KPMG official tells MPs firm no longer in tax-shelter business

The Canadian accounting firm KPMG got out of the tax-shelter business years ago, after a change in taxation laws and in Canadian expectations, a senior executive told a House of Commons committee today.

Gregory Wiebe was responding to questions about the firm's controversial Isle of Man offshore tax scheme created in 1999 and which the Canada Revenue Agency has alleged "intended to deceive" the treasury.

"Like every business, we've changed dramatically since 1999," he said. "We have no tax shelters that we sell.... The tax shelter regime in Canada is just something we're not part of."

MPs on the committee initially peppered Wiebe with questions about the 27 clients who took advantage of the Isle of Man scheme, and details of any amnesty or settlement offered by the CRA.

Wiebe declined answer those questions, noting the matter has been before the courts since 2013 and saying the firm must protect client confidentiality.

But he said the Isle of Man tax shelter, which netted the firm $1.6 million in fees to set up 16 plans, "fully complied with all applicable tax laws" in 1999 and was last implemented in 2003.

Wiebe pointed to the Conservative government's tightening of tax-shelter rules in 2013 and 2014 as dramatically changing the the landscape, and said his own firm now reviews any tax-saving plan for its clients for "reputational" risk, as well as ensuring it is legal and complies with general anti-avoidance tax rules.

Crossover is small

Tory MP Lisa Raitt also asked about reports that KPMG hires former CRA auditors, but Wiebe said the number is small — just seven or eight in a workforce of some 1,400 people. He also said employees are expected to maintain their CRA oaths of confidentiality, and are required annually by KPMG to self-certify they have done just that.

The chair of the committee, Liberal Wayne Easter, ruled out of order an NDP motion asking Wiebe to identify any clients who may have broken the law, saying it was likely to affect an active court case.

Wiebe, tax partner and former global head of tax for the accounting firm, isn't named in any of the court documents filed by the CRA, which allege KPMG earned a 15 per cent cut in the Isle of Man plan that promised multimillionaire clients they would pay "no tax" on their investment income.

​None of the KPMG officials named in the court documents are appearing before the committee, but Easter hasn't ruled out calling on additional tax executives from the firm, closer to the file, at a later date.

Dennis Howlett, executive director of Canadians for Tax Fairness, says he would like to see KPMG executives who were directly involved in the Isle of Man scheme address the committee and is concerned about a possible "whitewash" if that doesn't happen.

The decision to launch hearings came in March, after CBC News revealed the CRA offered a secret amnesty to wealthy KPMG clients involved in the firm's tax scheme based out of the Isle of Man, a small European island between Ireland and England.

The offer, leaked to CBC News in a brown envelope, allowed the wealthy clients to pay taxes on the income they previously had not declared, plus some modest interest, and promised no civil penalties and no criminal investigations. The agency's offer came with a strict condition that clients never talk about it in public.

Today's committee hearing came more than a decade after a U.S. Senate subcommittee held its own hearings into accounting firms and tax-avoidance schemes.

KPMG charged in U.S.

In the U.S. probe in 2003, politicians issued subpoenas for specific KPMG executives involved in an alleged scheme, which included the use of offshore companies. The Senate committee also issued subpoenas for KPMG's documents.

Six KPMG officials would later testify, including the firm's partner in charge of the personal financial planning division and the vice-chair of tax services.

In 2005, the U.S. Internal Revenue Service (IRS) charged KPMG and several senior executives in the case, alleging they helped hide billions in taxable income. Three KPMG executives were later convicted. As part of a plea bargain, the firm itself admitted to "criminal wrongdoing" and agreed to pay $456 million in penalties.

The Canadian KPMG Isle of Man tax dodge hasn't been tested in court, and no one from the firm has publicly admitted to any wrongdoing.

The Commons finance committee also plans to call Justice Department and CRA officials to testify in its KPMG hearings. Agency officials include CRA commissioner Andrew Treusch, assistant commissioner Ted Gallivan, and Stephanie Henderson, manager of offshore compliance.

Revenue Minister Diane Lebouthillier is scheduled to testify on May 19.