Complex tax schemes designed to shift money overseas are going the way of smoking in restaurants in terms of social and legal acceptance, an accounting firm executive has told MPs studying tax evasion and avoidance.
KPMG partner Gregory Wiebe also said the global accounting firm has long since abandoned offering controversial tax advice that has been challenged by the Canada Revenue Agency and is now the subject of a legal dispute.
Speaking with legal counsel at his side, Mr. Wiebe was the first witness to provide testimony as part of the House of Commons finance committee's study of the agency's efforts to tackle tax evasion and avoidance.
The committee called Mr. Wiebe to discuss a legal battle between the CRA and KPMG clients, including a Victoria resident who is accused by officials of working with KPMG to set up a "sham" company on the Isle of Man to avoid paying taxes in Canada.
Mr. Wiebe declined to comment on the case in detail because it is before the courts. However, he maintained that KPMG believes the services it was offering were legal at the time. He also said the program was largely shut down in 2003 in part because of the declining social acceptance of such arrangements.
"It was a very different time. We used to smoke in restaurants in 2006. We used to text in our cars up until two years ago. Times change and we change with it. Looking at it through that lens, [I] can't defend it."
Governments around the world are increasing their efforts to crack down on the use of offshore tax havens to avoid taxes. The recent leak of what are known as the Panama Papers has heightened the focus on this issue. The March federal budget set aside $444.4-million to boost tax enforcement at the CRA.
The Globe and Mail reported last week that tax enforcement efforts announced in the 2013 budget raised $1.57-billion in new revenue in 2014-15. The government had expected to obtain just $550-million.
The International Consortium of Investigative Journalists, which has led the reporting on the leak, says it will release a searchable database on Monday that will include information on more than 200,000 offshore entities that are connected to the Panama Papers.
Mr. Wiebe explained Tuesday that a tax plan was set up by KPMG in 1999 that moved money to the Isle of Man for an average fee of about $100,000. He said the accounting firm received independent legal advice that the plan complied with existing laws. The plan was used 16 times, involving 27 individuals. Mr. Wiebe said the firm is challenging the CRA in court over the agency's effort to obtain the names of all individuals involved.
"Just as you would expect when you go to your doctor that they keep your medical information private, we are very serious about keeping our client affairs private as well and that's the point of the case before the courts," he said.
Mr. Wiebe also said that growing attention on international tax practices has led KPMG and its clients to go beyond strict legal considerations and weigh the public perception of any potential arrangement.
"Even if you can do it, it doesn't mean you should and that's just evolving," he said. "Is it something that we would be proud of if it hit the papers?"
Dennis Howlett, executive director of the advocacy group Canadians for Tax Fairness, attended the hearing and said KPMG's comments suggest international public pressure on the issue of tax havens is having an impact.
"He more or less admitted that what they did back then, they wouldn't do now, admitting that it wouldn't pass the sniff test," he said. "To some extent it shows the success of the global tax justice movement. We have shifted the public sense of what's acceptable and what's not. We still have a huge problem with corporate use of tax havens, because a lot of things are still allowed."
Mr. Wiebe did defend the practice of industry-hosted social functions that involve CRA officials, insisting it gives accountants the opportunity to learn about potential concerns the CRA may have about emerging tax practices.
"I've been in this business for over 30 years and I've met a lot of people from CRA, and I can't imagine that a beer and piece of cheese would impact their integrity in one way whatsoever," he said.