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Saturday, June 1, 2019
CRA signs secret settlement with wealthy KPMG clients involved in offshore tax scheme
CRA signs secret settlement with wealthy KPMG clients involved in offshore tax scheme
The
Canada Revenue Agency has made an out-of-court settlement with wealthy
KPMG clients caught using an offshore tax scheme that it previously said
was 'intended to deceive' tax authorities. (Peter Scobie/CBC)
The Canada Revenue Agency has once again made a secret out-of-court settlement
with wealthy KPMG clients caught using what the CRA itself had alleged
was a "grossly negligent" offshore "sham" set up to avoid detection by
tax authorities, CBC's The Fifth Estate and Radio-Canada's Enquête have learned.
This, despite the Liberal government's vow to crack down on high-net-worth taxpayers who used the now-infamous Isle of Man scheme.
The scheme orchestrated by accounting giant KPMG enabled clients to
dodge tens of millions of dollars in taxes in Canada by making it look
as if multimillionaires had given away their fortunes to anonymous
overseas shell companies and get their investment income back as
tax-free gifts.
KPMG is a global network of accounting and
auditing firms headquartered out of the Netherlands and is one of the
top firms in Canada.
"Tax cheats can no longer hide," National Revenue Minister Diane Lebouthillier promised in 2017.
Now,
Tax Court documents obtained by CBC News/Radio-Canada show two members
of the Cooper family in Victoria, as well as the estate of the late
patriarch Peter Cooper, reached an out-of-court settlement on May 24
over their involvement in the scheme.
Details of the settlement
and even minutes of the meetings discussing it are under wraps. A CBC
News/Radio-Canada reporter who showed up to one such meeting this spring
left after realizing it was closed to the public.
Journalists discovered references to the final settlement agreement in Tax Court documents only by chance.
CRA cites privacy in keeping settlement details secret
The
Canada Revenue Agency says strict privacy provisions of Canadian tax
law make it difficult to disclose minutes describing individual taxpayer
information.
The Isle of Man tax dodge had been active as far
back as 1999 and, according to documents filed in Tax Court by the CRA
in 2015, had "intended to deceive" federal regulators.
Still,
significant details of the scheme remain a mystery, including the role
played by the KPMG's senior executives. With no public trial, those
details may continue to remain secret.
Toby Sanger, executive
director of the advocacy group Canadians for Tax Fairness, says the CRA
should never have agreed to settle the case. "I think it's
outrageous," he said. "We've had a lot of tough talk and promises from
this minister about how they will crack down on tax evasion by the
wealthy and corporations, but unfortunately, we've seen no evidence of
this so far."
National
Revenue Minister Diane Lebouthillier called out tax cheats in 2017 and
stated her intention to clamp down on the KPMG scheme. (Adrian Wyld/The Canadian Press)
Revenue Minister Diane Lebouthillier said in an email statement to The Fifth Estate/Enquête that
while she cannot comment on specific cases, she finds the lack of
transparency about settlements brokered by her agency "problematic."
"I
have instructed the CRA to review its processes to allow for more
transparency with respect to the reasons for which a settlement is
reached," she said.
KPMG took 15% cut of taxes dodged
One member of the Cooper family, Marshall Cooper, previously told The Fifth Estate
that he was unaware of Canadian tax laws when he emigrated from South
Africa in the mid-1990s and that it was KPMG that came up with the
offshore tax plan.
Documents show KPMG planned to take a 15 per
cent cut of the taxes dodged, including $300,000 from the Cooper family.
Internal records show the scheme was marketed across the country, with
successful KPMG sales agents and accountants referred to as product
"champions."
Tax
court documents obtained by CBC News/Radio-Canada show members of the
Cooper family in Victoria reached an out-of-court settlement with CRA.
Marshall Cooper, pictured, previously told The Fifth Estate that he was
unaware of Canadian tax laws when he emigrated from South Africa in the
mid-1990s. (Facebook)
In all, more than 20 wealthy families participated in the offshore scheme. Two
years ago, Lebouthillier issued a news release outlining her intention
to clamp down on the KPMG scheme, publicly stating that those involved
could even face criminal charges over possible "tax fraud."
"The case of KPMG is before the courts right now, and we continue to pursue action against KPMG," Lebouthillier said in 2017 in an interview with Radio-Canada. "We will see this to the end as Canadians have asked us to do." She said at the time that her government took the matter "very seriously."
