The Role of Canada's Tax Information Exchange Agreements in the Fight against Offshore Tax Evasion

AuthorDavid Kerzner, David W. Chodikoff
chapter six
This chapter begins by reviewing the policy objectives behind tax informa-
tion exchange agreements (TIEAs), while giving particular consideration to
the objectives set by the OECD. The goals of Canada and the United States
with respect to TIEAs are also reviewed. This chapter then examines how
Canada’s TIEAs function as vehicles for the exchange of information (EOI)
between Canada and foreign jurisdictions. Select articles dealing with the
EOI process in Canada’s TIEAs are described and then compared against
(1) the OECD Agreement on Exchange of Information on Tax Matters,1 (2) each
other (i.e., other Canadian TIEAs in force), and (3) the TIEA between the
United States and the Cayman Islands.2 The US–Caymans TIEA is used as an
example of a US TIEA because of the Cayman Islands’ ongoing high-prof‌ile
as a tax haven.3 By looking at Professor Steven Dean’s analysis of tax har-
monization versus tax deharmonization, this chapter examines an important
overarching question in the debate on ef‌fective EOI and the use of TIEAs
1 See OECD, Agreement on Exchange of Information on Tax Matters (Paris: OECD, 2002) [treaty
and commentary together: Model TIEA].
2 See Agreement between the Government of the United States of America and the Government of the
United Kingdom of Great Britain and Northern Ireland, including the Government of the Cayman
Islands, for the Exchange of Information relating to Taxes (27 November 2001), online: http:// [US–Caymans TIEA].
3 The Cayman Islands was listed as one of the top f‌ive tax haven destinations for Canadian
dollars with $25.8 billion invested in 2011: see Janet McFarland & Bill Curry, “Banking: Docu-
ment Leak Reveals Widespread Use of Tax Havens” Globe and Mail (4 April 2013), online:
182 InternatIonal tax evasIon In the Global InformatIon aGe
regarding the global community’s focus on achieving a victory against inter-
national tax evasion through cooperation around the implementation of a
uniform set of rules and procedures. The conclusion provides a summary of
the results of the comparative analysis.
A TIEA is a bilateral agreement between two governments for the purpose
of exchanging information with respect to taxes.4 As of February 2016, twenty-
two TIEAs were in force between Canada and other jurisdictions.5 In broad
strokes, a TIEA is a treaty made out of a single double-tax-convention article
on EOI. By contrast, Canada has ninety-six full-blown tax treaties in force.6
In terms of the legislative process in Canada, a TIEA is tabled in the House of
Commons for a period of twenty-one sitting days, and following any questions
or debate, the government ratif‌ies the treaty by signing an order in council,
and there is no additional legislative process involved.7
1) The OECD’s Response to Bank Secrecy
The OECD identif‌ied tax havens as being one of the two primary contributors
to harmful tax practices (the other being so-called preferential tax regimes).8
It further viewed tax havens as possessing four key identifying factors: (1)
no or only nominal taxes, (2) lack of ef‌fective EOI, (3) lack of transparency,
and (4) investment with no substantial activities.9 Among these attributes,
the critical one sought by individual investors, and the ultimate focus of the
4 See Model TIEA, above note 1, Preamble. The Model TIEA is presented as both a multilateral
instrument and a model for bilateral treaties or agreements. This chapter examines the latter
model, which is used by Canada and the United States.
5 See Canada, Department of Finance, “Tax Information Exchange Agreements,” online: www.
f‌, where the full texts of Canada’s TIEAs can be
6 See Canada, Department of Finance, “Notices of Tax Treaty Developments,” online: www.f‌in. For an excellent discussion of the history of
Canada’s tax treaties, including an explanation of the use of tax treaties and important policy
considerations, see Brian J Arnold, Reforming Canada’s International Tax System: Toward
Coherence and Simplicity (Toronto: Canadian Tax Foundation, 2009) at 319–70.
7 See OECD, Global Forum on Transparency and Exchange of Information for Tax Purposes Peer
Reviews: Canada 2011 — Combined: Phase 1 + Phase 2 (Paris: OECD, 2011) at 57–58, online: [Canada Peer Review Report].
8 See Chapter 3, Section D.
9 OECD, Harmful Tax Competition: An Emerging Global Issue (Paris: OECD, 1998) at 24 [OECD
1998 Report].
The Role of Canada's TIEAs in the Fight against Offshore Tax Evasion 183
OECD’s harmful tax competition project, was secrecy.10 The OECD 1998 Re-
port observed:
these tax haven jurisdictions do not allow tax administrations access to
bank information for the critical purposes of detecting and preventing tax
avoidance which, from the perspectives of raising revenue and controlling
base erosion from f‌inancial and other service activities, are as important as
curbing tax fraud. Thus, the lack of ef‌fective exchange of information is one
of the key factors in identifying a tax haven since it limits access by tax au-
thorities to the information required for the correct and timely application
of tax laws.11
Taxpayers use bank secrecy laws in foreign jurisdictions both to hide
their illegal activities from governments and to escape tax. The bank secrecy
laws of a tax haven or foreign jurisdiction impede access to and analysis of
records of f‌inancial transactions by f‌iscal and law enforcement authorities.
As a result, these bank secrecy laws can and do hinder the ef‌fective adminis-
tration and enforcement of countries’ laws.12 In addition, bank secrecy laws
distort the distribution of the tax burden and call into question the fairness
of the tax system by allowing some taxpayers to evade paying tax on income
earned in their of‌fshore accounts.13 Moreover, bank secrecy can create un-
justif‌ied advantages between dif‌ferent categories of income such as mobile
capital versus income derived from employment or immovable property.14
Allowing f‌iscal authorities to access valuable information about bank
deposits and withdrawals can unlock a treasure trove of pathways to dis-
covering a number of improprieties that may otherwise remain concealed,
such as unreported legal or illegal income, false deductions, back-to-back
loan transactions, sham transactions, and bribes or suspicious payments.15
Permitting greater access to such bank information may also aid in the col-
lection of tax liabilities.16 In 2000, the OECD believed that the availability of
10 See Robert T Kudrle, “The OECD’s Harmful Tax Competition Initiative and the Tax Havens:
From Bombshell to Damp Squib” (2008) 8 Global Economy Journal 1 at 5.
11 OECD 1998 Report, above note 9 at 15.
12 See OECD, Improving Access to Bank Information for Tax Purposes (Paris: OECD, 2000) at 7.
Without such records of f‌inancial transactions, a tax authority may be unable to determine
and collect the correct amount of tax (ibid at 9). Denying access to bank records also greatly
facilitates money laundering schemes that deal with the proceeds of crime to conceal their
illegal origins (ibid at 25).
13 See ibid.
14 See ibid.
15 See ibid at 8.
16 See ibid.

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