Harper government partnered with industry group battling CRA over KPMG case

This story was published on Oct. 6, 2015. Here is some of our May 2016 coverage of KPMG:

• May 5, 2016: CRA executives decline to answer KPMG questions before finance MPs
• May 3, 2016: KPMG official tells MPs firm no longer in tax-shelter business

The Harper government forged a partnership with a major Canadian accounting association, formalizing it as an adviser to the Canada Revenue Agency, at the same time as the group sought to fight the CRA in court to shield the files of multimillionaires who had stashed money offshore.

Revenue Minister Kerry-Lynne Findlay trumpeted the alliance in November 2014 as a "new era of information and collaboration" between the Canada Revenue Agency and Chartered Professional Accountants of Canada.

CPA Canada represents and lobbies on behalf of most accounting firms in Canada, including KPMG, which the government was pursuing in court at the time to obtain a list of wealthy clients enrolled in an offshore tax scheme in the Isle of Man.

• KPMG offshore 'sham' deceived tax authorities, CRA alleges
• Federal probe of KPMG tax 'sham' stalled in court
• KPMG tax 'sham' could lead to criminal investigation: experts
• Tax havens explained: How the rich hide money

The agreement, signed by Canada Revenue Agency chief executive officer Andrew Treusch and CPA Canada head Kevin Dancey, called for the formation of joint committees with senior representatives from both groups — and "ensures" that the CRA will consider the accounting group's "input" into any changes to its programs and services, according to a government news release.

"We value our role as a trusted adviser to the CRA," Dancey said after the agreement was signed.

Three months before the government announced the partnership, Prime Minister Stephen Harper himself met with CPA Canada and the heads of KPMG and other major accounting firms. The exceptional visit on Aug. 13, 2014, to the industry association's headquarters in Toronto was recorded in the federal lobbying registry.

The files show KPMG, CPA Canada and another firm met with Harper, his chief of staff Ray Novak and two other aides, though the Prime Minister's Office won't say what was discussed except to say it was a routine stakeholder meeting.

"This is a serious problem, certainly a perception of conflict of interest. The government shouldn't be cozying up to companies that they've taken to court over very serious allegations," said Dennis Howlett, executive director of Canadians for Tax Fairness.

For confidential tips on this story, please email investigations@cbc.ca or call Harvey Cashore at 416-526-4704.

Howlett said the government should have thought more about partnerships and high-level meetings with an industry whose clients it audits and investigates.

"When they get in bed with the very companies that they're supposed to be regulating, it leads to all kinds of dangerous results," Howlett said.

Duff Conacher, who teaches government ethics at the University of Ottawa, said the agreement might send mixed signals to CRA staff auditing clients of CPA Canada member firms.

"It sends a very bad message. Essentially it says don't enforce laws fully and properly because the government is now a partner with this organization and you wouldn't want to make the government look bad."

CPA joined fight over principle

At the same time as forming their partnership with the CRA, CPA Canada had sought intervention in a court case where KPMG was opposing federal tax authorities in a major legal battle over access to records of its clients ensnared in an offshore tax probe.

In February 2013, the CRA obtained a judge's order to force KPMG to hand over the names and all its files from "high net worth" Canadians involved in a KPMG-created tax avoidance scheme in the Isle of Man. Tax officials claim the scheme is a "sham" that allegedly "intended to deceive" tax investigators.

CPA Canada formally stated its intention to join the KPMG court action against the federal government in October 2013, court records show. There has been no ruling so far on CPA Canada's request.

• Tory ministers met publicly with KPMG as alleged tax 'sham' was probed
• Tax 'sham' used by at least 25 wealthy Canadians: document

Dancey, CPA Canada's president, told CBC News in a statement there is a principle of confidentiality at stake. "Taxpayers have the right to obtain independent, confidential tax advice so they can understand and comply with Canada's complex tax laws," he explained.

In a statement CPA Canada posted online after this story was first published, the organization repeated that it sought intervenor status on principle. "CPA Canada does not advocate for the interests of any individual accounting firm or member," the statement says.

Howlett, of Canadians for Tax Fairness, said he suspects CPA Canada is involved in the KPMG case because it might set a precedent for the entire industry.  

"They're nervous that if the government… gets the evidence they need to pursue another case against KPMG, then this whole house of cards, of sham companies and offshore banking, is going to come tumbling down," Howlett told CBC News.

The CRA's case against KPMG had remained mysteriously stalled for more than two years without a single court date. Then, after  a series of stories by CBC News and Radio-Canada about the case in September, a KPMG lawyer told the court just last week that out-of-court settlement talks had failed — and both sides are now asking for a hearing before a judge.

'Not about trying to hide nefarious tax schemes'

In addition to CPA Canada's request to intervene in the KPMG case, the association has also been campaigning for limits on what accounting firms have to provide to tax authorities when clients are being audited and investigated. The campaign has included lobbying Ottawa bureaucrats, politicians and their staff on related topics for several years, a review of lobby registry records shows.

According to those records, CPA Canada was particularly concerned with the CRA's "access to auditors/accountants working papers" — one of the central issues in the alleged KPMG tax "sham" case.

CPA Canada has also registered to lobby Ottawa on "third-party liability" — the penalties and fines imposed by the CRA on accountants and others who facilitate aggressive tax avoidance by their clients.

Gabe Hayos, vice-president of tax for CPA Canada, said that the association has "long been on the record opposing tax evasion" and that  the lobbying campaign is "not about people trying to hide nefarious tax schemes" but rather about ensuring accountants can provide candid, thorough advice to their clients. "All taxpayers have the right to have confidential conversations with their advisers," he said.  

Hayos added that the "the ultimate authority" in CPA Canada's partnership with the government "rests as always with the CRA."  

He also said there is no connection between the association's Ottawa lobbying and its involvement in the KPMG court case.

As for the meeting with Harper, CPA Canada head Dancey told CBC in an email that his organization did not raise the KPMG court case or any related policy matters with the prime minister or his staff. A spokesperson for Revenue Minister Kerry-Lynne Findlay said neither she nor her staff have ever been approached to discuss the KPMG case.   

In a further statement CPA's Dancey said, "For more than a decade we have sought some form of protection for auditor's working papers and the tax advice provided by professional accountants. We have always been transparent and reported all our organization's lobbying activities."

If you have any information on this story, please contact investigations@cbc.ca or phone Harvey Cashore at 416-526-4704. Follow @HarveyCashore on Twitter

For more on this story, watch the documentary The Isle of Sham from CBC-TV's The National.