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Canada's Offshore Compliance Advisory Committee has published the findings of its inquiry into the Canada Revenue Agency's (CRA's) voluntary disclosure program (VDP).
The Offshore Compliance Advisory Committee was established in April 2016, with a mandate to provide advice to the Revenue Minister and the CRA on administrative strategies to deal with offshore compliance.
The VDP allows taxpayers to disclose previous omissions or errors in their dealings with the CRA. If the disclosure satisfies the CRA's conditions, the taxpayer will typically face a lower interest charge on the unpaid tax, and will not be liable for criminal prosecution or civil penalties. All evaded tax must be paid.
Among the committee's headline recommendations was that the CRA should provide less generous VDP relief in certain circumstances. It pointed out that for any voluntary disclosure, the VDP provides substantially the same relief and operates with the same conditions and requirements. The committee said that the CRA should view all of the circumstances surrounding the disclosure and that relief from interest and penalties should be reduced in certain cases.
For instance, it argued for less generous relief in cases where "sophisticated taxpayers have sought expert advice and used complex offshore structures to evade significant amounts of tax over several years." It also questioned whether taxpayers that have made a completely voluntary disclosure should receive the same treatment as taxpayers whose disclosure is prompted by CRA activity, and argued that the level of relief should be reduced for repeat users of the VDP program.
The committee said that offshore and onshore (domestic) non-compliance should be treated similarly. "If the circumstances are similar (with respect to the amount of tax evaded, the active efforts made by the taxpayer to avoid detection, the sophistication of the taxpayer and advisers), offshore non-compliance is no more objectionable than onshore domestic non-compliance," it said.
The committee also concluded that although the CRA has generally not encountered difficulty in collecting amounts owing as a result of VDP disclosures, it should require taxpayers using the scheme to pay the estimated tax and interest payable, or to provide adequate security, within a set time frame. It said that where a taxpayer may be unable to provide the CRA with full information, the CRA should ensure that its policy on making a reasonable accommodation for an otherwise good-faith disclosure is clear. The committee hoped that this will encourage disclosures involving incomplete information, particularly in cases of offshore non-compliance.
In addition, the committee recommended that any person making a voluntary disclosure should be required to provide information on the identity of advisors who assisted with non-compliance.
The CRA said that it will use the committee's recommendations to review the VDP's parameters and will announce any changes in late 2017.
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