The Canada Revenue Agency (CRA) opened its Offshore Tax Informant Program (OTIP) on January 15, 2014.
Under the OTIP, the CRA pays eligible informants for certain written information provided only about major cases of international tax evasion or avoidance. This information must lead to the collection of more than C$100,000 of additional federal tax once all rights of objection and appeal have been exhausted. Informants may then receive between five and 15 per cent of the federal tax collected.
Certain individuals are not eligible for the OTIP, including anyone convicted of tax evasion concerning the information provided, the taxpayer involved, employees of the CRA, or current or former federal, provincial or municipal employees or contractors who obtained the information as part of their duties. The OTIP does not accept anonymous information.
The OTIP is a key part of the Stop International Tax Evasion Program announced in the 2013 federal budget. The OTIP is similar to programs in other countries that also pay for tax leads, such as the Whistleblower Office of the IRS in the U.S.
WHO AT CRA ADMINISTERS THE OTIP?
The OTIP is part of the CRA's new Offshore Compliance Division of the CRA's Compliance Programs Branch. The OTIP operates within this Offshore Compliance Division and reports directly to the assistant commissioner of the Compliance Programs Branch.
WHO IS ELIGIBLE TO BE AN OTIP INFORMANT?
The CRA will accept any individual anywhere in the world as an OTIP informant, other than the following:
- anyone convicted of tax evasion concerning the situation of non-compliance being reported;
- CRA employees;
- current or former federal, provincial, or municipal employees, officials, or representatives who acquired the information in the course of their employment duties;
- current or former contractors who acquired the information in the course of their duties for a federal, provincial or municipal government;
- anyone convicted of an offence listed in section 750 of the Criminal Code;
- the taxpayer involved in the non-compliance or an authorized representative of the taxpayer involved;
- anyone legally required to disclose the information to the CRA; and
- anonymous informants.
The CRA will also not pay the informant if it determines that an ineligible individual provided the informant with the information.
WHAT INFORMATION MAY RESULT IN PAYMENT TO THE ELIGIBLE INFORMANT?
The potential federal tax, excluding interest and penalties, must be greater than C$100,000 and the non-compliant activity must be "international" for the information to be eligible for possible payment. To be considered "international," the CRA states that the non-compliant activity must involve foreign property or property located or transferred outside Canada, or transactions conducted partially or entirely outside Canada. The CRA gives the following examples:
- undeclared Canadian taxable income that has been transferred outside of Canada;
- undeclared foreign taxable income;
- undeclared foreign property;
- tax avoidance schemes that involve offshore transactions; and
- undeclared trusts held offshore in respect of which possible federal income has not been declared.
These examples are not exhaustive. Information about other types of international activity may be eligible. The CRA will not accept information if it has no merit, lacks sufficient, specific, and credible facts, is already known to the CRA, or is generally speculative.
HOW DOES THE OTIP PROCESS WORK?
How should the informant initially contact the CRA?
The CRA recommends that the informant first contact the CRA through the OTIP hotline at 1-855-345-9042 or 613-960-4265. The hotline is open weekdays from 8 a.m. to 4 p.m., EST and the CRA accepts collect calls. The informant may discuss his or her information with the CRA on a no-names basis. If the informant's case appears to meet the program's criteria, the CRA provides the informant with a case number and further instructions.
How does the informant submit information to the CRA?
The informant submits his or her information in writing to the CRA after the initial contact. The CRA asks the informant to provide a signed cover letter quoting any assigned case number. The letter should be marked personal and confidential and addressed to the OTIP in Ottawa.
The CRA asks that the following information about the informant be provided, where possible:
- legal name;
- date of birth;
- social insurance number;
- contact information (including street address, city, province, country, phone number(s));
- legal representative for the claim, if applicable, and their contact information;
- an indication of the informant's interest to participate in the OTIP and be eligible for a reward;
- a complete description of the nature of the relationship between the informant and the alleged non-compliant taxpayer; and
- whether the informant has made any previous submissions to the OTIP. If so, the informant should list the case numbers.
If the submission does not include a mailing address, the CRA will hold the file for 30 days and then close it. The informant is not eligible for the program or an award if the file is closed.
