In what is becoming a familiar headline, the Washington-based International Consortium of Investigative Journalists has announced another leak of offshore tax haven information. The data is from a cache of leaked internal records from the corporate registry of the Bahamas, a known Caribbean tax haven, providing details of 175,000 Bajan companies, trusts and foundations set up over the past 25 years.
Tax Haven Searchable Database
The data has been integrated into the searchable database set up by the ICIJ in 2013 when the ICIJ, following the same pattern used now and for the Panama Papers leak earlier this year, orchestrated what was called Offshore Leaks, using 112 journalists in 58 countries to analyze 2.5 million leaked offshore files. They then posted a searchable database with names and addresses of some 100,000 entities in offshore tax havens. The database included Canadian taxpayers, some of whom had a high profile.
Canadian Connection to Leaked Offshore Data
This is the 2nd this year leak from the ICIJ and while much smaller than the Panama Papers leak earlier this year it provides more evidence of Canadian participation, and bank involvement, in the world of offshore tax havens. The ICIJ has added the Bajan corporate records to its searchable data base. As a result 3 Canadian banks have been identified as having registered nearly 2,000 offshore companies and private foundations in the Bahamas. Several months ago CRA went to the Federal Court of Canada and obtained a court order for seven years' worth of transaction information from the Royal Bank of Canada and Citibank, N.A., related to accounts in the name of Cayman National Bank Ltd to carry out a tax audit for unreported income or undeclared offshore assets. The court application was eventually not opposed by the banks. RBC has been named as one of the three Canadian banks in the latest link. It is almost certain that CRA will again seek a court order asking for release of details about the bank clients.
Bahamas Popular Canadian Tax Haven
Canada has an extensive network of tax treaties and tax information exchange agreements (TIEA) and entered into a tax information exchange agreement with the Bahamas in 2011. The Canadian tax benefit to a TIEA, or a full tax treaty, is that Canada allows Canadian businesses with offshore activity in the Bahamas to earn profits in the Bahamas, not pay local Bajan taxes due to the zero corporate tax rate in the Bahamas, and then bring those profits back to Canada free of Canadian taxes.
Under the tax information exchange agreement, the Bahamas is required to hand over confidential banking and other financial details on Canadians with accounts there to the Canada Revenue Agency to allow CRA to conduct tax audits of Canadian individuals or businesses. However this information it provided on an ad hoc basis as requested by CRA.
It has been reported that the Bahamas has become the number 6 destination by dollar amount for money legally going offshore from Canada. According to Statistics Canada's latest figures, corporations and individual Canadians have nearly $33 billion in assets there.
Unreported Income and CRA Voluntary Disclosure
Having a bank account of other offshore assets is not contrary to Canadian law, provided there is no unreported income. Canadians are taxable on their worldwide income, even if left offshore and not repatriated to Canada. Canadians are also required to report their offshore assets even if the assets don’t generate income. Having unreported income or unreported offshore assets is illegal and can result in tax evasion prosecution and jail terms . For Canadians who have bank accounts in offshore tax havens and have unreported income or undeclared offshore assets, the CRA voluntary disclosure program remains a safe haven for them. If they approach CRA before a tax audit or investigation is commenced there will be no tax prosecution for tax evasion and no civil tax penalties. If you have undeclared income then you should approach a Canadian tax lawyer before CRA seeks you out.