The Canadian Revenue Agency violated its own policy and exposed its reputation to damage when it provided a secret tax deal to a large corporation, according to court documents.
More than 2,000 pages of highly sensitive government records recently filed in federal court reveal details of the CRA’s internal dispute over the tax deal. A CRA manager wrote in the documents that the CEO had tried to get them to support the deal, which was “completely unethical and” wrong “.
Although some CRA officials disagreed with the agreement – warning that it would lead to lower tax revenues – agency heads continued with it in 2019, CRA records show.
“There may be negative effects on reputation as a result of the atypical process that followed,” said the preliminary findings of an investigation by the CRA’s Department of Home Affairs and Fraud Control filed with the Federal Court.
The CRA defended the deal in a statement to CBC News, saying it was “profitable” for the agency and an investigation by the Department of Home Affairs and Fraud Control acquitted the accused of wrongdoing. But the agency will not share a copy of this investigation report or name the participating company, citing the privacy rights of staff and taxpayers.
Internal documents show that the deal sparked a stream of allegations and counterclaims between executives and employees that sparked a series of internal investigations and an agreement to drop retaliation claims.
Two CRA officials have applied for judicial review in the Federal Court, arguing that the Integrity Commissioner should not have stopped investigations into other allegations of violations in the CRA, including a toxic workplace environment. The allegations contained in the documents have not been verified in court.
The controversy focuses on the CRA division, which approves payment agreements between multinational companies and the Canadian government to prevent tax evasion.
The CRA is sensitive about this topic due to the latest news about Canadians hiding offshore wealth in tax havens. The agency has also been a headline in the past for the high-level decision to offer amnesty to wealthy KPMG clients caught using offshore tax evasion schemes on the Isle of Man.
Court documents confirm that an investigation by the CRA’s Department of Home Affairs and Fraud Control in 2019 is investigating three anonymous complaints alleging that preferential treatment was granted to a “known global company allegedly using aggressive tax evasion schemes to transfer profits from Canada to Irish tax haven “
“Please take immediate action to stop this … deal, which further undermines the overall integrity of the CRA,” reads one complaint.
The name of the participating company is obscured in the documents submitted to the Federal Court, which also do not say what the company does or where it is based. According to court documents, the CRA waives penalties and interest that the company would otherwise owe, as well as conflicting advanced pricing (APA).
Two CRA staffers filed similar complaints with the Integrity Commissioner in 2020 and named three CRA executives at the time as key players in approving the deal: Ted Gallivan, Assistant Commissioner of the Compliance Program Branch, Alexandra McLean’s International and Big Business Directorate and Donna O’Connor, Director of the Services Authority.
Congratulations to Donna O’Connor and the rest of the CASD team for receiving a lot pic .twitter.com / EhBOeVkjvV
– @ TedGallivan
These complaints from CRA officials allege that some officials in the Services Department of the Competent Authorities (CASD) were “forced to” seal the “multi-million dollar” agreement without being able to review it themselves.
One complaint alleges that in one case of a CASD manager refusing to support the deal, McLean said they had “no choice” because “Ted wants it done” – a reference to Ted Gullivan.
This applicant, a manager, claims that they did not “play with a ball” because they thought the deal was wrong. In an e-mail to a supervisor – also submitted to the Federal Court – the applicant claims that they were “subject to a campaign” by a director “to force me to leave my job”.
One complainant compared the case to the CRA, giving special deals in the past to wealthy clients of the accounting firm KPMG during settlement agreements which is also in violation of the CRA’s own guidelines. As head of compliance disputes, Galivan spoke publicly on behalf of the CRA about these allegations in 2016.
What was submitted to the Federal Court is only a summary of the preliminary findings of the investigation, which confirm that the agreement has started “new”.
The International Tax Department (ITD) has reached an oral agreement with the company that CASD will expand the scope of the multinational company’s APA to cover 2016-20, including two years that have already passed, according to the preliminary investigation.
