Canada gets less than expected from Panama and Bermuda data leaks

15 March 2019
The 3,348 non-resident entities and 2,700 potential beneficial owners leaked in the so-called ‘Panama Papers’ affair, and initially thought to be linked to Canada, have been whittled down to only 150 taxpayer audits and a handful of tax reassessments, Canada's Offshore Compliance Advisory Committee (OCAC) has revealed.

The information appears in a report from OCAC to Canada's Minister of National Revenue, Diane Lebouthillier, analysing the Canada Revenue Agency's (CRA’s) use of the information it received from the so-called ‘Panama’ and ‘Paradise Papers’. In both incidents, electronic document caches held by law firms (Mossack Fonseca in Panama and Appleby in Bermuda) were obtained by the self-styled International Consortium of Investigative Journalists (ICIJ).

When the leaks were publicised in May 2016 and November 2017 respectively, tax lobbyists speculated that they would provide fertile territory for tax enforcement agencies. However, as OCAC points out, the ICIJ did not publish the documents themselves, but only edited extracts, apparently to protect itself from legal action. This made it much harder for tax authorities to obtain solid leads.

The CRA’s initial review of the leaked data identified about 16,000 items with a potential connection to Canada, though they did not contain Canadian tax identification numbers, or even Canadian addresses in some cases. Information associated with a particular name then had to be aggregated with information from other sources, including returns and information forms filed, previous voluntary disclosures, information with respect to cross-border funds transfers, information received from other tax authorities and from Revenu Québec. The CRA also obtained information from a major Canadian financial institution that had used Mossack Fonseca to set up approximately 450 offshore corporations for clients, both Canadian and non-Canadian.

From this review, 3,348 non-resident entities (corporations, trusts and similar entities) were identified as potentially connected to Canada, involving about 2,700 potential beneficial owners, of whom about 80 per cent were individuals and the rest were corporations and trusts. Of the potential beneficial owners identified in the initial review, about 72 per cent were found either to be non-residents of Canada or otherwise not subject to Canadian tax or not ultimately identifiable from the information available. Where the owners were found to be non-resident, information was provided to the relevant foreign tax authority, resulting in provision of information to 19 countries.

Some of the remaining beneficial owners had either been previously audited, had died or were otherwise low risk, or had already made voluntary disclosures. Of the remaining 670 cases, about 150 Canadian taxpayers have been or are under audit and some reassessments have been raised. Three Canadian promoters of aggressive or evasive offshore structures associated with the Mossack Fonseca firm have been identified.

The parallel ‘Paradise Papers’ investigation by the CRA found 2,400 persons or entities apparently connected to Canada named in the documents stolen from Bermuda law firm Appleby Global. About 1,500 of those have been matched to names in CRA records (1,150 individuals and 315 corporations). As a result of this, the CRA has audited 30 targets, mainly multinational corporations, and no reassessments have yet been raised.

The OCAC report provides seven recommendations and comments relating to the CRA's treatment of the leaks. Diane Lebouthillier said the CRA had already made important programme and policy changes as a result of the committee's work. She noted it has over 55 ongoing investigations with an international component, with five linked to the so-called ‘Panama Papers’.

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