Canada failed to crack down on offshore tax schemes, officials say

Canada has “turned a blind eye” to offshore tax schemes that operate anonymously through corporations that are increasingly used to evade taxes, according to federal prosecutors.

Using offshore firms like Panama-based companies controlled by a single individual is a common way wealthy Canadians dodge taxes. President Donald Trump has said he hopes to use these offshore units in a push to lower taxes.

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But Canadians aren’t chasing that money, according to prosecutors from Canada’s tax authority. They said that Canada is more likely to target middle-class businesses.

“What we are saying is that there is an astounding disregard for the law in this matter,” Daniel O’Day, chief crown attorney for the federal criminal tax office, told the Guardian. “That disregard is shown in our assessment that there are untold thousands of corporations whose owners are not going to face criminal prosecution, who will be here another day with their lawyer.”

The revelations about the relative nonchalance with which tax collectors have operated under Canadian law come on the eve of testimony before parliament’s public accounts committee by the disgraced former employee of Martin Rachleff.

The testimony will shed light on the conduct of Canada’s tax agency, the Canada Revenue Agency (CRA), which sent Rachleff to prison on Thursday for four years for having refused to get wealthy clients to pay their taxes or work with the agency to do so.

A statement from the Prime Minister’s Office, which first called on the CRA to come clean about its activities, asked that all Canadians be treated the same way, regardless of income.

“Canadians owe no allegiance to specific income or high-wealth taxpayers when it comes to self-assessment and tax compliance,” the statement said. “The tax authorities can uphold the integrity of Canada’s tax laws by ensuring that all Canadians are treated the same, regardless of the source of their income.”

Rachleff became controversial in 2017 after he filed a $20m lawsuit against his ex-employer, revealing that it he helped clients set up offshore firms to facilitate the evasion of taxes.

That year, the Canadian tax authority released limited details about its operations in an attempt to quell public concern about the CRA’s actions. It said that it received 27,600 single-attorney claims – only 1,300 of which were successfully settled and the others were deemed not worth pursuing. It added that the claims involved a total $510m in unpaid taxes.

But it did not explain who these clients were or how long they had been evading taxes, and no one was ever arrested.

The decision by federal prosecutors, particularly regarding foreign trusts, is a stark contrast to the tone the agency has adopted since Rachleff’s lawsuit was filed.

The public accounts committee is considering two bills that would make it easier for the tax authorities to go after offshore schemes. But their proponents, who argue that Canadian authorities have been lax, were skeptical about the government’s transparency.

O’Day said that no Canadians have been prosecuted for their illegal conduct, even though prosecutors believe that there is sufficient evidence to pursue charges against other entities, such as foundations.

“The outcome of our investigation may lead to very serious criminal activity and could also include a significant amount of money being forfeited to the government,” he said. “We don’t have the privilege of determining that. But we do have proof, and that proves that it’s time to take some action.”

Since Rachleff’s lawsuit was filed, the CRA’s credibility has been questioned by other critics and Canadians’ doubts about their tax commissioner’s actions.

One sign of this is the vast discrepancy between the $510m that Rachleff had faced in unpaid taxes and the amount that the CRA had made in savings as a result of the cases involving his clients.

Government officials have said the CRA budget has increased and as a result, tax rates have fallen as a result of tightening tax laws and modernizing requirements in other areas.

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