The tax authority's new offshore tax evasion hotline makes us all potential whistleblowers
By Leigh Beijer
LAUNCHED IN JANUARY of this year, the Canada Revenue Agency Offshore Tax Informant Program (OTIP) is one of five recently announced initiatives aimed at combatting international tax evasion and aggressive tax avoidance. Taking a page from the US Internal Revenue Service (IRS) whistleblower reward program, OTIP relies on informant leads.
CRA's program provides the tipster a financial reward of anywhere between 5 and 15 per cent of the total federal tax collected, as long as the tip results in a collection of at least $100,000 before interest and penalties. But before you go ahead and pick up the phone, there are some things you might want to consider.
First, OTIP is designed to address tax evasion, avoidance or fraud in relation to offshore assets only. So if you want to report your neighbour for hiding income within the country, you won't walk away with anything more than the warm fuzzy feeling of doing something right. Second, if you are aware of international tax evasion, avoidance or fraud, your ability to be financially rewarded is dependent on a long list of eligibility requirements.
Read to know more about the differences of tax evasion and tax avoidance, its penalties in Canada here.
As noted, the potential federal tax, excluding interest and penalties, must be greater than $100,000 and the non-compliant activity must be “international” for the information to be eligible for possible payment. The CRA will not accept information if it has no merit; lacks sufficient, specific and credible facts; is already known to the CRA; or is generally speculative.
The CRA offers the following examples: undeclared Canadian taxable income that has been transferred outside of Canada; undeclared foreign taxable income; undeclared foreign property; tax avoidance schemes that involve offshore transactions; undeclared trusts held offshore in respect of which possible federal income has not been declared. These examples are not exhaustive and information about other types of international activity may be eligible.
> TOO GOOD TO BE TRUE?
If you're looking to pay off next month's credit card bill with your reward, think again. The program is designed to allow the alleged fraudster to exhaust all avenues of appeal before the informant can receive any reward, meaning it could be years before you see a penny. And the reward itself depends on collection, not assessment, so the CRA's efforts may be thwarted by the fact that the money is offshore.
Finally, if you think you are going to be able to provide information anonymously, be prepared for disappointment. While the CRA has indicated they will do their best to ensure anonymity, circumstances may arise (i.e., witness testimony) that would require you as the informant to be identified.
> THESE PROGRAMS WORK
Despite these challenges, whistleblower hotlines have proven successful for governments and companies in a variety of scenarios. After enhancements were made to the IRS's whistleblower reward program in 2006, the agency has seen a six-fold increase in cases. The Securities and Exchange Commission, meanwhile, reported a year-over-year rise of 7 per cent in the number of tips received last year. While these numbers may not appear to be significant, the threshold for the reward program in the US is considerably higher at US$2 million in tax, penalties and interest as compared to the OTIP threshold of $100,000.
The Association of Certified Fraud Examiners further supports the benefits of whistleblower hotlines. In their 2012 Report to the Nation, the organization offered some interesting statistics that demonstrated the efficacy of whistleblowers and tips. Organizations with some form of hotline in place saw a much higher likelihood that a fraud would be detected by a tip (51 per cent) than organizations without such a hotline (35 per cent). Furthermore, according the same report, 43.3 per cent of all frauds detected were a result of having received a tip. This represents an identification rate of almost three times more than the next best method of detecting fraud.
Government support for whistleblowing and more importantly whistleblower protection is on the rise. (Indeed, their success has prompted MNP to offer a free hotline service to any type of entity.) In February, Australian and American securities regulators issued separate papers supporting protections for whistleblowers. The use of a whistleblower hotline is a hot topic these days and it doesn't appear to be cooling down anytime soon.
Co-written by Matthew McGuire, National Leader of MNP's AML Services division. Leigh Beijer is a Forensic Accountant with MNP's Forensics and Investigative Services Team.
