Justin Trudeau has done an admirable job of tending to his image, Murray Dobbin writes. But his real test as prime minister will be how he deals with the Isle of Man Tax Dodgers:
By now most people are familiar with the KPMG tax "sham" uncovered by CBC News. The scheme involved at least 26 wealthy clients (minimum contribution, $5 million) for whom KPMG set up shell companies in the Isle of Man, one of many tax havens for the rich and large corporations.
The Canada Revenue Agency initially said the scheme was "grossly negligent" and "intended to deceive."
But 15 of the 26 participants would end up getting special treatment. Some of the first ones caught were assessed huge penalties, but later KPMG clients were offered a secret deal. The "amnesty" agreement granted rich KPMG clients immunity from civil and criminal prosecution and freedom from any penalties, fines or interest as long as they paid the taxes they had dodged. Secrecy was written into the agreement: "The taxpayer agrees to ensure the confidentiality of the offer and will not inform any person of the conditions of the offer..."
It's interesting that this story came to light just as the Panama Papers fiasco was surfacing. The root of the problem, Dobbins writes is the cozy relationship which exists between top executives at the CRA and Canada's major Accounting firms:
The practice of making deals and providing amnesty for the biggest offenders seem rooted in the cozy relationship between senior CRA officials and senior management figures from the accounting firms that facilitate the scams. The CBC uncovered five years of expensive receptions hosted by KPMG and other accounting and law firms for senior agency executives -- including those involved in overseas compliance.
"Senior enforcement officials from the Canada Revenue Agency were treated to private receptions at an exclusive Ottawa club, hosted by a small group of influential tax accountants that included personnel from KPMG -- even as the firm was facing a CRA probe for running a $130-million tax dodge in the Isle of Man," the CBC reported.
Despite strict rules stating employees must "not accept gifts, hospitality, or other benefits that will, or could, have a real, apparent or potential influence on your objectivity and neutrality in performing your CRA duties," these unseemly get-togethers became routine. One that took place at the exclusive Rideau Club in June 2014 saw more than 20 "high-ranking CRA executives" wined and dined by accountancy and law firms including KPMG. CRA executives were actually "required" to attend by the agency. The same day they had been treated to a luncheon followed by a session where they were lobbied by KPMG and other firms.
Little folk pay penalties. But the big fish continue to swim unimpeded. The ball is in Trudeau's Court.