Friday, May 06, 2016

The Finance Committee, KPMG, and Section 241

In the 2013 documentary film The Tax Free Tour - excellent doc, highly recommend it - former KPMG accountant Richard Murphy explains that federal governments hire the Big Four - Price Waterhouse Coopers, Deloitte, Ernst & Young, & KPMG - to write their tax laws and those tax laws benefit the Big Four and their clients. According to Murphy, he is still bound not to talk about KPMG client affairs in offshore tax free havens from 30 years ago under pain of fine for breach of ethics and being sued by the clients.

Yesterday Canada Revenue Agency's Diane Lorenzato told the Finance Committee right off the bat that Canada Income Tax Act Section 241 permanently prevents any CRA employee from divulging any info on any taxpayer's affairs under pain of fine or imprisonment even after they leave CRA. 

The CRA team plus Justice Dept. lawyer appeared before the Finance Committee to not answer any questions about the CRA amnesty deal with 27 KPMG clients who moved their money to the Isle of Man to avoid paying Canadian taxes. The leak to CBC revealed "Canada Revenue officials demanded, and offered, secrecy in a no-penalty, no-prosecution deal to KPMG clients."

May 5 Committee highlights :

Lib Robert-Falcon Ouellette is a bright spark; asks the CRA panel questions about media reports on :
4) by what criteria CRA chooses compliance agreements over litigation.

Con MP Phil McColeman : KPMG issue no biggie - a media thing; I've only been asked about this deal twice. Angles to give impression better CRA powers came from Cons.

NDP Pierre-Luc Dusseault asks CRA for official copy of CRA KPMG amnesty deal leaked to CBC. 
CRA CEO Andrew Treusch : Nope, prevented by law from doing so.
Dusseault : If KPMG scheme is not legal, why offer them an amnesty letter?
CRA Ted Gallivan : No assurance we would win in court. Careful reading of letter shows it's not amnesty from criminal prosecution.
Dusseault : Can you confirm that is your signature, Stephanie Henderson, on the leaked CBC website letter?
CRA Henderson : "Although signature appears to be my signature, I can't confirm the source of the information on the website so therefore I cannot confirm the origin of the document and whether it would be mine or not."
Dusseault : But can you confirm you signed that letter?
Henderson : No I cannot because I do not know the source of the document.
Lynn Lovett, Dept of Justice Section 241 of Income Tax Act precludes Henderson from answering question about details of letter to which you refer.

Lib Jennifer O'Connell : What are criteria re litigation vs settlements. Compare someone who pays KPMG $100,000 for this offshore service with a single mother in my riding who has low income government support money garnisheed over a $1200 CRA debt? What about average Canadian who cannot afford to pay $100,000 to KPMG? How is this fair and equal treatment of taxpayers? Plus it takes 9 to 12 months to receive a response on an appeal and can only communicate with CRA via fax.
CRA CEO Treusch : We're all about fairness. If your constituent has complaints, send them to ombudsman. All MPs have access to our Complaint Resolution Program to address constituents' complaints. If taxpayer has a debt beyond possibility of paying, please come talk to us. 600,000 get free help from us with preparing taxes.

Lib Francesco Sorbara : In my riding, liens were put on peoples' homes for insignificant amounts owed and CPP and OAP were garnisheed. 

Con Ron Liepert : Maybe we can get back to the reason why CRA is here. I have not received one call from a constituent on KPMG issue, perhaps because we have far fewer listeners of CBC [in Calgary.] The previous gov gave CRA $15M for a return of $1 1/2Billion ...
CRA CEO Treusch : We have special program within agency for companies with over $250M in revenue to target audits. Math algorithms with 200 variables.
Liepert : Awful big increase to CRA considering we're running 30B deficit..
Treusch : $440M over 5 years in 2016 budget to combat tax evasion and bring $2.6B return on investment in revenue to government. 

Lib Steven MacKinnon : My mother worked for CRA all her life. Ms O'Connell reflects views of ordinary taxpayers. Why does CRA not publish tax gap figures?
Treusch : Will in future. 
MacKinnon : KPMG told us they do not deal in construction of tax havens. In hobnobs with their accountants as mentioned in media, do you discuss these issues?
Treusch : CRA officials in meetings whether business or social bound by Section 241. We discuss tax admin but don't deal with specific taxpayer info.

Con Lisa Raitt :  How many prosecutions in a year? 
Treusch : 5,000 in litigation; 2,200 go to court; 3,000 result in settlement. Aggressive tax avoidance vs tax evasion - tax evasion being criminal matter. 
Raitt : How many cases sent to Public Prosecution Service for tax evasion?
Gallivan : 200 a year solely for tax evasion. 30 convictions in 2012/3. Jail terms up 95%. 3 to 5 years to get case before a judge.
Raitt : Does CRA monitor post-employment practises re permanent oath of silence as public servant?

