Background

The Government of Canada, in line with other tax authorities, has become increasingly attentive to international tax evasion and aggressive tax avoidance. Offshore non-compliance and the CRA’s efforts to combat this global issue draw significant media attention. One recent tax structure, designed by KPMG LLP, has drawn particular recent attention.

Because taxpayer confidentiality prevented the CRA from directly addressing concerns raised with respect to its handling of the matter, the CRA commissioned an independent third party to examine the CRA’s operational processes and decisions in relation to audits of the KPMG tax structure and CRA efforts to obtain the names of all participating taxpayers. The scope included a specific focus on, and assessment of, concerns raised in the media.

The review was conducted by Kimberley Brooks, former Dean of the Schulich School of Law, Dalhousie University.

Conclusion of the Review

The findings of the review confirm the CRA acted appropriately in its management of the KPMG case.

Specific Findings of the Review

1. The specific series of compliance measures taken by the CRA were in accordance with established CRA policies and procedures, and where variances are noted they are reasonable and supported by evidence.
   
   The review found that each of the audit files appears to have been carefully completed by diligent staff and that the practices used in pursuing the KPMG case were compliant with established CRA policies and procedures.
   
   While senior management was appropriately consulted and briefed, decisions were made by the CRA team assigned with carriage of the file, with due consultation with the Department of Justice. While vigorous discussion about approaches to a file would not necessarily be problematic, there was no evidence of disagreement within the Agency on actions taken.
   
   The use of the confidentiality clauses in CRA agreements with taxpayers is undertaken in consultation with the Department of Justice. Use of such clauses is common in general litigation settlement agreements.
   
2. The process followed by the CRA was not inappropriate.
   
   The procedural actions taken on the KPMG file were not inappropriate given the facts of the particular case and were consistent with the treatment of taxpayers in similar situations.
   
   While there were delays in the progress of the KPMG case, they were typical of complex litigation and files. The extended time to conduct the audits of taxpayers who came forward as part of the settlement process is explained by the CRA’s desire to have the same small audit group review each involved taxpayer’s file – a practice that ensured a consistent audit methodology and alignment of outcomes.
   
3. The actions by CRA employees were in accordance with the CRA's Code of Integrity and Professional Conduct.
   
   The review found no evidence of inappropriate interaction between KPMG and the CRA officials involved in this matter.
   
   Further, there was no evidence‎ that any former CRA employee now working for KPMG had any inappropriate involvement or influence over the CRA’s decision-making in this case.
   
4. There is no evidence of preferential treatment, inappropriate direction or influence on the team conducting the work in relation to this particular offshore scheme.
   
   The management of the KPMG case was not preferential relative to comparable taxpayers. It is normal practice for tax authorities to seek to resolve tax disputes with a view to the strength of their case, the possible results (and cost) of litigation, and the time and cost anticipated to enforce payment following litigation.

Methodology:

Evidence from a variety of sources was reviewed, including:

• relevant files containing primary records, including internal correspondence
• the CRA policies, procedures, and guidelines that relate to offshore compliance activities;
• the relevant provisions of the Income Tax Act and select judicial decisions on related issues;
• Interviews with employees responsible for relevant compliance and litigation activities; and
• the CRA’s Code of Integrity and Professional Conduct.