CRA director insists on ‘due diligence’
APAs allow companies to avoid being subject to annual tax audits and set methodologies for pricing the company’s international transactions.
When the file reached the agreement approval unit – CASD – the then director of the unit said he would “not respect it” without her team “doing its usual due diligence”, according to the preliminary investigation.
CASD officials also disagree with the expansion of the APA to cover previous years and are unable to “carry out their usual inquiries” because the other department, ITD, believes it has already done the job, the summary said. of preliminary findings.
McLean then advised officials that “the agreement will be honored.” This move is contrary to the CRA’s policy, according to which unilateral APCs cannot have retroactive effect, as other countries are not involved in the negotiation process, the draft final report said.
A new director at CASD, Donna O’Connor, signed the deal in November 2019, making it official.
CRA claims allegations are “unfounded”
The CRA then had to inform the Netherlands and the United States, where the company in question also operates. Preliminary findings from the investigation note that these countries “may wonder if and why Canada has not followed its published practice.”
The CRA told CBC News that its investigation ultimately concluded that the allegations about the APA deal, which was provided “without analysis”, were unfounded and that none of the employees had been forced to leave their jobs due to complaints from this.
“We can unequivocally state that the CRA has thoroughly investigated these allegations of wrongdoing with the participation of a third-party expert consultant and found them to be unfounded, and all those officers who are alleged to have committed wrongdoing have been cleared.” writes a CRA spokesman. Etienne Biram in a statement to CBC News.
“Administrative policies have no force of law … the mention of these allegations has a serious impact on the reputation, career and mental health of long-term, dedicated civil servants.”
Vern Krishna, a tax lawyer and law professor at the University of Ottawa, said that while what the CRA did was not a crime, it was “a huge deal in international taxation.”
“The CRA has frankly misjudged its judgment,” Krishna said. “It’s extremely unusual for this to happen and remarkable accommodation for this particular company.”
The expert says “behind-the-scenes deals” are bad for the CRA’s reputation
Krishna has been awarded the Order of Canada for his contribution to tax law over the past 50 years and has written several books on international tax law. He said it was a big deal for a company to get an APA because it involved tens of millions of dollars internationally.
The APA’s goal, he said, is to ensure that multinational corporations are not exposed to the threat of audits, evaluations and years of litigation. But if other countries working with Canada through international tax treaties lose confidence in the CRA’s willingness to pursue its own processes and policies, “it does a lot” damage, he said.
“When you start making behind-the-scenes and retrospective deals that are not in line with your policies, you are damaging your reputation,” Krishna said. “Reputation damage is not in the best interests of the country.”
WATCH The tax expert reacted to the deal with the CRA:
“I’m surprised and in a way outraged”
Tax lawyer and professor Vern Krishna says the CRA’s secret deal is contrary to its policy and is “a remarkable device for this particular company.” 1:17
But Dale Hill, who worked for the APA’s CRA during the program’s inception in the 1990s, said what the agency did was not a big deal. He is now a private practice partner in the Gowlings WLG and negotiates with the APA on behalf of companies. He specializes in audit protection and was not directly involved in the case, he said.
“It doesn’t look like an expensive deal,” Hill said after reviewing the findings of the CRA’s preliminary investigation. “There is no financial benefit for the company.
“The benefit for the company was the effective resolution of their case. That is the only benefit. The benefit for the CRA was that it was able to reallocate resources because the company did not have to go through the whole process of amending tax returns.”
Hill said that while he never questioned the CRA’s integrity, he said it was unusual for the deal to be made orally without consulting the department that approves them.
WATCH There is no “nice deal” in the agreement with the CRA, says a tax lawyer:
The agreement does not offer financial benefits to the company, a lawyer said
Dale Hill, a partner in Gowling WLG, says the deal seems to be about efficiency. 0:20
Attorney Scott Wilkie, …
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