Transcript of © 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG...
- Slide 1
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Mitigating the Risk of Tax Whistleblowing Navigating Canadas
New Rules TEI T ORONTO C HAPTER Toronto, Ontario March 20, 2014 T
IMOTHY J. M C C ORMALLY KPMG LLP Washington, D.C.
- Slide 2
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED
OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR
ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING
PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING,
MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED
HEREIN. You (and your employees, representatives, or agents) may
disclose to any and all persons, without limitation, the tax
treatment or tax structure, or both, of any transaction described
in the associated materials we provide to you, including, but not
limited to, any tax opinions, memoranda, or other tax analyses
contained in those materials. The information contained herein is
of a general nature and based on authorities that are subject to
change. Applicability of the information to specific situations
should be determined through consultation with your tax adviser.
Copyright for the specific content remains with the firm whose
representative presents it. 2
- Slide 3
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Objectives Review developments relating to tax
whistleblowing in popular media Review U.S. tax whistleblowing
rules Review Canadas new Offshore Tax Informant Program Review
non-tax costs of whistleblowing Consider steps to mitigate tax
whistleblowing risk 3
- Slide 4
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Agenda Tax Whistleblowers in the News U.S. Tax Whistleblower
Rules Canadas Offshore Tax Informant Program Mitigating
Whistleblower Risk Appendix: Information on BEPS and Tax
Transparency Questions 4
- Slide 5
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Tax Whistleblowers in the News Not Just the News, but the
Headlines Whistleblowers in the News: Not just national security,
but taxes. Most prominent tax whistleblower is Bradley Birkenfeld.
Hes the former UBS employee who secured a $104 million
whistleblower award from the U.S. government for telling the
Internal Revenue Service about his employers involvement in helping
UBS clients evade their U.S. tax obligations. 5
- Slide 6
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Tax Whistleblowers in the News UBS Case Is Special, but not
Unique Other Headlines Tax Whistleblower Gets $2 Million IRS Award:
Lawyer (Chicago Tribune). Tax Informants Are On The Loose (Forbes).
IRS Gives $4.5 Million Award to Tax Whistle-blower (Associated
Press). First False Claims Act Recovery in New York, Whistleblower
Awarded $1.1 Million (Corporate Crime Reporter). 6
- Slide 7
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Tax Whistleblowers in the News Letting the Facts Get in the
Way... In 2013, Google officials were called before a U.K.
parliamentary committee after Thomson Reuters published stories
undermining the companys claims about having no permanent
establishment in the country. Tipped off by a whistleblower, TR
reporters researched LinkedIn profiles of Google employees. U.K.
tax authorities defended its scrutiny of Googles activities, but
the whistleblowers tips led to days of headlines such as UK
lawmakers challenge Googles smoke and mirrors on tax. 7
- Slide 8
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. U.S. Whistleblower Rules Internal Revenue Code 7623 Awards
for provision of information relating to a violation of the
internal revenue law. When amounts exceed $2 million, statutory
award is between 15% and 30% of amount collected (reduced to 10%
when information is publicly available). IRS has discretionary
authority to grant awards for cases less than $2 million. Notice
2008-4: Guidance on filing claims. Regulations issued in December
2012. 8
- Slide 9
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. U.S. Whistleblower Rules Awards, Even for Those Who
Participated in Tax Evasion Scheme The Whistleblower Office may
reduce an award if informant planned and initiated actions leading
to the underpayment. I.R.C. 7623(d)(3). Where informant is
convicted of criminal conduct related to underpayment, no award may
be given at all. In September 2012, IRS announced $104 million
award to Bradley Birkenfeld for information leading to $5 billion
settlement between IRS and UBS Bank. (Mr. Birkenfeld served prison
sentence for assisting certain individuals in hiding foreign bank
accounts from IRS.) 9
- Slide 10
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. U.S. Whistleblower Rules Awards, Even for Those Who
Participated in Tax Evasion Scheme In October 2012, IRS awarded
another whistleblower $38 million. Since enactment of 2006
amendments, there have been more than 1,900 tax whistleblowers,
involving 10,500 taxpayers. Treasury Departments Inspector General
for Tax Administration reported that tips received in 2008 added up
to $65 billion in unreported income. For six years ending September
30, 2013, IRS paid out approximately $230 million in whistleblower
awards, including about $50 million in FY2013. 10
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- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. U.S. Whistleblower Rules Recent Examples Involving Large
Companies In-house tax professional indicted for participating in
filing of false tax return after colleague raised internal concerns
about research tax credit claim. The company, a government
contractor, conducted internal investigation and subsequently
referred matter to Justice Department. After jury trial, tax
professional was acquitted of criminal charges under I.R.C.
