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KPMG Tax Case

kpmg tax fraud cra court

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#1 spanky123

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Posted 22 September 2015 - 05:51 AM

This first came to light a few weeks ago with a story in the TC about the Cooper family and a battle they are having in tax court over an offshore account.

 

W5 ran a story last night with much greater detail and which suggested that the Victoria office of KPMG and Derrold Norgaard had a role in an alleged tax 'sham'

 

http://www.msn.com/e...ocid=spartandhp.

 

​Knowing a few people who work at KPMG locally, I would find it hard to believe that they did anything other than sell corporately blessed products. If the allegations are true then you would have to think that there are an awful lot of deep pocketed Victoria residents sweating bullets as KPMG is pretty much the only game in town for high net worth tax advice.

 

 


Edited by spanky123, 22 September 2015 - 05:51 AM.


#2 SamCB

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Posted 22 September 2015 - 06:25 AM

This whole story sounds like a CBC smear campaign against Harper's Conservatives. Accountants will use any "loophole" (I hate that word) they can come up with to shelter from tax. And depending on how you word it, CRA "investigates" you anytime they ask you to send your proof of charitable donation receipts after you've e-filed. I see a lot of vague details here being discussed by journalists who clearly dislike Harper, and have very little knowledge of tax accounting.

 

But maybe there's more to the story I'm not seeing... It just seems odd to me that KPMG would risk their entire massive business on a "sham" for a few clients.


Edited by SamCB, 22 September 2015 - 06:25 AM.


#3 spanky123

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Posted 22 September 2015 - 06:52 AM

The CBC/W5 story did play out as a Harper attack ad with a suggestion that KPMG's relationship with the Feds was shielding them. KPMG agreed to pay the US Government 1/2 a billion dollars last year for creating and administering sham tax shelters and 8 execs were charged so it is not completely out of the realm of possibilities that they did the same/similar thing in Canada.

http://www.cbc.ca/ne...piracy-1.542693



#4 Rob Randall

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Posted 22 September 2015 - 08:21 AM

 

 

But maybe there's more to the story I'm not seeing... It just seems odd to me that KPMG would risk their entire massive business on a "sham" for a few clients.

 Of course they would do it. They all do it, CIBC, HSBC et cetera. Not the people we commoners deal with but the brokers to the rich, the guys that get millions in bonuses for bringing in the big returns. Money laundering, tax dodging, the court cases are non-stop. And yes, it's called a tax loophole, it's an underhanded scheme to avoid tax obligations. A tax loophole


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#5 spanky123

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Posted 22 September 2015 - 08:51 AM

^ To me a loophole is a legitimate tax strategy to minimize the amount paid. The CBC seems to be claiming here that this was not a loophole but (to use their words) a sham.



#6 Mike K.

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Posted 22 September 2015 - 09:00 AM

Everything not bringing in revenue to the CRA is a loophole. Media and government love using that word because it carries an overtly negative connotation.

What's more effective in a smear campaign or a media's penchant for controversy? Loophole or "hey look, these guys understand tax laws and the tax system so well that they know how to use the tools the government has given them?"

There is tax fraud. And there are loopholes. One is illegal. The other is 100% legit and sanctioned by the CRA until the day the tax laws are changed and the "loophole" no longer applies.

The arts community, as one example, loves "loopholes." They just don't the call them that. They call them tax grants and tax incentives.

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#7 SamCB

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Posted 22 September 2015 - 09:04 AM

Of course they would do it. They all do it, CIBC, HSBC et cetera. Not the people we commoners deal with but the brokers to the rich, the guys that get millions in bonuses for bringing in the big returns. Money laundering, tax dodging, the court cases are non-stop. And yes, it's called a tax loophole, it's an underhanded scheme to avoid tax obligations. A tax loophole


I think you are confusing accountants/banks/investment banks. All very different things. KPMG handles lots of "commoners" small business and personal income tax files in this city so I'm not sure you know what you're talking about.

#8 spanky123

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Posted 22 September 2015 - 10:34 AM

I think you are confusing accountants/banks/investment banks. All very different things. KPMG handles lots of "commoners" small business and personal income tax files in this city so I'm not sure you know what you're talking about.

