KPMG Under Scrutiny in Canada Over Sham Offshoring Wealth for Canadians (9/11/15)

This saga sounds familiar, but apparently with delaying tactics in court not generally experienced in the U.S.  Dave Seglins, Harvey Cashore and Frederic Zalac, Federal probe of KPMG tax 'sham' stalled in court (CNBC News 9/10/15), here.

In February 2013, a federal court judge ordered KPMG to turn over a list of (as yet) unidentified multimillionaire clients who placed their fortunes in an Isle of Man tax shelter scheme that the CRA is arguing is a "sham." 

The CRA hoped to learn the scope of KPMG's "Offshore Company Structure" in order to identify potential tax cheats, as well as recoup millions in unpaid taxes and penalties.
But KPMG filed a court motion to quash the judge's order. For 30 months, the case known as Minister of National Revenue (MNR) vs KPMG has sat dormant before the court with no signs the top-tier accounting firm has handed over any list of wealthy clients. Neither the government nor KPMG has requested a court date to resolve the outstanding order of Justice Noel. 

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According to court documents, the family essentially gave away the money to an arm's-length company that invested it and then "gifted" the proceeds back as non-taxable income.   

In court, the CRA says the structure was a deliberate "sham" created to "deceive" federal tax authorities. 

But when CRA won a court order in February 2013 to force KPMG to hand over a list of all multi-millionaire clients invested in the same Isle of Man plan, the accounting firm filed a court motion to overturn the judge's ruling. 

Now, MNR vs KPMG remains mysteriously stalled. 

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A variety of tax experts have told CBC News major accounting firms in Canada are watching the KPMG case closely, concerned about possible precedents, taxpayer privacy and potential exposure to third-party penalties. 

"They're nervous," Howlett told CBC News.

"If the government wins this case or 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." 

CBC News consulted a variety of tax experts who say KPMG Canada could face civil "culpable conduct" penalties if the CRA determines the firm helped wealthy taxpayers concoct an illegitimate offshore scheme to avoid paying Canadian taxes. 

Under Canadian law, any third party that helps a taxpayer set up a "sham" tax strategy may itself face penalties of 50 per cent of the taxes avoided. In KPMG's case, those penalties could add up quickly, depending on the number of clients that used the alleged Isle of Man tax avoidance structure. 

At least one observer says time is running out if the CRA wants to collect all the monies it may be owed. 

Michael Hamersley, a former KPMG U.S. lawyer turned whistleblower, says that if the CRA allegations hold up in court, that would show that the government should have acted more promptly. 

"The longer this goes, the smaller the chance to capture the full universe of abuse," Hamersley told CBC News after reviewing documents in the case.