Trouble in Paradise: The end of tax haven secrecy

TORONTO – In a 2015 op-ed in the Financial Post, I said that the era of bank secrecy was over. Attacks, spearheaded by the U.S. Department of Justice against offshore banks that facilitated international tax evasion, had caused the demise of bank secrecy laws. 

However, I would never have guessed that a series of 2016 cyberhacks would reveal confidential data not only from banks but from top tax haven law firms. 

The Panama Papers leak involved confidential records from the Panama law firm of Mossack Fonseca and was orchestrated by the International Consortium of Investigative Journalists (ICIJ). They created a searchable database of some of the corporations set up by the Panamanian law firm of Mossack Fonseca and released in the Panama Papers leak in April 2016.

The database was integrated with the one set up by the ICIJ in 2013 as part of the offshore leak of that year. So, while the Panama Papers leak was far from the first data breach, it was the first one that targeted a law firm that was entrenched in an offshore tax haven and released confidential law firm client records.

A leak a few months later of a cache of leaked internal records from the corporate registry of the Bahamas in September 2016 was almost innocuous in comparison. 

This leads us to the latest data breach: that of another tax haven law firm, Appleby in Bermuda, another blue chip law firm in another blue chip tax haven. So, we now have breaches in three of the largest tax havens: Panama, Bahamas and Bermuda. Preliminary reports indicate that mainly U.K. residents are affected, including some investments from the Queen, but some 3,400 Canadians are also named.

There has been a notable world-wide effort in recent years to shut down outright tax evasion in tax havens as well as international treaties where countries agree to exchange tax information.

Part of the collateral damage from this issue is the reform proposals to the CRA Voluntary Disclosures Program that were released several months ago. There has been no response from CRA to the numerous submissions made.

Our understanding, in speaking to CRA employees in the VDP, is that the changes are set to go into effect January 1, 2018.  It looks like the Liberal government is going to ignore the numerous submissions received, absent the outcry that the recent small business reform proposals engendered. However, if Canadian names are released in this latest leak from Appleby, it does not bode well for CRA backing down on their unreasonable and unwarranted VDP changes.

David J Rotfleisch, CPA, CA, JD is the founding tax lawyer of Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law firm. With over 30 years of experience as both a lawyer and chartered professional accountant, he has helped start-up businesses, resident and non-resident business owners and corporations with their tax planning, with will and estate planning, voluntary disclosures and tax dispute resolution including tax litigation. Visit www.Taxpage.com or email David through david@taxpage.com.