 

Arthur Anderson WAS one of the big 5 accounting firms before Enron.



#9 spanky123

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Posted 22 September 2015 - 10:45 AM

For those with an extra hour or two of free time, here is the court document which details the case.

 

https://assets.docum...hard-cooper.pdf



#10 Szeven

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Posted 22 September 2015 - 11:15 AM

I quickly scanned that and noticed the money was held at UBS in Switzerland. Does this stem from the huge crackdown in 2008 by the SEC/US GOV/etc? If so this could one of many cases pending.



#11 Rob Randall

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Posted 22 September 2015 - 11:27 AM

I think you are confusing accountants/banks/investment banks. All very different things. KPMG handles lots of "commoners" small business and personal income tax files in this city so I'm not sure you know what you're talking about.

 

No, you're missing the big picture. My point is, if you have a fat enough wallet the elevator doors will open to little-known parts of these institutions that are off-limits to us plebes. Whether the guys are selling tax dodges or shady instruments or misleading clients and officials, the end result is the same. RBC, BMO, HSBC, TD, Deloitte & Touche, KPMG, they all have these shady guys. They get caught, the company is fined a few million, wash, rinse, repeat.


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#12 Rob Randall

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Posted 22 September 2015 - 11:33 AM

Arthur Anderson WAS one of the big 5 accounting firms before Enron.

 

Right, and CIBC was caught and fined billions for hiding Enron's debt. 


"[Randall's] aesthetic poll was more accurate than his political acumen"

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#13 spanky123

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Posted 22 September 2015 - 12:18 PM

I quickly scanned that and noticed the money was held at UBS in Switzerland. Does this stem from the huge crackdown in 2008 by the SEC/US GOV/etc? If so this could one of many cases pending.


That was my first thought as well but then I noticed that the Coopers declared no income for like 10 years but were buying houses and other assets. That may have triggered the audit.
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#14 Gary H

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Posted 22 September 2015 - 03:48 PM

For those with an extra hour or two of free time, here is the court document which details the case.

 

https://assets.docum...hard-cooper.pdf

 

Hey, now that the Arctic Tuk is gone, I've got some free time, and this lawsuit is right up my interest alley - being a dual-citizen who does my own taxes I know all too well how the recent IRS attempted crackdown on wealthy tax dodgers have made my filing requirements a truly onerous task.

 

The court document is a very interesting read and IMO shows this is not a smart accounting firm leveraging a loophole, this is out and out tax fraud.  Why?  I think it comes down to something pretty simple, the Coopers lied about "giving" over $26M to a company they created in the Isle of Man with the help of KPMG.  When you "give" money away, it's no longer yours, you have no control over it and you never expect to get it back.  Or so you'd think...

 

Enter the schemes of KPMG - we'll set up a investment company for you in the Isle of Man, where you pay zero in corporate taxes, and structure it in such a way that you'll retain full control over the company, and more importantly the money you've "given" to the company.  We'll completely hide your identity as the true owner/beneficiary of the company through the use of corporate service providers on the Isle of Man that can be named as Shareholders of Record for the two classes of shares we'll create.  These service providers will also provide the Directors of Record.  We'll also set up a non-shareholder member (NSM) that will have veto power and the ability to wind up and liquidate the company, giving your money back.  As we'll stipulate that the NSM has to be a trusted non-Canadian resident, we'll setup a shelf company in the British Virgin Islands whose sole purpose is to be the NSM.  The sole shareholder and director of the NSM will be your trusted attorney in Sidney BC, but he'll need to be compensated through fees and be completely indemnified by you.  And speaking of fees, our fees for setting this up and managing it are based on how much in taxes we save you.  In all KPMG collected over $300K in fees between 2002 and 2008.

 

So the "sham" seems to be the elaborate offshore setup to "hide" the true identity of the beneficiary/owner.  The income/distributions the Coopers received from the company, over $4M over eight years, weren't even reported to the CRA.  I can hear their argument: hey it was a gift from a company I have no ties to - I'm not on the bank accounts, I'm not a shareholder or a director.  No where does it say Cooper so it's not my money - but I'll accept it just the same, and use it to live a nice life.

