The Classification of Uncooperative Countries
The OECD has periodically released its list of countries that it deem to be “uncooperative tax havens” – essentially countries that are not doing enough in terms of tax transparency. In 2016, the OECD has revealed the criteria that it is using to identify whether a country is co-operative or not. The OECD will be looking at 3 factors and requires that countries meet at least 2 of the factors to avoid being classified as uncooperative. The first factor is whether the country is largely compliant or better in regards to the exchange of information on request standard of transparency. The second factor is whether the country commits to adopting automatic information exchange (also known as the Common Reporting Standard or CRS) and beginning the exchanges by 2018. The third factor is whether the country has signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, a multilateral framework for information exchange.
The CRA and International Information Exchange
Currently, there are 54 countries that have agreed to share tax information between themselves in order to better prevent tax evasion – including Canada. Starting with the 2016 taxation year, Canada has been requiring multinational corporations with more than $1 billion in annual revenue to report certain information to the CRA, including their profit, sales, employee numbers, assets, and taxes paid on a country-by-country basis. This information will later be provided to the other participating countries in a bid to crack down on international tax evasion. Additionally, with the increase in information from other jurisdictions and countries, the CRA will be able to identify and flag suspicious activity. For example, rather than just checking to see whether the tax returns filed by Canadians adds up mathematically, the CRA will be able to cross reference the tax returns with outside data. If a Canadian tax return shows relatively low income, yet information is showing that the person is making expensive real estate transactions or making luxurious purchases, this will raise a red flag and result in increased scrutiny and tax audit review by the CRA. This use of outside data as a tool to identify potential tax fraud is already being used by the CRA, but with the expansion of automatic information exchanges, the CRA will be more privy to the purchases and transactions being made outside of Canada. Contact our top Canadian tax lawyer firm and learn more about CRA tax audits, tax evasion and how to protect yourself.
Voluntary Disclosure Program
As more countries sign on to information exchange agreements, it only becomes more likely that the CRA will catch on to any unreported foreign assets and offshore income. However, taxpayers can voluntarily come forward to correct their tax affairs, whether the mistakes were made intentionally or not. The CRA Voluntary Disclosure Program (VDP), or Canadian Tax Amnesty, is a discretionary program that allows the CRA to waive penalties and provide up to 10 years of interest relief. In order to qualify, amongst other criteria, the taxpayer must be coming forward voluntarily and the situation must be such that the CRA is not aware of the deficiency nor currently engaging in enforcement action or tax audit against the taxpayer. If you are interested in correcting a past tax mistake or just want to know more about this voluntary disclosure program, speak to one of our experienced Canadian tax lawyers and get some peace of mind.