Last April, the International Consortium of Investigative Journalists revealed the "Panama Papers" scandal, a database of 11.5 million documents leaked from the Panamanian law firm Mossack Fonseca.
The leak permits to identify more than 200,000 offshore entities, from over 200 countries, including Canada. Many Canadians were among the names found in the leaked papers, including the Royal Bank of Canada, which has referred over 370 clients to the Panamanian law firm.
The Canada Revenue Agency said it obtained the leaked data and is cross-referencing this information with their own data. Since then, CRA went totally silent.. The opaque silence from the CRA is raising a lot of questions: We know that about 350 Canadians are involved, but how many are under investigation? For what irregularities are they being investigated? Will there be penalties assessed? Will there be prosecutions?
That's the problem with the secretive way the CRA works. Not only don't we have the answer to these questions, but there is little likelihood that we'll ever will.
The ''Panama Papers'' are only one of many leaks in the past eight years, that provided previously unknown insights on the workings of offshore tax havens and the scope of the problem.
2007 - Liechtenstein LGT Bank Tax Leak
Information was leaked on 5,800 accounts of this Liechtenstein bank (Liechtenstein has a strict banking secrecy legislation), including 106 accounts held by Canadians. The CRA claims to have found a total of $22.4 million of taxes owed, of which it only collected $8 million. The process took six years to complete.
2008 - Swiss UBS AG Bank
A total of 4,450 accounts have been identified, but the number of Canadians involved is still unknown to this day. The Canada Revenue Agency claims it identified $87 million in unreported income, but has not publicly revealed if it collected any tax out of it.
2009 - Swiss HSBC Bank
Another leak provided information on approximately 25,000 accounts, of which 1,785 were held by Canadians. The CRA claims to have identified $38 million in taxes owed, of which it collected $18 million. Many of these came from voluntary disclosures. A voluntary disclosure is a process in which the offenders claimed the total of their assets to the Revenue Canada Agency. In doing so, they receive an amnesty that they cannot be prosecuted. To this day,208 such disclosures were made, and the CRA divulged that these accounts sheltered $90 million.
2013 - International Consortium of Investigative Journalists
The International Consortium of Investigative Journalists got its hands on 2.5 million files, containing information on over 130,000 people across the world over 10 tax havens across the world. About 550 Canadians were among that number, including the husband of Canadian Senator Pana Merchant. Despite the importance of this leak, we still have no indication of the sums involved or the level of taxes that were collected on untaxed income.
2015 - KPMG and the Isle of Man
KPMG hatched a plan to create empty shell corporations in the British territory and implemented 16 plans involving 25 Canadians who made tax-free "donations" to the offshore companies. It was demonstrated that these companies produced nothing, and provided no services. But they gradually gifted the money back to these individuals. The CRA has offered penalty-free settlements to those who benefitted from the scheme. KPMG isn't threatened with prosecution, and is even trying the Tax Court of Canada to legitimise the scheme.
What happened to these cases? We recouped a small portion of the taxes evaded or avoided, and we haven't witnessed any prosecution.
On May 05 2016, Arthur Cockfield, professor at Queen's University faculty of law wrote in the Globe and Mail:
To the best of our knowledge, the CRA has not had a single successful prosecution of international tax evasion in the past 10 years. (...)s. These cases may have an international dimension such as assets maintained offshore, but the actual prosecution was purely for domestic offences, and not the crime of offshore tax evasion.
The CRA is possibly the most effective tax-collection agency in the world -- provided your money is in Canada. What happens when you cheat offshore? Thanks to KPMG's alleged machinations to help shelter the money of some wealthy Canadians abroad, we know what happens: The CRA requires you to pay back taxes along with a modest penalty.
In fact, CBC has revealed that while the government claimed there were 44 convictions for criminal tax evasion involving tax havens between 2006 and 2012, only 8 of 25 names provided by the CRA involved the hiding of assets in offshore jurisdictions (two of them directly linked to a Quebec organized crime investigation).
As long as we don't use the stick of criminal prosecutions for tax evaders or its enablers, the carrot of voluntary disclosure will leave a bad taste to Canadians.
Unfairness and inequity never taste good.