7206(2). Tax department employee filed federal job-protection suit
under SOX claiming he was reassigned (and denied certain
compensation) after raising concerns internally about certain
international transactions. Suit, which alleged unlawful scheme to
avoid over $2 billion in federal income tax, was settled without
any adjudication of underlying tax claims. Tax department employee
filed wrongful discharge suit under SOX and RICO alleging company
misled IRS and hid tax shelter from outside auditor. (Tax at issue
alleged to be $7 million.) Case dismissed and, in separate state
case by the company, employee was found liable for defamation.
(Separate internal investigation upheld companys tax position.)
11
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- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Harper Government Announces Tax Whistleblowing Program
Announced in March 2013 as part of the Governments Budget, the
Offshore Tax Informant Program is part of a larger Canada Revenue
Agency program aimed at ending international tax evasion. CRA is
working out the details, but in January 2014 published a broad
outline of the program on its website. 12 Canada Gets Into the
Act
- Slide 13
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Eligibility Requirements The program contemplates CRAs
entering into a contract with the informant. The informant cannot
be convicted of the tax evasion about which he or she reveals
information and still receive award. The information must lead to
an assessment or reassessment exceeding $100,000 in federal taxes.
Payment will be made after the tax debt has been collected and all
recourse rights associated with the assessed tax have expired. 13
Canadas Offshore Tax Informant Program
- Slide 14
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Eligibility Requirements The award will be between 5% and
15% of federal taxes (i.e., not including penalties, interest, and
provincial taxes). The non-compliant activity must involve foreign
property or property located or transferred outside Canada or
transactions conducted partially or entirely outside Canada.
Payment will not be made to an individual who has been convicted of
tax evasion related to the information provided. 14 Canadas
Offshore Tax Informant Program
- Slide 15
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Eligibility Requirements Unlike the current Informant Leads
Program (ILP) (which does not pay awards), the new program will not
accept anonymous submissions, although the identity of the
informant will not be disclosed. o So-called Liechtenstein audits
were prompted by informant tips. CRA currently receives
approximately 24,000 referrals annually under the ILP. 15 Canadas
Offshore Tax Informant Program
- Slide 16
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Differences between U.S. and Canadian Rules In the United
States, whistleblower awards range between 15% and 30% of the
amounts collected, whereas in Canada, the award is only between 5%
and 15%. In the United States, an award is only available where the
collected proceeds exceeds $2 million, whereas in Canada, the
threshold is $100,000. 16 Canadas Offshore Tax Informant
Program
- Slide 17
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Differences between U.S. and Canadian Rules In the United
States, the award will be based on the total amount collected by
the IRS (i.e., including interest and penalties), whereas in
Canada, it will be based only on the amount of tax recovered. In
the United States, the program is statutory, whereas in Canada, it
is administrative and contractual. 17 Canadas Offshore Tax
Informant Program
- Slide 18
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Policy Questions OTIP is aimed not only at tax evasion but
at efforts by high-income taxpayers who attempt to evade or avoid
tax using complex international legal arrangements, without
acknowledging tax avoidance is legal. OTIP is not alone in
conflating tax evasion and aggressive tax avoidance. Daily media
reports augmented by government hearings and hyperbole feed a
growing perception that tax avoidance is depriving costing
governments of significant revenue at a time of high deficits and
debt levels. 18 Canadas Offshore Tax Informant Program
- Slide 19
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Policy Questions CRA has tools to pursue and prosecute tax
evaders, especially given trends in tax transparency and more
exchanges of information by tax authorities, including those
spurred by the OECDs BEPS project. o Auditor Generals Fall 2013
report reviews Liechtenstein audits and other efforts to address
undeclared offshore income (including volunteer disclosure
agreements). o 43 Liechtenstein audits led to 23 reassessments,
generating $24.651 million in federal tax, interest, and penalties.
