Panama Papers: Tax Evasion and The Upper One Percent

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The upper one percent – society’s richest people – are in deep shit. Over a year ago an anonymous source contacted Süddeutsche Zeitung, Germany’s largest broadsheet newspaper, with a juicy gift.

It consisted of encrypted internal documents from Mossack Fonseca, a Panamanian law firm that specializes in selling anonymous offshore companies to interested buyers. These companies allow individuals and organisations to hide wealth from those with a legal right to it including tax collectors and spouses in divorce proceedings.

When the documents were decrypted they pointed the finger at politicians like British Prime Minister David Cameron and Russian President Vladimir Putin, as well as rich company owners and CEOs, terrorist organisations, and even athletes like Lionel Messi, the Argentinian soccer player.

The world is understandably outraged. Everything we suspected about the upper one percent: that it’s a group consisting mostly of sanctimonious older males who will do anything to keep their wealth so they can continue to screw us turned out to be absolutely true.

Having said all that maybe it’s time we take a look at our own laws to see what the offenders in our back yard will be facing if a few Canadian names turn up in the Panama Papers.

There are three kinds of charges a Canadian found in the Panama papers would likely face: tax evasion, tax avoidance, and maybe fraud.

Tax evasion is deliberately hiding income so you don’t have to pay taxes.

It can have many forms as defined by the Federal Income Tax Act and the Quebec Tax Administration Act. This includes failing to file or make a tax return, making false or deceptive statements in tax returns, destroying records to avoid paying taxes, or conspiring to do these things. The penalties are different depending on whether the violation involved federal or provincial taxes.

A person convicted of federal income tax evasion will be facing a maximum prison sentence of five years. The fines they will face depend on the type income tax evasion they are convicted of.

If the person is convicted of failing to file a tax return, for example, the maximum fine is twenty-five thousand dollars plus any little penalties for specific violations related to the evasion. If you’re convicted of providing false information or destroying documents to avoid paying taxes, the maximum fine is double the amount you sought to evade.

Quebec law comes down a little harder on income tax evaders. The maximum penalty for income tax evasion is a million dollars, but sadly the prison sentence is as ridiculously short as in federal law: five years less a day.

Income tax avoidance is a little different.

Income tax avoidance is abusively taking advantage of a legal loophole to avoid paying taxes or to pay less of them, and it’s only listed as a separate offense in the Federal Income Tax Act. This can take the form of making arrangements that would result in a tax benefit or exemption for example.

If a person is caught doing this, the penalty is going to depend a lot on the judge because the federal Income Tax Act says that the consequences will be determined “as is reasonable in the circumstances.” Sadly, the wording of the rules regarding tax avoidance suggests that the worst case scenario is being denied the benefit or having to pay the taxes.

Fortunately, the Canadian Criminal Code’s rules regarding fraud are MUCH tougher.

Fraud is defined as being committed by someone who “by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security or any service.” The maximum penalty for fraud is a prison sentence of fourteen years.

And it gets better.

The Criminal Code allows our courts to take into account certain aggravating circumstances such as whether the fraud had a negative impact on the Canadian economy or affected a large number of victims.

A Canadian who partook of Mossack Fonseca’s services to get out of paying a healthy chunk of their taxes would certainly be guilty of both because every penny they keep out of the tax collector’s hands is a penny they keep out of the public purse. The public purse is where the money for stuff like health care, passport offices, and salaries for judges and public defenders comes from.

Wealthy Canadians like Conservative Leader Wannabe Kevin O’Leary have been trying to minimize the impact of the Panama Papers. In an interview with the CBC on April 6, 2016, he boldly said:

“These [tax] structures are legal… So what? That’s the bottom line.”

The “so-what” is that the money rich guys are hiding so they can pay for their golf clubs and matching country club-appropriate outfits is money they are keeping from hardworking Canadians who need to know that they have to pay taxes like everyone else and that those taxes will be proportionate to their actual wealth (like everyone else). In order to make sure of that we need to punish those who can afford to pay the taxman but don’t…

…And maybe investigate Kevin O’Leary too.

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