A former client of the accounting giant KPMG says a tax dodge that involved wealthy people gifting their money to an offshore jurisdiction was a "facade" designed to hide money from the taxman.

The client, who spoke to CBC's the fifth estate and Radio-Canada's Enqute on the condition of anonymity, says KPMG made him sign a confidentiality agreement that prevents him from speaking publicly about the tax dodge.

In an exclusive interview to be aired Friday on the fifth estate documentary "The Untouchables," the former client says KPMG insisted on secrecy when it was promoting the tax avoidance scheme to wealthy Canadians as far back as 1999.

Documents obtained by the fifth estate and Enqute show 21 "high net worth" Canadian families signed up for the massive tax dodge from 1999 until 2012 when it was first detected by CRA auditors a scheme that deprived the federal treasury of tens of millions.

The KPMG tax dodge stirred controversy last spring when it was revealed the Canada Revenue Agency offered a secret amnesty to the accounting firm's clients who had been caught using the scheme.

The amnesty offer, leaked to CBC News in a brown envelope, granted KPMG clients "no penalties" as long as they paid back taxes and modest interest.

As a condition of the May 2015 amnesty offer, the CRA itself demanded that KPMG clients not talk about it in public.

Until now, no KPMG client has spoken out about their role in the scheme.

The client says the tax dodge was based on a simple if fictitious idea that "high net worth" clients give away their fortunes to an Isle of Man shell company. The money would be invested offshore and would be returned back to Canada, again untaxed, also as a so-called gift.

"So basically, I escaped the entire tax circle," the ex-client said.

Today, the client, who paid KPMG $100,000 to set up the Isle of Man tax dodge, says the "gift" was pure "fiction" and that, in reality, he never gave anything away.

"I still have absolute control over my money," he said. "The rest was just a facade... Everything else, every bit of piece of paper, everything is window dressing to create the appearance of 'I don't have control over this,' but in fact I do."

He says KPMG told those involved to keep quiet about their involvement.

"They're just going to keep their lips shut tight," he said. "How's Canada Revenue Agency going to detect it?"

In a written statement to the fifth estate, KPMG says it "emphatically" disputes the ex-client's claim.

KPMG says its offshore structure complied with "all laws" in Canada and was carefully reviewed by senior executives at the firm before it went ahead.

"Clients were explicitly told that they were giving up control of the assets," KPMG said. "To our knowledge, no member of KPMG would or did provide any advice or instruction to the contrary."

As a condition of the May 2015 amnesty offer, the Canada Revenue Agency demanded that KPMG clients not talk about it in public. (Sean Kilpatrick/Canadian Press)

Still, the former client insists that's exactly what he was told, in private.

"Nobody gives away $20 million to an Isle of Man company and says: 'Hey, I busted my ass for 20 years to make it, but you know what, I'm feeling generous today so you can have it all, no strings attached.' I don't think so, not for a 100 grand cheque that you just wrote to KPMG."

In court documents, the Canada Revenue Agency has also alleged that the KPMG scheme was a "sham" that "intended to deceive" the federal treasury.

the fifth estate/Enqute investigation also looks at how much money KPMG made from its tax scheme.

The accounting giant is coming under scrutiny for its testimony before the House of Commons finance committee last spring.

The committee, which had begun a probe into why the CRA offered amnesty to those wealthy clients, called KPMG's former global head of tax, Gregory Wiebe, as its first witness.

Gregory Wiebe, former global head of tax for KPMG, testified at the House of Commons finance committee there were 16 'implementations' of the scheme. (Parliament of Canada)

MPs wanted to know exactly how much money KPMG itself made from running the offshore tax dodge.

Wiebe testified that the "total revenue" that KPMG received from the tax scheme was a $100,000 start up fee for each client.

"It was a fixed fee per implementation, it was not a contingent fee or whatever," Wiebe told MPs.

In other words, the firm did not earn fees based on the taxes dodged by their clients.

However, new records in a Vancouver court action appear to show KPMG made far more money off the scheme than they told the House of Commons committee.

Documents filed in the Tax Court of Canada in January show that one wealthy family stated they paid a yearly fee to KPMG "based on" their "annual tax savings."

In that one case alone,KPMGearned additional annual payments that totalled $300,000 over several years,according to the documents.

In a statement to CBC News, KPMG says those court documents filed in the Vancouver tax court case contain unproven court allegations.

"[KPMG] provided accurate information to the finance committee on this point and on all other points in his testimony."

KPMG may also have understated the number of offshore companies it set up for Canadian multimillionaires and billionaires, according to the fifth estate/Enqute investigation.

Wiebe testified at the finance committee there were 16 "implementations" of the scheme.

However, using search techniques the fifth estate and Enqute developed using the Isle of Man's public registry, journalists found five additional structures set up for wealthy Canadian families.

KPMG now says it did create those five structures, but didn't mention those numbers to the finance committee because those clients "aborted" their involvement in the scheme before they dodged any taxes.

Sherbrooke University tax Prof. MarwahRizqy says KPMG should have included those additional Canadian families in its totals to the finance committee and to the Canada Revenue Agency.

"It's very important to disclose that type of information," Rizqy said. "Here we're talking about a tax structure, about the intention to evade tax. The CRA can go and investigate these families and see if they actually did something else."

Marwah Rizqy, a tax professor at Sherbrooke University, says KPMG should have disclosed the five additional tax structures to authorities. (CBC)

Rizqy says KPMG's testimony before the committee is concerning.

"There's a lack of credibility here," Rizqy said. "They misled the Parliament, they also misled Canadians."

The inquiry was abruptly halted last June after KPMG lawyers sent a letter to MPs on the finance committee.

Lawyers for the accounting firm complained that it would be "fundamentally unfair and improper" for the inquiry to hear from tax experts critical of the offshore scheme amid ongoing court cases.

Critics pointed out that KPMG only sent the letter to the finance committee after its former head of global tax, Wiebe, had already given his side of the story.

Rizqy, who has reviewed internal KPMG and other court documents in the Isle of Man scheme, questions why the federal government continues to do business with KPMG in light of the revelations.

The firm was brought in to audit the F-35 fighter jet spending, as well as Senate travel expenses, for example.

In 2016, the federal government gave KPMG at least $9 million in contracts, according to Public Services and Procurement Canada. During the previousgovernment, KPMG was given more than $80 million in government contracts.

"It doesn't make any sense," Rizqy said. "I mean if on one hand we know that you're promoting tax shelters, you should be banned to be part of any public contract. I think it's the time to ask KPMG to step aside from every public contract."

Rizqy who is in the running to be a candidate for the Liberal Party in an upcoming federal byelection in Quebec does not shy away from criticizing Ottawa's handling of the KPMG affair.

She is recommending the Liberal government call a full-scale inquiry into the KPMG revelations, including the secret amnesty deal it negotiated with the CRA for its wealthy clients.

"I think this is the time to conduct a real investigation about KPMG, about the deal, about the tax structure."

Link:

KPMG offshore tax dodge a 'facade' designed to hide money, ex-client says - CBC.ca