19 Canadas Offshore Tax Informant Program
- Slide 20
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Policy Questions CRA has tools (continued) o Foreign Income
Verification Statement (Form T1135). o Information exchange with
Australia, U.K., and U.S governments. Tips from whistleblowers can
prove a distraction, diverting attention from areas that can better
use CRAs limited resources. 20 Canadas Offshore Tax Informant
Program
- Slide 21
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Mitigating Whistleblower Risk Non-Tax Costs Can Be
Substantial Even assuming whistleblowers claims do not lead to
additional tax liability or penalty, costs to company could be
substantial: Financial: o Legal and other fees incurred in
responding to merits of tax claims. o Legal costs and possible
monetary damages if retaliation (or unlawful discharge) is alleged,
either under general employment law principles, Sarbanes-Oxley Act
(SOX), or Racketeer Influenced and Corrupt Organization Act (RICO).
o Consulting fees paid to crisis management, government affairs, or
public relations firms relating to claim. 21
- Slide 22
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Mitigating Whistleblower Risk Non-Tax Costs Can Be
Substantial (continued) Human Resources: o Decline in employee
productivity and morale, both within and outside tax department.
Reputational: o If whistleblowers claim becomes public for example,
by leak to media or suit for unlawful retaliation company could
find its name in headlines. Even if claim does not become public,
companys credibility with IRS, CRA, or other governmental bodies
could be impaired. 22
- Slide 23
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Mitigating Whistleblower Risk Dont Make Matters Worse Avoid
Actual or Perceived Retaliation. Confirm Adequacy of Companys
Ethics Hotline and Tax Department Awareness of Procedures. Review
and Revise Tax Department Procedures and Practices. o Demystify
Tax. o Set Proper Tone at the Top; Listen to Your Team. o Train
Your Team. o Review Performance Standards. o Review the Companys
Policy for Making Disclosures to IRS and CRA. See Michael P. Dolan
& Timothy J. McCormally, Which Way the Wind Blows: Mitigating
Whistleblower Risk, 139 Tax Notes 1537 (June 24, 2013). 23
- Slide 24
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Appendix Information on BEPS and Tax Transparency
http://www.kpmginstitutes.com/taxwatch/insights/2013/tax-transparency.aspx
- Slide 25
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Appendix Information on BEPS and Tax Transparency
http://www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/taxnewsflash/Pages/beps-taxnewsflash.aspx
- Slide 26
- 2014 KPMG LLP, a Delaware limited liability partnership and the
U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved. Printed in the
U.S.A. Speaker Biography 26 Timothy J. McCormally is a Director in
the Washington National Tax practice of KPMG LLP. He served as
Executive Director of Tax Executives Institute from 2002 to 2013,
and as the organizations top lawyer for the previous 19 years. Mr.
McCormally received his B.A. degree from the University of Iowa and
his J.D. degree from Georgetown University Law Center. Throughout
his 30-year tenure at TEI, he was editor of The Tax Executive. He
has contributed to that magazine, Tax Notes, Tax Adviser, and other
tax periodicals, and has spoken at programs sponsored by TEI and
other organizations, including NYUs State and Local Tax Institute.
He lectures extensively on tax ethics and is co-author of a recent
article for Tax Notes on best practices to mitigate the risk of tax
whistleblowing. His article entitled The Language of Tax:
Cautionary Notes for the Tax Reform Debate, was published in the
March 10, 2014, issue of Tax Notes. Timothy serves as a Fellow of
the American College of Tax Counsel, and is a recipient of TEIs
Honorary Membership Award as well as the First Annual Tax Policy
Award of Quinnipiac University. For three years in a row while at
TEI, Timothy was named one of the top ten most influential people
in the sphere of global taxation for three years in a row by the
U.K. publication Tax Business. In 2014, Mr. McCormally was
appointed to the Internal Revenue Service Advisory Council.
- Slide 27
- Thank you! Timothy J. McCormally KPMG LLP tmccormally@kpmg.com
1.202.533.3079 27