last fall revealed that 15 of 21 KPMG clients had "self-identified" to the CRA, apparently in response to the May offer.

The agency's amnesty offer was made on the strict condition it was never made public.

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Lareau, who travelled to the Isle of Man in 2015 with CBC/Radio-Canada journalists to investigate the offshore scheme, said it is hard to fathom why the CRA made the secret offer in the first place.

“It really is a textbook case of a sham, when you look at the documents,” tax law professor Andre Lareau told CBC News when asked about KPMG's tax avoidance scheme in the Isle of Man. (CBC)

An internationally respected tax law expert, Lareau says he's particularly troubled that the agency insisted that the agreement could be terminated by the CRA if the KPMG clients spoke to others about the secret offer.  

He argues the public was deliberately kept in the dark.

"Canada is even worse than [a] tax haven where there's no transparency," Lareau said, after reading the confidentiality clause.

He also said that if the new minister calls for an investigation, it should be broad enough to look at KPMG itself, and how it kept the Isle of Man tax scheme hidden from the taxman for more than a decade.

"It would be a sign by the new government that they mean business and that they want more transparency," he said.

Under advisement

In an interview with CBC News, Ted Gallivan, the CRA's head of compliance, said he would take professor Lareau's comments under advisement.

"You're giving me new information," he told CBC News/Radio-Canada. "The CRA has taken very seriously the questions that CBC has posed. And so if certain experts are going to give representation and give views, the CRA will listen."

In a statement on its website late yesterday afternoon, the CRA said it considers the KPMG case an "active file," which will be pursued to the fullest extent possible "as we do with all other cases of aggressive non-compliance."

It also said it "believes firmly" that all participants in tax evasion and avoidance schemes must be identified and brought into compliance, and that it takes action against tax professionals who help with these schemes. 

At the same time, it defended the use of confidentiality clauses in negotiated settlements as something that is done on a case by case basis and "is typical in legal proceedings involving CRA audit and enforcement programs."

CRA's Ted Gallivan on 'confidential' deal

8 years ago
Duration 1:33
CRA assistant commissioner Ted Gallivan wouldn't discuss the secret amnesty document marked 'confidential' that was leaked to CBC News

For his part, Gallivan said that he sees no need at this juncture for public hearings. "I've seen no information that would cause me to recommend or even support a public inquiry."

Gallivan, who only recently became the assistant commissioner in charge of compliance at the CRA, said he was personally unaware of the agency's settlement offer to KPMG clients.

"We completed over 9,000 aggressive tax planning cases last year with a total of $1.6 billion," Gallivan said.

"This is a very important file but it doesn't represent even one per cent of the volume of work we do."

Court records indicate that at least 26 clients parked more than $130 million offshore in the KPMG scheme.

Toronto tax lawyer wants same deal for his clients

Toronto tax lawyer Duane Milot, who represents dozens of middle-income taxpayers in disputes with the CRA, said this offer shows there is a "double-standard" between how his clients have been treated by the agency compared to these well-off clients of KPMG.

"I think the CRA has to explain its behaviour," Milot said. "Canadians are entitled to know what the agency is doing, and you can't go around making these sweet deals for millionaires and not explain why you did it."

Milot wants a reprieve on penalties for his clients, who he says were victims of an unscrupulous tax preparer, in light of revelations of the CRA's handling of the KPMG case.

"Because certainly if [the KPMG] clients are entitled to this great deal, my clients are equally or more entitled to it," he said.

NDP Leader Tom Mulcair pressed the government on the secret amnesty deal in the Commons yesterday. "How many times has this happened?" he asked. (Fred Chartrand/Canadian Press)

Duff Conacher, a visiting professor of government ethics at the University of Ottawa and co-founder of Democracy Watch, says the secret KPMG offer exposes the kind of backroom dealing the Liberals campaigned to change.

"Trudeau's talking the talk of highest ethical standards," he said, adding this is a great opportunity "for the Liberals to actually take action to clean up a very smelly situation."

Former Liberal Senator Percy Downe, who has campaigned against tax havens for years, is also calling on the Trudeau government to investigate.

"Given the restraints the governments federally and provincially are under, and the failure of the revenue agency to exercise responsibility, there should be a public inquiry," he said

Minister declined interview

In an email to CBC News last month, Jacques Hudon, director of policy for Revenue Minister Lebouthillier, said it would be inappropriate to provide journalists a briefing on this topic, or to grant an on-camera interview.

"As the matters raised in your correspondence are either before the courts, precede the appointment of the current minister, or are related to administrative matters, it would be inappropriate for her to comment on them," Hudon said.

He added that the CRA had already provided "substantial information" on this matter to CBC journalists.

Reporter Frederic Zalac tried to speak directly to Lebouthillier after she made a public appearance at Winterlude in Ottawa. She again declined to be interviewed, saying the entire matter was before the court.

Calls placed by CBC News/Radio-Canada to the Prime Minister's Office also went unanswered.

However, in Question Period yesterday, the prime minister said he would "look into" the secret offer made to the KPMG clients.

"It is a concern to us that Canadians — all Canadians — pay their fair share of taxes, and we will ensure that that continues to be the case in the future. What decisions were made under a previous government, if they're erroneous, we will look into them for sure."

In an earlier response, Canada Revenue's media relations officer Philippe Brideau said in a statement: "CRA practice also recognizes that the earliest possible resolution of disputes is in the public interest, as lengthy litigation is costly to all parties and the outcome of complex, tax-related litigation processes may be difficult to predict."

with files from Katie Pedersen