Unless you have stopped reading newspapers, watching television or listening to the radio then it is more than likely that you have heard something about the UBS scandal. The US government and specifically, the Internal Revenue Service (IRS) and the Justice Department (Justice) have attacked Swiss Banking secrecy. The Americans targeted US account holders at UBS. The US claimed that UBS had helped set up accounts for Americans that were either used for tax fraud or other nefarious purposes.
By late 2008, the US had threatened UBS with the filing of 52,000 John Doe summons unless UBS was prepared to hand over the names of US account holders that it suspected were evading the payment of tax. Initially, UBS resisted but it crumbled quickly under pressure from the Swiss government and a global move to more transparency in international tax matters. By February 2009, UBS agreed to pay a hefty fine in the amount of $780 million USD in order to avoid criminal prosecution and it further agreed to hand over the names of some 250 U.S. account holders. The US government was not satisfied and it continued to press both the Swiss government and UBS for more account information. Finally, in late 2009, UBS agreed to hand over the names of some 4,450 account holders. In turn, the US agreed to drop the summons.
The UBS situation is just the tip of the iceberg. The US government is targeting 10 other Swiss banks. Already, five people have been found guilty of tax evasion and /or fraud and are heading to jail.
Miller Thomson Analysis
The information garnered by the Americans from the UBS scandal will be shared with foreign governments. The Canada Revenue Agency (CRA) does not want to be left behind in this new global reality of governmental activity designed to reduce or at least curb tax evasion. It has been receiving information from the Americans. It is only a matter of time before the CRA identifies any accounts of interest. Little time remains before the individual and the account are exposed.
One avenue remains open to the taxpayer in Canada. It is the Voluntary Disclosure Programme (VDP). The CRA 's administrative policy is not to levy criminal or civil penalties on a taxpayer who voluntarily discloses incorrect tax filings. The Voluntary Disclosure cannot only prevent a tax prosecution but financial penalties can be avoided and partial interest relief may be granted.
The CRA has established a set of criteria for a disclosure to be valid under the VDP. It must be voluntary; the information must be complete; it must involve the application of a penalty and it must contain information that is at least one year past due or incorrect information from a previously filed tax return. There are further limitations to the taxpayer for the availability of the VDP. A disclosure would not be considered voluntary and consequently not acceptable if the taxpayer was aware of an audit, investigation or some other enforcement action carried out by the CRA. The definition of enforcement action is very broad. In fact, it is so wide that it includes such things as requests for tax instalments and even inquiries by other authorities such as the securities commissioner or police.
While disclosures can be made on a no name basis, the simple fact is that you cannot fully conclude the process without eventually disclosing the taxpayer's identity.
The legislative authority for the program is found in section 220(3.1) of the Income tax Act. It is completely discretionary. Where the Minister denies relief, a taxpayer can request a second level review. This review takes place within the CRA and it presumed to be performed by an independent CRA officer. If upon a second level review the Minister denies the taxpayer's relief, a judicial review of the exercise of the Minister's discretion is available to the taxpayer under section 18.1 of the Federal Courts Act.
If you know of a client that has an overseas account then there is no time to lose. You should encourage them to contact us and protect their interest as soon as possible.