"Those who choose to participate in these schemes must face the consequences of their actions," she said in a separate statement. Yet more
than two years after that pledge, participants in the KPMG scheme,
namely, members of the Cooper family, were offered a secret out-of-court
settlement.
In her statement to The Fifth Estate/Enquête this
week, Lebouthillier said the decision to settle was not hers to make
and that she had instructed the CRA to review its settlements to "allow
for more transparency."
The
Isle of Man, pictured, is at the centre of a tax-dodging scheme that,
according to documents filed in court by the CRA in 2015, was 'intended
to deceive' federal regulators. (CBC)
Minister says 'systemic changes' are coming
To
"ensure integrity of our tax system," Lebouthillier said, out-of-court
settlements are made by the CRA and the Department of Justice "at arm's
length" from the minister and the minister's office. "Canadians
deserve a fair and equitable tax system, and we will continue to make
systemic changes within the CRA to make sure that this is the case," she
said in her statement this week.
CBC News/Radio-Canada first
revealed four years ago that KPMG, one of the largest accounting firms
in Canada, with tens of millions in federal contracts, had for years
been running a massive offshore tax dodge for wealthy clients it had
kept hidden from federal investigators.
The Trudeau government's previous tough talk on the so-called sham had come after a document leaked to The Fifth Estate/Enquête showed the CRA itself had offered a secret "no penalties" amnesty in May 2015 to many of the KPMG clients involved in the scheme.
The CRA offered to have them simply pay the back taxes owed — but with the condition they not tell the public about the offer.
Liberal
MPs halted a parliamentary finance committee investigation in 2016
after KPMG argued the investigation could prejudice court cases. Now, it
looks like those court cases might never happen. (CBC)
Stung by those revelations, Prime Minister Justin Trudeau said in 2017
that the government had learned a lesson from the KPMG affair and
promised to do a "better job of getting tax avoiders and tax frauders."
Since then, the Liberal government vowed to make sure those kinds of offshore tax dodges were in the past. In
fact, it was concerns over future KPMG court cases that prompted the
Liberal-dominated House of Commons finance committee to shut down its
own investigation into the embattled accounting firm back in 2016.
Documents
had already begun to emerge detailing the extent to which KPMG was
helping clients not only dodge taxes but also hide money from potential
creditors, including circumventing the Canadian Divorce Act by
"protecting" assets from ex-spouses.
Lawyers for KPMG had argued that the ongoing finance committee investigation could prejudice cases before the court. Several
KPMG executives had been named to testify in the spring of 2016, but
Liberal MPs voted to shut down the inquiry, arguing that any more
testimony and documents should be produced in court and not in
Parliament.
Now, it appears that those future court cases cited as a reason for shutting down the investigation might never materialize. The Fifth Estate and Enquête also later
revealed that in June 2016, around the same time the Liberal MPs shut
down their investigation, a former senior KPMG executive was appointed
to the Liberal Party's national board of directors.
"There is no reason why the finance committee shouldn't restart their hearings," Canadians for Tax Fairness's Sanger said.
Settlements offer 'substantial savings to the public'
Sanger said it all seems like a Liberal "coverup" to close down the KPMG investigation.
Canadians
still do not know who were the key people at KPMG involved in running
the investigation, for example, how high up it went within the
organization, or all the names of the wealthy clients who participated.
Max Weder, the lawyer for the Cooper family, said he "can't comment on the settlement."
Documents
show the family paid virtually no tax over a span of eight years — and
even obtained federal and provincial tax credits — despite receiving
nearly $6 million from an offshore company worth $26 million that KPMG
helped set up.
KPMG has always maintained the scheme was legal.
The firm's lawyers claimed any money the Coopers received were gifts and
therefore non-taxable. Nevertheless, KPMG now says it would not set up
this type of offshore structure anymore. For its part, the CRA
said that the settlement was made in accordance with the law and is
"supported by the facts of this particular case." The agency also said
it "maximized revenue" by making a decision to settle out of court,
instead of facing an uncertain ruling in Tax Court.
"There is
generally substantial savings to the public and a benefit to the justice
system when cases are resolved through a settlement," a CRA
spokesperson said in a statement. Please send confidential tips on this story to Harvey.Cashore@cbc.ca or call 416-526-4704. Follow @harveycashore on Twitter.
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