 

Lastly, I don't see this as being solely KPMG hawking a sketchy tax dodge.  It appears the Coopers had a predisposition to tax evasion as they had previously lived in South Africa in the 80's, yet had a Trust in Liechtenstein, a former world renowned tax haven.  Prior to 2008, Liechtenstein's banking was more secretive and allowed bank Trusts to separate the assets from the owners, allowing owners to remain anonymous, thus hiding assets from the foreign tax man.  The Trusts were revocable at any time, allowing the owner to be reunited with his money on demand.


Edited by Gary H, 22 September 2015 - 07:08 PM.

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#15 johnk

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Posted 22 September 2015 - 04:04 PM

^ To me a loophole is a legitimate tax strategy to minimize the amount paid. The CBC seems to be claiming here that this was not a loophole but (to use their words) a sham.

Nothing wrong with finding a loophole and using it. Its up to legislators to draft, pass and amend legislation.
Tax avoidance is perfectly legal.
Tax evasion is another thing and the authorities frown upon it.

#16 pherthyl

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Posted 22 September 2015 - 04:40 PM

The arts community, as one example, loves "loopholes." They just don't the call them that. They call them tax grants and tax incentives.

 

Under no definition is a grant or incentive a loophole.

 

A grant or incentive is intended to be used to further a certain policy goal.  A tax loophole is an unintended way that tax laws can be used to benefit the individual.  Exploiting a loophole is legal, but it is counter to the intent of the tax laws, and the CRA tries to minimize or close loopholes when possible.   

 

The loopholes are also very often not clear cut.  Often the only way to determine if one really exists is to try exploiting this and see if the CRA notices.  It's a fine line between a legal loophole and tax fraud.  In this case it seems pretty clear that they drifted too close to the fraud side.


Edited by pherthyl, 22 September 2015 - 04:45 PM.

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#17 Szeven

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Posted 22 September 2015 - 05:36 PM

If they are such international people I wonder why they didnt just opt for the non-resident option for tax avoidance.



#18 Gary H

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Posted 22 September 2015 - 06:02 PM

Because they are residents of Canada and therefore taxed by the CRA on their global income.


Edited by Gary H, 22 September 2015 - 06:03 PM.


#19 Rob Randall

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Posted 22 September 2015 - 06:57 PM

Everything not bringing in revenue to the CRA is a loophole. Media and government love using that word because it carries an overtly negative connotation.
What's more effective in a smear campaign or a media's penchant for controversy? Loophole or "hey look, these guys understand tax laws and the tax system so well that they know how to use the tools the government has given them?"
There is tax fraud. And there are loopholes. One is illegal. The other is 100% legit and sanctioned by the CRA until the day the tax laws are changed and the "loophole" no longer applies.
The arts community, as one example, loves "loopholes." They just don't the call them that. They call them tax grants and tax incentives.


Crazy talk. Fraud, loopholes and incentives are three different concepts, Mike. And I don't know what you're talking about with the arts communities. How can an opportunity the government is encouraging us to take advantage of be considered evading a flaw in the tax code or in any way nefarious?

"[Randall's] aesthetic poll was more accurate than his political acumen"

-Tom Hawthorne, Toronto Globe and Mail


#20 SamCB

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Posted 22 September 2015 - 08:24 PM

^In my experience the definitions are much blurrier. The tax code is complex. I know lots of accountants who are "farmers". They fit all the criteria CRA requires for farm status, but they wear suits to work and buy marked gas. Is that a loophole, Tax fraud, or an incentive to get people farming? It's Only fraud if you go to court and lose.
If you start a sole prop as an artist just so you can record a loss every year and write off your supplies while reducing your tax burden, is that a loophole, evasion, or fraud?
In my experience accountants (using experience and judgment) push the limit for their clients. "It never hurts to try" was often heard in the office I used to work in. That doesn't mean they are criminals, it's just part of the game they play against CRA.
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