By giving KPMG customers an amnesty, the CRA is saying that those guilty of the worst offences will get off lightly, while those guilty of less severe offences will face serious penalties. For the overwhelming majority of Canadians, that is deeply offensive.
Ottawa (17 March 2016) — The average person who fails to declare all of their income will face financial penalties, the possibility of criminal prosecution and stiff fines. But if you have money, it’s another story.
Last fall, Canadians were outraged to hear that multinational accounting firm KPMG had been helping some very wealthy Canadians avoid paying their fair share in taxes by using a tax haven, the Isle of Man. But it gets much, much worse.
Last week, CBC News revealed that the Canada Revenue Agency (CRA) offered a sweetheart deal to KPMG’s wealthy clients offering them amnesty. Instead of civil or criminal prosecution, penalties or fines, they just have to pay their back taxes and a bit of interest.
KPMG tax-avoidance scheme cost Canada millions
Under KPMG’s tax-avoidance scheme, wealthy Canadians put a minimum of $5 million each into shell companies in the Isle of Man. In a tax haven like the Isle of Man, using shell companies was intended to keep the identities of those participating in the scheme secret. No tax was paid on these investments.
With Canadians investing at least $130 million in this tax-avoidance scheme, Canada lost millions in taxes. But for KPMG, which collected 15 per cent of the avoided taxes, the scheme was extremely profitable.
Scheme participants did nothing to deserve sweetheart deal
The amnesty offered to people participating in KPMGs tax-avoidance scheme in the Isle of Man is the type of deal normally offered to people who turn themselves into the CRA. Only that wasn’t what happened.
The CRA got a court judgement forcing KPMG to release the names of its clients. But instead of taking action to make sure that judgement was upheld and KPMG was forced to release the names, the CRA caved in.
No amnesty for average Canadians
The treatment of KPMG and its wealthy clients was very different from what low- and middle-income Canadians can expect. Average Canadians who fail to report income get more than a slap on the wrist. They can expect large fines, stiff interest penalties and the possibility of a criminal record.
While some people facing stiff penalties for tax avoidance claim that their lack of knowledge of the tax system or poor quality tax advice led to problems, that isn’t credible coming from KPMG clients. KPMG is one of the four largest accounting firms in the world.
Tax avoidance has victims
The list of victims of tax-avoidance is endless. It’s the child having to wait for lifesaving medical treatment because governments aren’t collecting the revenue we need to adequately fund health care. It’s the veteran forced to go without supports he or she needs because the government has made funding cuts to veterans' services.
With what is at stake, people expect governments to take action against tax avoidance. But people also expect the law to be enforced in a way that is fair to everyone.
Punishment doesn’t fit the crime
In our legal system, the severity of the punishment is meant to reflect the seriousness of the offence. A person stealing a few hundred dollars should face a lower penalty than a person stealing several million dollars.
The CRA is not respecting that principle. By giving KPMG customers an amnesty, the CRA is saying that those guilty of the worst offences will get off lightly, while those guilty of less severe offences will face serious penalties.
For the overwhelming majority of Canadians, that is deeply offensive.
Cuts to CRA budget reason wealthy get amnesty
A report by Canadians for Tax Fairness, What’s Wrong with the CRA, made it clear that the reason wealthy tax avoiders get amnesty is that the CRA doesn’t have the resources to fight lengthy court battles against individuals or companies with deep pockets. That's why the CRA is doing deals with the well-heeled, at the same time it cracks down on violations by low and middle income Canadians.
KPMG profits two ways from tax avoidance
The commissions KPMG collects from wealthy clients aren’t the only way it profits from tax avoidance. When government revenues drop due to tax avoidance, privatization proponents push privatization as a way to deal with the shortfall. And KPMG's consulting arm is at the centre of many privatization deals.
Whether it’s advising companies bidding to operate privatized services or advising governments privatizing public services, KPMG is making a tidy profit.
NUPGE National President
James Clancy is the National President of the National Union of Public and General Employees (NUPGE), one of Canada's largest labour organizations with over 360,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good. NUPGE