Corporate tax evasion and avoidance – issues and solutions

In the past months, there has been an escalating outcry globally and in Canada over domestic and international tax evasion.

In the past months, there has been an escalating outcry globally and in Canada over domestic and international tax evasion. As well, there is a growing perception among the media, certain non-government organizations and ordinary citizens that many corporations engage in aggressive or unacceptable tax planning activities.

This topic is extremely complex, and the debate is complicated by a number of misconceptions, particularly over the difference between legal tax planning and illegal tax evasion and the impact of corporate income tax on businesses and broader economies.

In a white paper recently released by CPA Canada, we seek to bring much-needed clarity to this debate. We submit that illegal tax evasion is harmful to economies and should be prevented. At the same time, legal tax planning by businesses should be accepted as a means of minimizing expenses, like any other business effort to reduce costs. Corporations should be expected to make legal use of low tax rates or other tax benefits that countries offer to compete for foreign investment.

The Organisation for Economic Co-operation and Development (OECD) is working on the G20’s behalf to develop global solutions to stop tax evasion, increase tax transparency and information sharing, and modernize international tax laws. It is essential that Canada and its taxpayers are part of the process to ensure that our competitive position is maintained and the effects of recommended solutions are addressed from a Canadian perspective.

CPA Canada further submits that there are unilateral steps Canada should take now to improve the operation of its tax system. These steps include:

1.         Keeping corporate income tax rates low

2.         Tightening the focus of specific anti-avoidance rules

3.         Rethinking the corporate income/consumption tax mix

4.         Using tax policy to help Canadian businesses compete

5.         Pursuing more international Tax Information Exchange Agreements.

Finally, we believe the government should consult Canadian businesses and tax advisors on the potential benefits that greater tax transparency may offer. Such transparency could come as part of a broader move toward enhanced relationships among taxpayers, tax auditors and tax advisors based on more transparency, cooperation and trust.

Before any action is taken in Canada, tax authorities, businesses and tax advisors would need to take part in a consultative process to develop a consensus on whether any increased transparency should be required and, if so, how it would be implemented.

Join in the conversation… Do you agree that these recommendations would help curb illegal tax evasion and improve the operation of Canada’s tax system? Are there other unilateral steps that Canada could take to address these issues? If more transparency is desirable, how could this be best achieved, and what other practical issues should be considered as part of the consultative process?

Post a comment below, or email Gabe Hayos.

Conversations about Tax is designed to create an exchange of ideas on tax policy and practice developments and issues and their impact on Canadian accountants who practice tax. Comments received can provide helpful input to the public interest advocacy positions developed by the Chartered Professional Accountants of Canada.

About the Author

Gabe Hayos, FCPA, FCA, ICD.D

Vice-president, Taxation, CPA Canada