The CRA asks that the following information about each alleged non-compliant Canadian taxpayer be provided, where possible:
- legal name and any aliases;
- date of birth (or approximate age);
- social insurance number or business number;
- marital status;
- spouse's name, date of birth and social insurance number;
- contact information (including street address, city, province, country, phone number(s));
- specific, credible, and detailed information of the facts relating to the alleged tax non-compliance (for example, unreported income, non-filing of tax returns), the tax years involved, the potential amounts owing from the non-compliance, and, where applicable, a description of how the transactions contravene Canadian tax law;
- relevant documents (for example, financial data) that are in the informant's possession and that support the informant's eligibility under the OTIP;
- a description of how the informant learned of or obtained the information;
- where the informant has knowledge of certain documents that support his or her submission but does not have possession of these documents, include their description and a precise location (the informant is not expected to obtain documents that are not in his or her possession); and
- if the informant is reporting information concerning more than one taxpayer, the informant should clearly identify which documents pertain to which taxpayer.
How does the CRA determine whether to accept the information?
An OTIP analyst considers the informant's submission and recommends whether to include the informant in the OTIP. The OTIP Oversight Committee then decides whether to approve entering a contract with the informant. Once the CRA and the informant enter into a contract, the CRA forwards the informant's information to the appropriate area within the CRA for audit or investigation.
When does the CRA pay the informant?
The CRA does not pay the informant immediately. Certain conditions must be satisfied before payment is made. The CRA only pays the informant after the CRA assesses and collects more than C$100,000 of additional federal tax (excluding interest and penalties), and all objection and appeal rights have expired. The CRA warns that this process may take several years.
The CRA may deny payments or terminate the contract with the informant where:
- the CRA already received the information from another source;
- an audit or criminal investigation is conducted but leads to an assessment of additional federal tax relating to international tax non-compliance that is less than C$100,000;
- the taxpayer is successful in an administrative or judicial appeal resulting in an assessment of federal tax relating to international tax non-compliance that is less than C$100,000; or
- less than C$100,000 is collected because the taxpayer has no known assets that the CRA can use to settle the outstanding tax liability.
The contract between the CRA and the informant allows the informant to file a grievance. An internal review panel of the CRA reviews the grievance. Payments under the OTIP are taxable income to the informant.
How much does the CRA pay the informant?
The CRA pays the informant a percentage of the additional federal tax collected, excluding interest and penalties. The amount can be five, 7.5, 10, 12.5 or 15 per cent depending on the factors set out below.
How does the CRA assess how much to pay the informant?
The CRA assesses various factors to determine how much it will pay, as outlined in the chart below.
Quality of information
Relevance of information
Cooperation of informant
Value of information to CRA
The CRA also considers the timeliness of the information, the informant's role in the non-compliance, and whether assets were identified that helped the CRA collect taxes. The OTIP Oversight Committee reviews the award recommendations for fairness and to ensure they are in keeping with the program's payment criteria.
WHAT CAN THE CRA DO WITH THE INFORMATION PROVIDED?
The CRA may use information provided by the informant to enforce Canada's tax laws even when the CRA does not accept the informant into the OTIP or does not make a payment under the OTIP. The OTIP may, for example, forward the information to the CRA's existing Informant Leads Program, which does not offer rewards, if the informant does not provide a name or address.
CONFIDENTIALITY FOR THE INFORMANT
The CRA states that it will protect the identity of the informant to the fullest extent possible as required by the law. The CRA cautions the informant that there are some circumstances – for example, when the informant is required as an essential witness in a court proceeding – where it may not be possible to proceed without revealing the informant's identity. The CRA will advise the informant before it decides whether to proceed in such cases.
CONFIDENTIALITY FOR THE TAXPAYER
All taxpayer information is covered by the confidentiality rules in federal tax legislation as well as by privacy laws that impose strict limits on what the CRA can disclose. The CRA can only provide information to the informant on the status and disposition of his or her particular case. To ensure confidentiality, a request for an update on a case must be made in writing to the CRA and refer to the case number. The CRA will respond in writing and will only confirm whether a case is open or closed.
The informant will receive written correspondence from the OTIP only at his or her designated mailing address to acknowledge the submission, to initiate contract discussions, to inform them of a payment under the contract, and to serve notice of contract termination or completion.
The OTIP is part of a larger package of reforms from the 2013 federal budget that specifically targets international tax evasion or avoidance. These measures are a response to the growing focus amongst the world's developed nations on perceived international tax abuses.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
We wish to acknowledge the contribution of Ed Kroft to this publication.