The Canada Revenue Agency is trying to recoup millions in allegedly unpaid taxes from B.C. businessmen who helped Chinese and other Asian investors enter Canadian capital markets, according to a court document obtained by The Globe and Mail.
Dozens of officials from the CRA, the RCMP and the Vancouver Police Service raided six locations last August in connection with the activities of Vancouver businessman Kin Foon Tai. The CRA document that was used to obtain the search warrants alleged that Mr. Tai (known as Joe Tai) and his business associates used firms in the Caribbean and Hong Kong to shield $7.6-million in income over a nine-year period.
The $7.6-million figure was described in the court document as "conservative" and is based on an initial audit that identified up to $17-million in unreported income. None of the allegations in the document have been proven in court, no charges have been laid and the investigation is ongoing. The CRA is the lead agency on the file, while the RCMP and the Vancouver Police provided assistance during the raids.
The CRA allegations show the complexity of the kind of methods it believes are being used to transfer and hide millions of dollars around the world. The issue is of particular concern in a province such as British Columbia, where foreign investment in real estate came under increasing scrutiny as the housing market exploded over the past two years.
The court document also shows the scope of the auditing and investigative resources the CRA needs to conduct its growing crackdown on tax evasion. The federal tax-collection agency received help in this case from the Internal Revenue Service in the United States, and a massive leak of confidential information in 2013 compiled by the International Consortium of Investigative Journalists (ICIJ).
"This search action is part of the CRA's greater focus on serious tax evasion and offshore non-compliance," the CRA wrote in a written response to questions from The Globe and Mail. "The CRA has reviewed every Canadian connection to the 2013 ICIJ leak and continues to apply the full range of civil and criminal compliance actions available to us, where appropriate."
The CRA investigation is targeting Mr. Tai and five other individuals based in Vancouver and Richmond in a case that also involves corporations and individuals in the Cayman Islands, the British Virgin Islands and Hong Kong.
According to the CRA, Mr. Tai and his associates "introduced Asian investors to Canadian customers," and then hid a large portion of the money they were paid for this service through a number of accounts in various countries, a technique the document refers to as a "layering strategy [that is] typical of a money laundering operation."
"This strategy involved at least six offshore companies, two Canadian corporations, a number of non-resident individuals, and numerous bank and investment accounts to hide the income they earned from participating in the business operations of various companies/corporations that were purported to be non-resident," the court document alleged. "The aforementioned layering strategy was used to hide income and evade the payment of Canadian income taxes for the years from 2005 to 2013."
Mr. Tai could not be reached for comment on Friday. The Globe left a message requesting comment with someone at Vancouver-based NAI Interactive Ltd., a subsidiary of one of Mr. Tai's companies, who said he had relayed the message to Mr. Tai and several other employees. Calls to home phone numbers associated with Mr. Tai and another man named in the court document were not returned.
Mr. Tai became a permanent resident of Canada in 1982, at the age of 18, and is now a Canadian citizen. According to the CRA, Mr. Tai was involved in creating the following firms:
- ChineseWorldNet.Com Inc., a firm incorporated in the Cayman Islands in 2000 that connected “capital market participants in China with those in North America” through a Chinese-language online portal that also offers financial news;
- CWN Capital Inc., incorporated in the British Virgin Islands in 2009, and;
- Goldpac Investment Partners Ltd., incorporated in the British Virgin Islands in 2001.
On Friday, a Globe reporter visited the downtown Vancouver offices of Goldpac and NAI Interactive and found their co-working space empty. Two lights illuminated the office, wires hung from above and a dozen ceiling panels were stacked at what used to be the front desk.
The document said the investigation started in 2013, when the CRA received information from the IRS based on data in the ICIJ's "offshore leaks database." According to the court document, the IRS passed on e-mails to the CRA in which Mr. Tai discussed the affairs of Goldpac Investment Partners with a business associate in Vancouver.
The CRA search warrant stated that Mr. Tai declared total income of $549,000 on his T1 returns from 2005 to 2013. However, the document alleged that, in fact, Mr. Tai and his wife received $6.4-million in income that they did not declare.
According to the CRA, CWN Capital earned income of $4.8-million between 2010 and 2013. The money was directed to foreign accounts, as CWN Capital's Canadian customers were instructed to send their payments to the firm's bank account in Hong Kong, the CRA alleged.
About $4-million was transferred to Canadian bank accounts "to remunerate Joe Tai, and persons working for him in Vancouver, Canada, or otherwise used for stock trading," the CRA alleged.
The Liberal government announced last year that it would spend an additional $444-million to crack down on tax evasion and tax avoidance. The CRA is auditing 820 taxpayers and criminally investigating 20 cases of tax evasion in relation to offshore files.
"From April 1, 2011, to March 31, 2016, the CRA has convicted 42 taxpayers with offshore links for tax evasion, involving $34 million in federal taxes evaded, court fines of $12 million, and 734 months of jail time," the CRA said in its statement.