KPMG Credible Tax Scam?

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KPMG Credible Tax Scam?

Postby Fussygus » Thu Sep 10, 2015 10:57 pm

http://www.cbc.ca/news/business/kpmg-of ... -1.3209838

As far as purveyors of tax advise one would generally give the a nationwide corporation a little more credit than your yoko soap box preacher. But apparently big corporations can be rather discredible/evasive of the tax laws when it suits their bottom line (aka SNC Lavalin).

What really seems interesting is when you see the fee KPMG charged the client, 15% "of taxes saved". My recollection was that Paradigm only charge 7% for not so dissimilar scheme (must be do to higher overhead :roll: ).

Correct me if I'm wrong but taxes can't be saved, there can only be a requirement to pay less. (A life isn't saved by a drug treatment, you just might not die as soon. Everyone always dies.)

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Last edited by Fussygus on Fri Sep 11, 2015 2:00 pm, edited 1 time in total.
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Re: KPMG Credible Tax Scam?

Postby Burnaby49 » Fri Sep 11, 2015 8:30 am

I'd reply to this right now telling you what an idiot you are for even implying that KPMG, a highly ethical reputable accounting firm, has gone too far with this totally within the law tax planning arrangement. It is clearly entirely legal and above board and you are an ignorant fool to question it. What the hell do you know about tax compared to the highly ethical staff at KPMG? That's what I'd reply right now if I wasn't drunk. So many craft beers, so little time.

So instead I'll post the annotated text of an email I sent earlier today to an acquaintance about this issue. Annotated because the original message might be actionable even though KPMG is obviously a highly ethical reputable accounting firm;

Astoundingly stupid. I gift my money to a company in the Isle of Man, it gets invested and makes money, and it gifts it back to me. Brilliant! The South African in the article emigrated here and immediately started ******. He even claimed tax credits although he paid no tax because of the scheme. Then when caught it's just poor me, what did I know? KPMG said it was all legit that I could ******. We should get the tax he owes then send the ****** back to South Africa.

KPMG was even collecting annual commissions based on the tax he ******. It's not often the CRA uses the word "sham", particularly in respect to a major accounting firm, but it seems appropriate here.


You can thank Tricky Dick for the "expletive deleted." I learned at the feet of the master.

Note - On second thought I've edited this posting to remove any mention of tax evasion because the CRA has chosen not to charge anyone involved in this with tax evasion. Tax evasion is a criminal offense and Marshall faces a Tax Court hearing which is civil, not criminal.

http://www.cbc.ca/news/business/federal-probe-of-kpmg-tax-sham-stalled-in-court-1.3210113
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Re: KPMG Credible Tax Scam?

Postby noblepa » Fri Sep 11, 2015 2:58 pm

It is hardly unheard of, at least in the US, for a big, normally reputable investment broker or accounting firm, to come up with an investment product touting tax benefits which the IRS later denies. I assume the same is true in Canada, as well.

To me, the word "scam" implies a scheme intended to defraud the investors. This does not appear to be the case here. I'm sure that KPMG feels that they are simply being agressive in interpreting the tax laws in a way that is beneficial to their clients.

That said, when the smoke clears, the CRA and the courts may find that KPMG has gone too far, and go after the tax payers who invested in this for the taxes they would have otherwise paid.

I am not an expert on US taxes, let alone Canadian tax laws, but I think that the word "scam" is a bit too strong for a supposedly unbiased journalist to use.

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Re: KPMG Credible Tax Scam?

Postby NYGman » Fri Sep 11, 2015 4:03 pm

If I understand this correctly, is the scheme essentially, a rich family gifts an IoM company with millions of dollars, that company invests it (potentially at the clients direction), and returns annual gifts back to the rich family, tax free? If so, what could possible go wrong with that?
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Re: KPMG Credible Tax Scam?

Postby AndyK » Fri Sep 11, 2015 7:30 pm

What I find most mind-boggling is the "fee as a percentage of tax savings" plan.

IIRC, that type of arrangement (at least in the US) violates a huge number of CPA and ABA rules and ethics.
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Re: KPMG Credible Tax Scam?

Postby Burnaby49 » Fri Sep 11, 2015 7:40 pm

noblepa wrote:It is hardly unheard of, at least in the US, for a big, normally reputable investment broker or accounting firm, to come up with an investment product touting tax benefits which the IRS later denies. I assume the same is true in Canada, as well.

To me, the word "scam" implies a scheme intended to defraud the investors. This does not appear to be the case here. I'm sure that KPMG feels that they are simply being agressive in interpreting the tax laws in a way that is beneficial to their clients.

That said, when the smoke clears, the CRA and the courts may find that KPMG has gone too far, and go after the tax payers who invested in this for the taxes they would have otherwise paid.

I am not an expert on US taxes, let alone Canadian tax laws, but I think that the word "scam" is a bit too strong for a supposedly unbiased journalist to use.


