Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Friday, April 15, 2016

The CRA is far too cozy with the accounting industry

It might look like a good start, but the Trudeau government’s planned crackdown on tax evaders is doomed to failure unless it also forces a radical culture change at the top of the Canada Revenue Agency (CRA).

Reacting to the storm of outrage provoked worldwide by last week’s publication of the Panama Papers — a veritable global Who’s Who of the super wealthy and those who enable them in their efforts to hide their assets — Revenue Minister Diane Lebouthillier has made public a series of measures aimed at running down the tax shirkers and earning an extra $2.6 billion in federal revenue over the next five years.

First, there’s an important distinction to be made between tax evasion and avoidance. There is nothing inherently illegal in tax avoidance, which is built into much of the Canadian tax code. Avoidance mechanisms include things like family trusts and tax deferral programs. Tax evasion is, throughout the Western world, a felony crime.

Nobody can argue with the stated goal of the exercise — to make sure that the rich don’t evade paying legitimate taxes by stashing their money in offshore tax havens. “These wealthy Canadians should not be able to buy their way out of paying the income tax that they owe,” the minister said.

The measures, backed by a $444.4-million investment in CRA enforcement capabilities over the next five years, include the hiring of 100 new auditors to target high-risk companies and creators of tax-dodging schemes, and working with other OECD members on the automatic exchange of financial account information.

The government also is taking aim at a notorious tax haven  — starting with the Isle of Man, where Canadians individuals and corporations recorded transfers of $860 million over the past year.

The CRA already knows plenty about the Isle of Man. Last year, CRA offered amnesty to wealthy clients of KPMG, one of the country’s largest accounting firms, who got caught using what CRA termed a tax “sham” on the Island of Man to duck millions in Canadian taxes.

The KPMG clients were offered the deal, which included no penalties if they paid taxes owing, even though CRA had called the scheme “grossly negligent” and “intended to deceive.” The CRA uncovered the tax ploy years earlier and in February 2013 a federal court judge ordered KPMG to turn over its list of clients who used the Isle of Man scheme, a motion KPMG is still fighting in court.

What’s amazing is that CRA and KPMG continue to be best buds. When Andrew Treusch, the top bureaucrat at CRA, made an appearance at the annual conference of the Canadian Tax Foundation in late 2013, he was introduced by none other than a senior tax partner of KPMG in Canada. Considering the circumstances, you might think Treusch would have declined the invitation, or asked for somebody else to introduce him.

Imagine seeing the deputy minister of Transport Canada being introduced at a rail safety conference by the president of the Montreal, Maine and Atlantic Railway, a month after the Lac-Megantic rail catastrophe, and you get an idea of how weird this is.

But it appears Treusch actually thinks the Big Four accounting firms are his friends and allies in the fight against tax dodging, rather than the high-paid experts concocting many of these schemes his agency is supposed to be fighting.

“My challenge to you as tax professionals is to call out bogus schemes when you come across them,” he told them in his speech to the conference. “It’s also incumbent upon you to protect your clients from becoming the victims of unscrupulous schemes.”

This overly cozy relationship between CRA and the accounting profession has been laid out in detail by CBC in its work tracking the KPMG affair. Since 2010, the Big Four accounting firms have hired no fewer than 50 former government tax officials — in one case before the end of the mandatory year-long “cooling off” period.

There’s a revolving door between the federal government and these firms and it goes in one direction only, as CRA accountants and Justice Department lawyers retire to make ‘real money’ in the private sector. While there’s no indication of any wrongdoing, the process is unseemly. Expertise bleeds away from government and wealthy taxpayers get access to the best CRA-developed expertise available, at a hefty price.

The accounting firms are perfectly upfront in what they’re doing. They’re buying tax expertise — inside knowledge of how the CRA works.

Nobody is saying that former CRA auditors and lawyers shouldn’t be able to work elsewhere when they leave government — but a longer cooling-off period ought to be required of them. (Why not two or three years?) Conflict of interest rules should make certain they stay well away from files they’re familiar with, and from their former colleagues still inside the public service.

There needs to be a Chinese wall between CRA and the accounting profession. And the CRA needs to make accountants and lawyers who create tax schemes face designed to hide assets and evade taxes face criminal charges, not just their clients.

Original Article
Source: ipolitics.ca/
Author:  Alan Freeman

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