Politics

KPMG official tells MPs firm no longer in tax-shelter business

The so-called Panama Papers have turned up the heat on tax havens, and Tuesday the Commons finance committee put a KPMG executive in the hot seat to explain the firm's dispute with the Canada Revenue Agency over an Isle of Man scheme. A senior KPMG executive says the firm has since exited the tax-shelter business.

CRA alleges company's offshore tax scheme 'intended to deceive'

Wayne Easter, chair of the House of Commons finance committee, called on a senior KPMG official to testify Tuesday about offshore tax havens. (Sean Kilpatrick/Canadian Press)

The accounting firm KPMG got out of the tax-shelter business years ago after a change in taxation laws and in Canadian expectations, a senior executive told a House of Commons committee Tuesday.

Gregory Wiebe, KPMG tax partner and former global head of tax for the firm, was responding to questions about the firm's controversial Isle of Man offshore tax scheme created in 1999, which the Canada Revenue Agency has alleged "intended to deceive" federal tax authorities.

"Like every business, we've changed dramatically since 1999," he said. "We have no tax shelters that we sell. ... The tax shelter regime in Canada is just something we're not part of."

KPMG operates around the world through a network of independent national affiliates, including one in Canada that employs around 6,000 people in more than 30 offices across the country. All are members of KPMG International Co-operative, registered in Switzerland, and provide tax, auditing and consulting services to corporations and governments.

MPs on the House finance committee initially peppered Wiebe with questions about the identities of the 27 KPMG clients who took advantage of the Isle of Man scheme and details of any amnesty or settlement offered by the CRA.

Dennis Howlett, executive director of Canadians for Tax Fairness, says the long delay in the Canada Revenue Agency's case against KPMG is troubling. (CBC)

Wiebe declined to answer those questions, saying the matter has been before the courts since early 2013 and that the firm must protect client confidentiality. A judge ordered KPMG to hand over client names and documents related to the Isle of Man scheme to a CRA auditor in 2013, but the firm appealed the ruling.

WIebe said the Isle of Man tax shelter, which netted the firm $1.6 million in fees for the setting up of 16 plans, "fully complied with all applicable tax laws" that were in effect in Canada in 1999 and has not been in use since 2003.

Wiebe said the Conservative government's tightening of tax-shelter rules in 2013 and 2014 dramatically changed the landscape and said his own firm now carefully reviews any tax-saving plan for "reputational" risk, as well as ensuring it is legal and complies with general anti-avoidance tax rules.

Crossover is small

Tory MP Lisa Raitt also asked about reports that KPMG hires former CRA auditors. Wiebe said the number hired is small — just seven or eight in a workforce of around 1,400 tax profesionals. He also said employees are expected to maintain their CRA oaths of confidentiality and are required to self-certify annually that they have done so.

The committee has yet to vote on an NDP motion brought forth at the meeting asking Wiebe to identify any clients who may have broken the law.

Later in question period, the NDP's Tom Mulcair called on the Liberal government to launch an investigation, saying "Canadians don't accept there is one law for the rich and well connected and one law for everybody else."

But Prime Minister Justin Trudeau rebuffed the demand. "Once again, we see NDP is always eager to play procedure games rather than dig into real issues. We're working with CRA, we're ensuring all Canadians and companies pay their fair share of taxes."

Wiebe also told the committee that the so-called tax gap — the difference between what the CRA actually collects compared with all the taxes that are owed — is not yet measured in Canada but that the underground economy rather than offshore tax havens likely accounts for most of the missing money.

Not named

Wiebe isn't named in any court documents filed by the CRA, which allege KPMG earned a 15 per cent cut in the Isle of Man plan, which promised multimillionaire clients they would pay "no tax" on their investment income.

Greg Wiebe, KPMG tax partner and former global head of tax for the firm, testified before the Commons finance committee, saying the firm has exited the tax-haven business. (KPMG.com)

​None of the KPMG officials named in the court documents are appearing before the committee, but committee chair Wayne Easter hasn't ruled out calling on additional tax executives from the firm who are closer to the file at a later date.

Dennis Howlett, executive director of Canadians for Tax Fairness, says he would like to see KPMG executives who were directly involved in the Isle of Man scheme address the committee and is concerned about a possible "whitewash" if that doesn't happen.

The decision to launch hearings came in March, after CBC News revealed the CRA offered a secret amnesty to wealthy KPMG clients involved in the firm's tax scheme based out of the Isle of Man, a self-governing so-called possession of the British Crown located in the Irish Sea between Ireland and the U.K.

The offer, leaked to CBC News in a brown envelope, allowed the wealthy clients to pay taxes on the income they previously had not declared, plus some modest interest, and promised no civil penalties and no criminal investigations. The tax agency's offer came with a strict condition that clients never talk about it in public.

Today's committee hearing came more than a decade after a U.S. Senate subcommittee held its own hearings into accounting firms and tax-avoidance schemes.

KPMG charged in U.S.

In the U.S. probe in 2003, politicians issued subpoenas for specific KPMG executives involved in an alleged scheme, which included the use of offshore companies. The Senate committee also issued subpoenas for KPMG's documents.

Six KPMG officials would later testify, including the firm's partner in charge of the personal financial planning division and the vice-chair of tax services.  

In 2005, the U.S. Internal Revenue Service charged KPMG and several senior executives in the case, alleging they helped hide billions of dollars in taxable income. Three KPMG executives were later convicted. As part of a plea bargain, the firm itself admitted to "criminal wrongdoing" and agreed to pay $456 million US in penalties.

The legality of the Canadian KPMG affiliate's Isle of Man tax dodge hasn't been tested in court, and no one from the firm has publicly admitted to any wrongdoing.

The Commons finance committee also plans to call Justice Department and CRA officials to testify in its KPMG hearings. CRA officials who are expected to be called include commissioner Andrew Treusch, assistant commissioner Ted Gallivan and Stephanie Henderson, manager of offshore compliance.

Revenue Minister Diane Lebouthillier is scheduled to testify on May 19.

NDP Leader Tom Mulcair questions PM Justin Trudeau over tax havens during Question Period. 1:15

Clarifications

  • A previous version of this story referred to KMPG as a Canadian firm. In fact, the KMPG limited liability partnership in Canada is part of a global network of independent nationals affiliates that are all members of KPMG International Co-operative, registered in Switzerland.
    May 03, 2016 9:49 PM ET

Corrections

  • A previous version of this story said an NDP motion to force KPMG to name any clients who may have broken the law had been ruled out of order by the finance committee chair. In fact, the committee agreed later to deal with the motion when further legal information became available.
    May 03, 2016 6:10 PM ET

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