Scam works for me if the scheme is as it is represented by the press so far. Also note the word "sham" used by the CRA. A sham is "a thing that is not what it is purported to be". I've given below what I understand is the KPMG scheme. Note that I use the word "assume" a lot because, until the case is heard in Tax Court, I have to do some reading between the lines;

1 - Taxpayer (in this case non-taxpayer) generously gifts $26,000,000 to a company in the Isle of Man. I assume that he does not legally own the company, it will be owned by some Manx lawyer. Since a gift is an irrevocable transfer of property the taxpayer now had, at least on paper, no more right to the money than you or I, and some Manx lawyer is suddenly rich. At this point there was no taxing event if he'd legitimately gifted as claimed or if he'd instead lent or invested the money in the company to invest for him.

2 - The company invests the money and makes a lot of income. At this point there is still no taxing event in Canada. Since the Isle of Man does not tax corporate income there is no taxing event there either.

3 - The taxpayer is of course now broke after giving away all of his wealth to an arm's length company in a foreign country. Recognizing this the Manx company, in an incredible act of generosity, sends money to the taxpayer as a so-called gift whenever he asks for it (see paragraphs 27 and 28 referred to below). Since gifts are tax free in Canada he's avoided tax on the income that would have been taxable had he kept and invested the $26,000,000. Had he legally owned the Manx company he would have been taxable on the money as a dividend.

So how is this not a sham? Do you really believe that taxpayer irrevocably gifted all of his wealth to some off-the-shelf company in a tax haven? That he was then broke with no more control over the money than you or I? That the company, supposedly arm's length from him, generously decided to gift money back to him from time to time even with no legal requirement to do so? Because, if it is not a sham series of transaction, you have to believe all of those things. The CRA is very reluctant to use the word "sham" in respect to transactions so I assume the use of it in this case implies that they've got some pretty solid documentation backing them up. The CRA, too dense to understand the brilliance of the KPMG "investment product", has apparently recategorized the money as undeclared income from an investment owned or controlled by the taxpayer.

As far as scam goes if the CRA is correct and the reassessment is confirmed by the Tax Court the Canadian government is being scammed out of taxes by sham transactions. I'm assuming that the taxpayer and KPMG were very careful not to tell the CRA anything about this. Why bother them when it is just exchanges of gifts?

The taxpayer has been hit with section 163(2) gross negligence penalties. This is the highest non-criminal penalty the CRA can impose. I assume they have decided not charged him with tax evasion because he has a reasonable mens rea defense. He was advised by qualified tax accountants. Also, as his Notice of Appeal states, he's 85 years old and suffering from dementia.

https://www.documentcloud.org/documents/2303934-2015-03-09-xx-peter-marshall-cooper-notice-of.html

The Notice of Appeal gives the ownership structure of the Manx company. As I assumed a tricky web that does not have the Coopers in it anywhere. It does have a Canadian "non-shareholder member" who has the right to vote when funds are distributed. A non-shareholder who can vote at shareholder's meetings? A new one on me. Check out paragraphs 27 and 28. These are the heart of the scheme.

I await the Tax Court decision with great interest, at such time as the Court gets around to hearing it. Nobody seems in a rush.
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Re: KPMG Credible Tax Scam?

Postby Fussygus » Fri Sep 11, 2015 8:30 pm

I think where the wheel falls off the bus as the gift being legitimate is the issue of KPMG's 15% commission for "tax savings". Why would they get anything when it was a gift?

"You give all your money to the church of Fuzzy.....and then when he generously gives you some back (nudge nudge wink wink) you will generously give us 15% of what it you would have paid in taxes.....if you didn't give all your money to Fuzzy."

Sounds legit to me, let KPMG know I'm accepting gifts starting today :)

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Re: KPMG Credible Tax Scam?

Postby notorial dissent » Fri Sep 11, 2015 10:51 pm

AndyK wrote:What I find most mind-boggling is the "fee as a percentage of tax savings" plan.

IIRC, that type of arrangement (at least in the US) violates a huge number of CPA and ABA rules and ethics.

And this surprises you about KPMG why? IIRC, they or one of their predecessors has been involved in some of the major financial scandals over the last decade or so. ENRON comes immediately to mind. My impression is that they will sign off on anything so long as they get paid.
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Re: KPMG Credible Tax Scam?

Postby Burnaby49 » Fri Sep 11, 2015 10:56 pm

notorial dissent wrote:
AndyK wrote:What I find most mind-boggling is the "fee as a percentage of tax savings" plan.

IIRC, that type of arrangement (at least in the US) violates a huge number of CPA and ABA rules and ethics.

And this surprises you about KPMG why? IIRC, they or one of their predecessors has been involved in some of the major financial scandals over the last decade or so. ENRON comes immediately to mind. My impression is that they will sign off on anything so long as they get paid.


