2019 IFA Conference - Sue Murray on Information Exchanges

This provides abbreviated summaries of some of the answers and other comments given respecting the international exchange of information by Sue Murray, Director General of the High Net-Worth Compliance Directorate (CRA) on May 14, 2019 at the IFA (Canadian Branch) annual conference in Montreal. Her comments were given as part of the International Information Exchange session held on that day. The moderator was Sebastien Rheault (Barsalou Lawson Rheault) and the other presenters were Lynn Moen (LM Consulting) and Ata Kassian (Innocap).

International, Large Business and Investigations Branch

Criminal Referrals

Question: Where do you draw the line between third party penalties and criminal investigations?

Murray: Where the High Net-Worth Compliance Directorate (formerly, the “Offshore Aggressive Tax-Planning Directorate”) receives information suggesting tax-evasion, e.g. from the Offshore Tax Informant Program, it prefers to err on the side of over-referring to the Criminal Investigations Directorate. If the matter is not so referred when it should be, that could infringe on a taxpayer’s Charter rights during an audit, thereby jeopardizing the subsequent criminal investigation; on the other hand, if the matter is referred when it should not, then it will then be referred back so that it can be dealt with as a civil matter.

Taxpayer information

The new auditor Communiqué on Information Requests

Question: What can you tell us about the Communiqué?

Murray: The recent auditor Communiqué about taxpayer information merely affirms the Agency’s right and responsibility to access information, whether from documentation or interviews of taxpayer representatives.

The Communiqué emphasizes balance – audits should be undertaken with the benefit of as much information as possible (including the third-party information, as mentioned above), but requests for information should be reasonable and appropriate.

CRA has put in place internal processes on issuing the Communiqué in order to ensure an appropriate level of rigour and due diligence, for example, so that a request for tax accrual working papers will be appropriate.

Delegation under s. 231.4

Question: What is CRA’s policy on s. 231.4 to delegate its power to make inquiries?

Murray: To date, that provision has not received much use, but CRA contemplating more frequent use. The High Net-Worth Compliance Directorate might use it more often in some of the more egregious cases of offshore non-compliance if it is unable to obtain information and cooperation in other ways.

Tax accrual working papers

Question: What guidelines has CRA developed about restraint in seeking tax accrual working papers?

Murray: The drafting of the revised policy in the Communiqué was an important first step, as well as educating auditors. Mandatory referrals to Headquarters have been introduced so that decisions on requests are more consistent.

Question: What is CRA’s response to taxpayers not wanting to disclose the underlying analysis?

Murray: The decisions on whether to request this kind of information relates to the risk and the issue that needs to be resolved. The question whether the information is required is a matter for discussion and debate with the audit staff. Where it is established that the risk is in place and that there is need to resolve that risk through the requested information, CRA will insist on it, and take the necessary steps to get it where that is warranted.

Question: So steps could be taken, in discussions with the audit staff, to redact part of the analysis if there are sections that are not necessary for the purposes of the CRA?

Murray: Yes, there could be an argument made for that.

Voluntary Disclosure Program

Question: Can you give an update on the Voluntary Disclosure Program?

Murray: We have restricted parts of the VDP so that the same measures are not in place for all taxpayers. For any disclosures that involve off-shore non-compliance (regardless of the specific program or taxpayer net-worth), a secondary referral is made to the High-Net-Worth Compliance Directorate for a more in-depth evaluation.

To the extent that information is complete and accurate and fully disclosed, it is put back in the queue for ordinary voluntary disclosure treatment. Where that is found not to be the case, the Directorate undertakes a full and comprehensive audit. The same would hold true for any program, but the Directorate prefers a higher level of rigour in offshore cases.

Revenu Québec

Question: What has CRA been working on with Revenu Québec?

Murray: CRA has been doing an increasing amount of work with Revenu Québec. It has a steering group that is leading the communications between provincial and federal stakeholders, and has been increasing its exchanges of information.

Quebec has also expressed a desire to engage in additional types of audit work, which CRA is assisting with.

Collaboration between the two organizations, including also training, and exchanging management information and procedures, has been going well.

Third-party data


Question: How is CRA using third-party data in its audits and other decisions?

Murray: Traditionally, most CRA information came from taxpayer filings. Increasingly, CRA is supplementing with third-party data. This includes international transparency initiatives, such as Country-by-Country Reporting, the common reporting standard, the FATCA exchanges with the US, and regular exchanges of information under Canada’s Treaties.

Canada has one of the most active worldwide information exchange programs. It conducts thousands of exchanges annually. Some of those are one-on-one, with information relating to a single taxpayer, but an increasing number are reciprocal bulk-exchanges. There are also electronic fund-transfers: since 2015, all international transfers over $10,000 are provided to CRA. Traditionally that information would be provided to FINTRAC; CRA now receives it directly.

CRA also integrates publicly information into its various risk-assessment systems.

There are also various data leaks (e.g. the Panama papers), which have provided the Agency with great sources of interesting information. It does not necessarily lead to an assessment directly, but can tip off CRA on the right direction to follow.

CRA also has the Voluntary Disclosure Program and the Offshore Tax Informant Program.

Processing data

Question: How does Canada process all such information received by it, e.g., the Panama papers?

Murray: Identifying a relevant Canadian taxpayer has largely been a manual exercise, so far. Half of the Directorate’s staff manage business data and intelligence.

CRA is getting better at automating these processes, e.g., through identification resolution tools, but the results of those tools must be confirmed by a human operator.

Presumption of gross negligence in CbC cases

Question: Can you comment on CRA’s position that, for 2018 and subsequent filing years, any failure to file a CbC report as required under s. 233.8(3) will be presumed gross negligence, absent special circumstances?

Murray: The Country by Country reporting regime has matured to the point where taxpayers’ understanding of, and compliance with, the CbC rules should now be expected. Because that is now CRA’s starting position, it is likely that it would consider gross negligence penalties for non-compliance.

Things are still in transition, and CRA would be lenient where there is ambiguity or other problems. However, CRA expects that that would be rare.

Question: In 2016-17, Canada had signed the Agreement for CbC exchanges but not all countries had made the agreements effective yet - consequently, some companies may not have made CbC reports directly. Will CRA take action against those taxpayers?

Murray: There is a strong expectation of reporting on a going forward basis. Pre-existing circumstances will be managed in the best way appropriate based on what was the exact problem.

CbC reporting is used for risk-assessment purposes. It is incorporated into CRA’s automated, and then its manual, risk-assessment processes. The process is rigorous. CRA takes pains to ensure that CBC reports are handled by people with an appropriate level of training, so as to ensure that there are mandatory referrals to Headquarters to ensure that the information is used for file selection and not file execution.

Proactive sharing with foreign tax authorities

Audience Question: Does CRA typically share information with foreign tax authorities proactively (e.g. about possible foreign non-compliance), or will it wait for information to be requested? If it shares proactively, does it expect the other authorities to reciprocate?

Murray: Where we are undertaking compliance activities and come across information that will be of interest to a foreign tax administration, we will proactively take that information and provide it to the other country.

All information exchanges are predicated on reciprocity. The specifics of that can be complicated, but we do expect that other countries will provide that information to us, and they do so.