Ok, fact check required here - how about 3 months? 
Senior federal tax enforcer joined KPMG as its offshore 'sham' was under CRA probe
"Jeff Sadrian, who until last July was an executive in the CRA's compliance division, began working as a senior adviser for KPMG in "tax litigation and dispute resolution" in October... As a new member of KPMG's tax litigation and dispute resolution team, Sadrian would be dealing with his former federal colleagues — but now from the opposite side..."
Lib Raj Grewal : It isn't just that the Chartered Professional Accountants of Canada, or CPA Canada, invited both CRA enforcement officials and KPMG execs to a couple of Rideau Club private recepions in 2014/15 while KPMG was under CRA investigation, it's that CPA also applied for intervenor status between CRA and KPMG, and lobbied CRA against pursuit of info about KPMG's wealthy offshore clients.
Treusch : If we had to avoid meeting taxpayers, we could never leave the building.
Section 241 .... Section 241 ... Section 241

The magical Tax Act Section 241 appears to even preclude the CRA from answering questions about whether they violated Section 241.

Andrew Treusch, CRA CEO under two governments, is passionate in his defence of CRA practices. This would be so much more convincing if they had not gone after birdwatchers concerned about bees and pipelines under the 10% rule, while apparently ignoring rw charities pushing the political agenda of the Cons. 

OK so CRA can't answer questions on KPMG because Section 241. What about getting those answers from KPMG?

Finance Committee discussion on NDP motion to "compel" KPMG to cough up: 
"That the committee compel KPMG to provide documents indicating the names of clients who used the Isle of Man tax sheltering scheme and the names of KPMG employees responsible for the development and marketing of the tax scheme."
Here's how that went :

Lib Francesco Sorbara proposed to amend motion from "compel" to "request" and take out "names of clients" and add "where legally allowable"

NDP Guy Caron : Without "compel" KPMG may well refuse to supply any documentation. 

Lib Raj Grewal : Does this committee have authority to compel names and docs?

Lib Chair Wayne Easter : "It's close to the line."

Lib Steven MacKinnon : I oppose the motion. There's a case before the courts already funded by taxpayers and Her Majesty The Queen to get access to same info. This motion would duplicate court case and uselessly waste taxpayers' money

NDP Guy Caron : It's not a case before the courts; it's an application by the Minister for the names of those responsible and those who benefitted. We in committee can't ask the same question? Six individuals are before courts now and CRA amnesty has removed them from culpability. It is not a duplication to ask for names of who set up scheme for them. Do we want to dilute motion so KPMG has no obligation? If KPMG refuses to comply they will have to defend that decision in the court of public opinion. Do you want to use the power of the committee and the House to not let this just slip away?

Lib Robert-Falcon Ouellette : My concern is privacy - not fair to participants in scheme to reveal their names. The point of committee is to gain further info on how tax havens work. Remove the phrase "compel KPMG" and replace it with "request KPMG" and remove names of clients.

NDP Caron : I assent to striking names but "compel" is what's important here.

Con Rich Coleman : I don't like the word 'compel" Names of individuals should be protected - they may not be guilty. This is politicizing the issue. 

Result - Watered-down motion replacing "compel" with "request" and foregoing the names of KPMG clients was passed by an unrecorded vote of 7 to 2. 
"That the Committee request KPMG to provide documents on the Isle of Man tax sheltering scheme and the names of KPMG employees responsible for the development and marketing of the tax scheme before Wednesday, May 18, 2016."

And so it goes ... As under the Con regime, the Libs ask good questions in committee and then vote down or water down any motion to actually do anything.  

May 10 Update : After a partner at KPMG and Canada Revenue officials explained to the committee over two days that both KPMG and CRA are protected under the Tax Act from coughing up documentation on schemes for hiding money offshore in the Isle of Man tax haven, a motion was eventually passed "requesting" the CRA to deliver what documentation they were allowed to disclose under the Tax Act as they discovered it. 

And that, my friends, is the last we will ever hear about it.

March 3 2017 Update : Happily I was wrong about that!

Here's a doc premiering on The Fifth Estate tonight :
KPMG and Tax Havens for the Rich : The Untouchables

1 comment:

Unknown said...

You rock Alison. "The Untouchables" was a great episode (one of Fifth Estate's best) and the CBC has been doing a great job on the KPMG fiasco, but you still do some of the best reporting.

Blog Archive