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

Theaccounting firmKPMGgot out ofthe tax-shelter business years agoafter a change in taxation laws and in Canadian expectations, a senior executive told a House of Commons committee Tuesday.

GregoryWiebe, KPMG tax partner and former global head of tax for the firm, was responding to questions about the firm's controversial Isle of Man offshore tax schemecreated in 1999, which theCanada Revenue Agency has alleged"intended to deceive" federal tax authorities.

"Like every business, we'vechanged 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."

KPMG operates around the world through a network of independent national affiliates, including one in Canada that employs around 6,000 people inmorethan 30 offices across the country. All are members ofKPMG International Co-operative, registered in Switzerland, and provide tax, auditing and consulting services to corporations and governments.

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MPs on the House financecommittee initially pepperedWiebewith questions about the identitiesof the 27 KPMG clients who took advantage of the Isle of Man schemeand details of any amnesty or settlement offered by the CRA.

Wiebedeclined toanswer those questions, sayingthe matter has been before the courts since early2013 and that the firm must protect client confidentiality. A judge ordered KPMG to hand over client names and documents related to the Isle of Man scheme to a CRAauditor in 2013, but the firm appealed the ruling.

WIebe saidthe Isle of Man tax shelter, which netted the firm $1.6 million in fees for the setting up of 16 plans, "fully complied with all applicable tax laws" that were in effect in Canada in 1999 and has not been in use since2003.

Wiebesaidthe Conservative government'stightening of tax-shelter rules in 2013 and 2014 dramatically changedthe landscapeand said his own firm now carefully reviews any tax-saving planfor "reputational" risk, as well as ensuring it is legal and complies with general anti-avoidance tax rules.

Crossover is small

Tory MP LisaRaittalso asked about reports thatKPMGhires former CRA auditors.Wiebesaid the number hired is small just seven or eight in a workforce of around 1,400 tax profesionals. He also said employees are expected to maintain theirCRA oaths of confidentialityand are requiredto self-certifyannually that they have done so.

The committee has yet to vote on an NDP motion brought forth at the meeting askingWiebeto identify any clients who may have broken the law.

Later in question period, the NDP'sTom Mulcair called on the Liberal government to launch an investigation, saying "Canadiansdon't accept there is one law for the rich and well connectedand one law for everybody else."

But Prime Minister Justin Trudeau rebuffed the demand."Once again, we see NDP is always eager to play procedure games rather than dig into real issues. We're working with CRA, we're ensuring all Canadiansand companies pay their fair share of taxes."

Wiebe also told the committee that the so-called tax gap the difference between what the CRA actually collects compared with all the taxes that are owed is not yet measured in Canada butthat the underground economy rather than offshore tax havens likelyaccountsfor most of the missing money.

Not named

Wiebeisn't named in any court documents filed by the CRA, which allege KPMG earned a 15 per cent cutin the Isle ofMan plan, which promised multimillionaire clients they would pay "no tax" on their investment income.

None of theKPMGofficials named in the court documents areappearing before the committee, but committee chair Wayne Easter hasn'truled out calling on additional tax executives from the firm who arecloser to the fileat a later date.

DennisHowlett, executive director of Canadians for Tax Fairness, says he would like to seeKPMGexecutives 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 wealthyKPMGclients involved in the firm's tax scheme based out of the Isle of Man, a self-governing so-called possession of the BritishCrownlocated in the Irish Sea between Ireland and the U.K.

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 tax agency's offer came with a strict condition that clientsnever talk about it in public.

Today's committee hearing camemore 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 specificKPMGexecutives involved in an allegedscheme, which included the use of offshore companies. The Senate committee also issued subpoenas forKPMG'sdocuments.

SixKPMGofficials 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 ServicechargedKPMGand several senior executives in the case, alleging they helped hide billions of dollars in taxable income. ThreeKPMGexecutives were later convicted. As part of a plea bargain, the firm itself admitted to "criminal wrongdoing" and agreed to pay $456million US in penalties.

The legality of theCanadianKPMG affiliate'sIsle 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.CRA officials who are expected to be called include commissioner AndrewTreusch, assistant commissioner TedGallivanand StephanieHenderson, manager of offshore compliance.

Revenue Minister DianeLebouthillieris scheduled to testify on May 19.

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