Casting the Net: Unanswered questions about Canada’s new offshore tax whistleblowing program
For those who may have missed it, January 15th marked the launch of the CRA’s Offshore Tax Informant Program (“OTIP”). This new administrative initiative appears similar in concept to the tax whistleblowing program used in the United States,1 and it aims generally at protecting the Canadian tax base from major international tax cheats. Unfortunately, ambiguities in the CRA’s guidance documents2 leave open a number of important questions for clients and advisors navigating through the new regime.
In brief, OTIP (announced in the 2013 federal budget as the “Stop International Tax Evasion Program”) offers to pay between 5% and 15% of the total federal tax collected from tips provided to the CRA concerning major international tax noncompliance. Awards will only be paid where tips lead to the collection of at least $100,000 in federal taxes relating to foreign property/property located or transferred outside Canada, or other transactions conducted partially or entirely outside Canada. The amount of the award will depend largely on the value of the information provided and how well the informant cooperates with the CRA, which is left to be decided by the CRA and to be outlined in a contract between the CRA and the informant. Given that awards depend on amounts actually collected and the expiry or exhaustion of the taxpayer’s objection and appeal rights, it may take several years before particular tips lead to payments under OTIP. The payment of awards may therefore be hampered by a number of complications in assessing and collecting taxes, including procedural or evidentiary hurdles in assessing years after the impugned transactions or events, or the impugned taxpayer’s ultimate inability to pay amounts when assessed.
With a view to encouraging participation in the program, the CRA has announced that it intends to protect the identity of its informants to the fullest extent possible under the law. Potential informants should realize, however, that this may not be possible in all cases (especially where the informant is needed as a witness in court, subject to the application of the informant privilege described in cases such as Webster v. Canada3). This adds an additional wrinkle for a potential tipster weighing the benefits of participating in the program against, for example, any costs to the informant’s career and possible civil liability flowing from the informant’s activities in obtaining and disclosing the relevant information. Mirroring
1 See e.g. www.irs.gov/uac/Whistleblower-Informant-Award.
2 See the CRA’s website on the new program at www.cra-arc.gc.ca/otip/.
3 2003 D.T.C. 211,  2 C.T.C. 2315 (T.C.C.).
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2 Casting the Net: Unanswered questions about Canada’s new offshore tax whistleblowing program February 2014
the niche industry that has developed south of the border, professional advisors in
Canada may thus be called to opine on the level of exposure, if any, flowing from
participation in OTIP, or to assist in smoothly navigating informants through the
The list of who may qualify as an informant under OTIP is rather broad: most
individuals (not corporations) may qualify, as long as:
i) the potential informant has not been convicted of tax evasion concerning
the tax information provided, or of certain other criminal offences (largely
related to fraud on the government);
ii) they are not current or former government employees/representatives/
contractors who obtained the information as part of their governmentrelated
iii) they are not legally required to disclose the information to the CRA; and
iv) they have not chosen to provide the information anonymously.4
Furthermore, and most significantly, taxpayers involved in the noncompliant
activities being reported and those taxpayers’ authorized representatives cannot
be informants under OTIP. Although these final exceptions are certainly important
in concept, the scope of who falls within these categories is not entirely clear. For
example, “involvement” may be a matter of degree: is a taxpayer taking part in a
particular offshore tax shelter (whether offered through the same or different
professional firms) eligible to report on other similarly-situated taxpayers? The
exceptions also raise concerns about how broadly tax information should be
disseminated both within and outside a particular organization. By way of further
example, the possibility of reward raises the spectre that a disgruntled former
employee will denounce his or her former employer to the CRA if there is any
suggestion that the employer was involved in dubious international business
dealings. Irrespective of whether the employer’s cross-border transactions are
fully aboveboard or whether they stray into questionable territory, such informants
could conceivably create substantial regulatory headaches for the employer down
the road. Similar concerns exist with respect to support staff or professional
colleagues working for or with a client’s authorized representative: will such
individuals be eligible for the program, or will they be considered ineligible
extensions of the authorized representative? Will foreign advisors working for the
taxpayer’s related international entities be included in the exception? Does the
program contemplate any prohibition or limit on the CRA’s use of stolen taxpayer
information and, if it does not, should such limits be introduced? And finally, given
the new risks associated with clients’ tax information, should tax advisors’
practices be segregated from their non-tax colleagues in professional service
The CRA’s guidance documents thus leave unanswered a number of important
questions about how OTIP will work in practice. Added to these uncertainties is
the fact that the program is a product of administrative policy and not clearly-
4 As well, no award will be made if the CRA determines that the information it received from an
informant was previously provided to the informant by an ineligible individual.
3 Casting the Net: Unanswered questions about Canada’s new offshore tax whistleblowing program February 2014
legislated rules (although this also means that administrative shifts and clarifications may be made in a relatively streamlined manner). While one can certainly appreciate both the reason for developing such a program and its potential value to Canadian taxpayers as a whole, a bit more clarity on the frontend may make for better administration (and more respect for client information and clients’ relationships with their staff and advisors) down the road. Finally, although there has been no formal suggestion that a similar program will be introduced for domestic tax avoidance/evasion in Canada, there may well be room for this type of growth in the future – especially if OTIP proves successful.
This article was first published by the Ontario Bar Association’s Taxation Law Section on February 25, 2014.
The foregoing has been prepared for clients of Baker & McKenzie. While every effort has been made to ensure accuracy, the information contained herein should not be relied on as legal advice; specific advice should be obtained in each individual case. No responsibility for any loss occasioned to any person acting or refraining from action as a result of material herein is accepted by the authors or Baker & McKenzie. If advice concerning specific circumstances is required, we would be pleased to be of assistance.
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