The Offshore Compliance Advisory Committee issued a report in December 2016 to the Canada Revenue Agency about the Voluntary Disclosures Program (VDP or tax amnesty). If a taxpayer submits a successful income tax or GST/HST voluntary disclosure program application then generally criminal income tax prosecution and civil tax penalties under the Tax Act are waived and partial relief for accrued interest on unpaid tax is sometimes available. All taxes owing must be paid. Our expert Canadian tax consultants submit income tax or GST/HST voluntary disclosure program applications on a weekly basis.
Under the voluntary disclosure program the relief offered to a Canadian taxpayer is the same, regardless of the nature or scale of the tax non-compliance. So the same tax relief will be provided regardless of whether the tax non-compliance is a result of a simple oversight, from a misunderstanding of the tax law due to complexity, from deliberate tax evasion or failure to file tax returns, or from gross negligence. CRA draws no distinction on the basis of either the tax amounts in issue or whether the tax non-compliance is domestic or foreign.
The Offshore Compliance Advisory Committee recommended less relief in some circumstances. They said that CRA should view all of the circumstances surrounding the VDP tax disclosure and that relief from interest and penalties should be reduced in certain cases. For example, where sophisticated taxpayers have sought expert advice and used complex offshore structures to evade significant amounts of tax over several years. They also ask if taxpayers that have made a completely voluntary disclosure tax amnesty application should be treated the same as taxpayers whose disclosure is prompted by CRA such as audit activity, by broad-based tax compliance programs, or by the CRA’s receipt of previously confidential information owing to leaked data. This last point is clearly a response to the Panama Papers tax leak.
The following is a partial list of circumstances that, in the Committee’s view, should cause a taxpayer’s voluntary disclosure program relief from interest and tax penalties to be reduced:
- deliberate or wilful default or carelessness amounting to gross negligence
- active efforts to avoid detection through the use of offshore vehicles or other means
- large dollar amounts of tax avoided
- multiple years of non-compliance
- repeated use of the VDP by a taxpayer who meets clarified requirements for repeated use
- sophisticated taxpayer
- taxpayer’s disclosure motivated by CRA statements regarding its intended focus of compliance or by broad-based CRA correspondence or campaigns
- avoidance transactions undertaken or continued after implementation of the Common Reporting Standard, or
- any other circumstance in which a high degree of taxpayer culpability contributes to the failure to comply.
The Committee says that voluntary disclosure program tax relief could be reduced by increasing the period for which full interest must be paid or by denying relief from civil tax penalties.
In the view of our top Canadian tax consultants, clearly these recommendations, if implemented, would have the effect of greatly reducing the benefits of the voluntary disclosure program (VDP) and might act as a disincentive to some taxpayers in coming forward to apply for tax amnesty. The use of subjective criteria such as “sophisticated taxpayer” would add further uncertainty to the voluntary disclosure program.
The Offshore Compliance Advisory Committee also recommended that the VDP should not be available for multinational enterprises seeking relief in respect of related-party transfer-pricing issues, including transfer-pricing penalties.
At present there is no requirement for taxpayers who made a voluntary disclosure program application to disclose the identity of Canadian tax consultants who assisted with tax non-compliance. The Committee recommended that any person making a VDP application should be required to provide details of any advisors involved.
While it is of course not known if any of these recommendations will be implemented, any taxpayer who is non compliant with tax obligations should contact our expert Canadian tax consultants to submit a voluntary disclosure program application as soon as possible.