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Canada’s Offshore Compliance Advisory Committee Speaks to the Voluntary Disclosure Program

24/01/2017


In April 2016, the Offshore Compliance Advisory Committee (OCAC) was established by the Minister of National Revenue for the purpose of providing advice to the Minister and the Canada Revenue Agency (CRA) on administrative strategies to deal with offshore compliance.

The Committee recently released their first report, providing background and recommendations regarding the Voluntary Disclosures Program (VDP).

The CRA offers a VDP under which non-compliant taxpayers who meet conditions for acceptance into the program may come forward and correct their tax affairs. The VDP seeks to strike a balance between fairness and revenue generation – the program needs to be attractive for non-compliant taxpayers to come forward but not so lenient that it raises fairness issues for conscientious taxpayers who always comply with filing requirements.

Based on their review of the Canadian VDP, the OCAC has issued recommendations in a number of areas, a sampling of which are outlined below:

  • Less Generous VDP Relief in Certain Circumstances

    The Committee recommended that the CRA should view all of the circumstances surrounding the disclosure and that relief from interest and penalties should be reduced in certain cases. The following is a partial list of circumstances considered to reduce VDP relief:

    1. Deliberate or willful default or carelessness amounting to gross negligence
    2. Active efforts to avoid detection through the use of offshore vehicles or other means,
    3. Large dollar amounts of tax avoided,
    4. Multiple years of non-compliance,
    5. Repeated use of the VDP by a taxpayer,
    6. Sophisticated taxpayer,
    7. Taxpayer’s disclosure motivated by the CRA statements, correspondence or campaigns,
    8. Avoidance transactions undertaken or continued after implementation of the Common Reporting Standard or
    9. Any other circumstance in which a high degree of taxpayer culpability contributes to the failure to comply.
  • Repeat Users

    The Committee recommends that a taxpayer cannot access relief granted under the VDP if the taxpayer has previously made a voluntary disclosure.

  • Incomplete information

    Where no legitimate reason exists for a taxpayer’s failure to provide full and complete information, the Committee recommends that the CRA should insist on receiving the necessary and relevant information. Taxpayers unwilling to comply should be denied the full benefits of the VDP.

  • Transfer-Pricing Penalties

    The Committee recommends that the VDP should not be available for multinational enterprises seeking relief in respect of related-party transfer-pricing issues, including transfer-pricing penalties under subsection 247(3).

  • Disclosure of advisors

    The Committee believes that any person making a voluntary disclosure should be required to disclose the identity of advisers who assisted with the non-compliance (for example, helping the taxpayer set up offshore accounts or structures).

In response to this first report, the Honourable Diane Lebouthillier, Minister of National Revenue, welcomed the overall tightening of the VDP to ensure fairness of the tax system and announced that she and the CRA will leverage the OCAC’s recommendations to review the VDP parameters. Changes are expected to be announced in late 2017.

Click here for a complete list and more detailed review of the recommendations.

If you have any questions about these recommendations and how they may affect you, please contact Brandon Hodge, National Tax Controversy Leader at 416.596.1711 or [email protected] or a MNP tax specialist in your region.