Law Times

Law Times • apriL 11, 2016 Page 5 www.lawtimesnews.com Moving money can be perfectly legal Panama Papers could lead CRA to criminal tax avoidance BY YAMRI TADDESE Law Times A mid revelations of off- shore financial dealings involving prominent figures worldwide, the Canada Revenue Agency says it's look- ing to get its hands on the leaked records to zero in on the activ- ities of Canadian residents. In a statement, the CRA said it con- tinues to pursue audits related to offshore tax evasion, includ- ing Canadian clients associated with Mossack Fonseca. "e agency is actively pur- suing the co-operation of its tax treaty partners and the Inter- national Consortium of Investi- gative Journalists to obtain all of the leaked records that pertain to Canadian residents," the CRA said. "e Minister of National Revenue has instructed CRA of- ficials to obtain the data leaked through the Panama Papers in order to cross-reference this in- formation with the data already obtained through the Agency's existing investigation tools." Canada is closely watching the cases of citizens found to have set up offshore companies in Panama and elsewhere and will refer cases to prosecutors if necessary, said Chloe Lu- ciani-Girouard, a spokeswoman for National Revenue Minister Diane Lebouthillier. But a Toronto-based tax law- yer says it's unlikely the CRA will be surprised by what it finds in the Panama Papers. While the agency is sure to find some cases of criminal tax avoidance, Vitaly Timokhov of TaxChambers LLP says a significant portion of the documents will reveal either "clear stupidity" by those who don't know the rules or those who have been taking their money offshore in "perfectly legal" ways. While it's possible, Timokhov says it's unlikely those who want to set up criminal structures would go to Mossack Fonseca, which he describes as "the Cad- illac of offshore firms." "You really wouldn't deal with a law firm that serves govern- ments and heads of states" to accommodate a criminal intent, he says. Timokhov also says the CRA has the tools to track every fi- nancial transaction between Canada and any other country in the world, adding most of the information the agency needs is likely already available to it. e CRA also knows a signifi- cant portion of people who have moved their money offshore are not breaking any laws, he says. "ey know about every cent that leaves Canada. It's a huge amount of information, I agree, and they have to use it select- ively. But do they know about funds going to Panama? Oh my god, of course. Absolutely," says Timokhov. RBC, Canada's biggest bank, and its subsidiaries were asso- ciated with 378 shell compan- ies registered in the Mossack Fonseca data, the Toronto Star reported. RBC said that it worked within the legal and regulatory framework of every country in which it operates and had an extensive due diligence process to understand what its clients' intentions were. A spokesman for federal Fi- nance Minister Bill Morneau said that, "at this point, we have no reason to believe Canadian banks have acted unlawfully." Last month, the Liberal gov- ernment promised to invest almost $450 million over five years to gather more informa- tion about tax evasion and tax avoidance. Since January 2015, Canada had already been monitoring all international transfers of funds worth more than $10,000, in- cluding those from Panama, said Luciani-Girouard. According to Timokhov, what is common are Canadian residents who purchase a prop- erty in a foreign country, say Panama, for personal use with- out knowing the consequences of incorporating that property. Since the buyer's permanent residence is in Canada, he or she would typically incorporate the property in order to appoint a local nominee shareholder or director who can manage the property on their behalf, says Timokhov. When the buyer then visits Panama and stays in that property, they must pay rent to the corporation. In other words, their usage of the property counts as benefit from their corporation for income tax purposes. "is property now belongs to the corporation. ere's pro- vision in the Income Tax Act, s. 15, which basically tells you if you move into the condo, you actually use corporate property. You're actually receiving a bene- fit from your corporation," says Timokhov. If the Canadian resident did not pay rent on such property, they must self-assess the benefit they've received from the cor- poration equal to the fair value of the rent they've failed to pay. Whether individuals who don't do so are wilfully ignorant of the rules is of course part of the question for the CRA. LT With files from Reuters NEWS Course Leaders Susan Vogt, Partner, Gowling WLG Daniel Cole, Partner, Gowling WLG Eric Macramalla, Partner, Gowling WLG 6th Annual Social Media Law: Cutting Edge Practical Advice from Canada's Advertising Law Experts FULLY ACCREDITED IN-CLASS PROGRAM & LIVE WEBINAR Toronto, June 7 • Webinar, June 7 REGISTER BEFORE MAY 13 AND SAVE $300 To register and learn more visit www.lexpert.ca/cpdcentre NAVIGATE THE LEGAL LANDMINES OF SOCIAL MEDIA BRAND PROTECTION | SOCIAL MEDIA & DIGITAL MARKETING | CASL ENFORCEMENT Untitled-12 1 2016-04-05 4:35 PM This is more than a phone book. It is your instant connection to Canada's legal network. With Canadian Law List 2016 you have access to: • an up-to-date alphabetical listing of more than 80,000 barristers, solicitors and Quebec notaries, corporate counsel, law firms and judges across Canada • all contact information supplied for the Supreme Court of Canada, the Federal Court of Canada, Federal Cabinet Ministers, departments, boards, commissions and Crown Corporations • legal and government contact information related to each province for the Courts of Appeal, Supreme Courts, County and District Courts, Provincial Courts, law societies, law schools, Legal Aid and other important law-related offices THE LATEST CONTACT INFORMATION IN A USER-FRIENDLY FORMAT THAT IS BEYOND TRADITIONAL LISTINGS Continually updated by a dedicated team of professionals, Canadian Law List includes value added features such as: • last name first identification in the federal and provincial listings • separate section of corporate law departments for more than 1,250 companies • professional cards of prominent Canadian law firms • International Agency Referral Cards AREAS OF PRACTICE AND ENHANCED LISTING INDEX The enhanced listing index is displayed in bold type with detailed practice information. It also: • lists firms and lawyers that have expanded their practice information in their provincial listing • is organized by areas of practice by province, city and page reference in their provincial listings Hardbound • Published February each year • L88804-765 • On subscription $169* • One time purchase $188* Multiple copy discounts available * Plus shipping/handling and applicable taxes ORDER YOUR COPY TODAY! Call 1.800.387.5164 or visit www.carswell.com KEEPING PACE WITH THE CHANGING LEGAL COMMUNITY FOR OVER 130 YEARS Untitled-3 1 2016-04-06 3:05 PM Vitaly Timokhov says it's unlikely the CRA will be surprised by what it finds in the Panama Papers.

• Cover