Enron was Arthur Andersen. Being their accountants and consultants (the big money-maker) ended up destroying the firm. From Wikipedia;

Arthur Andersen LLP, based in Chicago, is a holding company and formerly one of the "Big Five" accounting firms among PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG, providing auditing, tax, and consulting services to large corporations. In 2002, the firm voluntarily surrendered its licenses to practice as Certified Public Accountants in the United States after being found guilty of criminal charges relating to the firm's handling of the auditing of Enron, an energy corporation based in Texas, which had filed for bankruptcy in 2001 and later failed.[1] The other national accounting and consulting firms bought some of the practices of Arthur Andersen. The verdict was subsequently overturned by the Supreme Court of the United States. The damage to its reputation, however, has prevented it from returning as a viable business, though it still nominally exists.

One of the few revenue-generating assets that the Andersen firm still has is Q Center, a conference and training facility outside of Chicago.[2]

The former consultancy and outsourcing arm of the firm, now known as Accenture, which had separated from the accountancy side in 1987 and renamed themselves after splitting from Andersen Worldwide in 2000, continues to operate and has become one of the largest multinational corporations in the world.
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Re: KPMG Credible Tax Scam?

Postby notorial dissent » Fri Sep 11, 2015 11:09 pm

OK, bad memory then, I still swear I remember them being in the middle of something nasty, just can't recall what now.
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Re: KPMG Credible Tax Scam?

Postby jcolvin2 » Fri Sep 11, 2015 11:32 pm

notorial dissent wrote:OK, bad memory then, I still swear I remember them being in the middle of something nasty, just can't recall what now.


The deferred prosecution agreement for illegal tax shelters?
http://www.irs.gov/uac/KPMG-to-Pay-$456-Million-for-Criminal-Violations

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Re: KPMG Credible Tax Scam?

Postby Burnaby49 » Fri Sep 11, 2015 11:53 pm

jcolvin2 wrote:
notorial dissent wrote:OK, bad memory then, I still swear I remember them being in the middle of something nasty, just can't recall what now.


The deferred prosecution agreement for illegal tax shelters?
http://www.irs.gov/uac/KPMG-to-Pay-$456-Million-for-Criminal-Violations


Thanks for the link. I was trying to remember the big US tax evasion scheme that KPMG thought up and promoted. Son of BOSS of course!

The big difference with Arthur Andersen was that your Supreme Court found them legally innocent of any wrongdoing but by then it didn't matter. I knew a few Vancouver Arthur Andersen employees who were suddenly looking for work.
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Re: KPMG Credible Tax Scam?

Postby notorial dissent » Sat Sep 12, 2015 1:12 am

jcolvin2 wrote:
notorial dissent wrote:OK, bad memory then, I still swear I remember them being in the middle of something nasty, just can't recall what now.


The deferred prosecution agreement for illegal tax shelters?
http://www.irs.gov/uac/KPMG-to-Pay-$456-Million-for-Criminal-Violations

I honestly don't remember now, may have been something I came across in a circular or something.
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Re: KPMG Credible Tax Scam?

Postby Burnaby49 » Sat Sep 12, 2015 2:32 am

A far more expert voice than mine uses the dreaded word 'sham';

CBC asked Lareau, an internationally recognized expert on tax law, to visit the renowned offshore haven in the Irish Sea in a bid to track down answers about a KPMG tax scheme that the CRA is alleging was "intended to deceive" authorities.

"It really is a textbook case of a sham, when you look at the documents," Lareau concluded.


http://www.cbc.ca/news/business/kpmg-tax-sham-could-lead-to-criminal-investigation-experts-say-1.3223371

But I stand corrected on an ignorant ill-informed statement I made in a prior posting where I called the Isle of Man a tax haven. Nothing of the sort, just ask the speaker of the legislature;

CBC News and Lareau arrived in the Isle of Man on Tynwald Day, the national holiday, and spoke directly to Steve Rodan, the speaker of the legislature who insisted the Isle of Man was not a tax haven.

"It's a tax-efficient jurisdiction," he said.

"'Tax haven' is a term of abuse these days. We are open and transparent, anyone can come in and look at the books. There's no secrecy here, no banking secrecy," Rodan told CBC News.


Well, that's all right then. But there was shock and dismay from those honest ethical KPMG people on the Isle of Man about how people like myself were besmirching their reputation;

When Lareau went to the offices of KPMG in downtown Douglas, he says he was told that KPMG would never get involved in an alleged scheme that would have clients pretend to give away their money to an Isle of Man corporation.


KPMG do something like that? Never!

Back in Canada, KPMG lawyers don't dispute they advised the Cooper family to set up the Ogral company.


But there are black clouds looming on the horizon!

A KPMG tax avoidance scheme in the Isle of Man could lead to a criminal investigation if the Canada Revenue Agency can support allegations that the accounting firm's offshore structure intended to deceive authorities, two tax experts have told CBC News.

"It is clearly a case where it could lead to a criminal investigation, because obviously there were things that were done here that were not in line with reality," Laval University tax professor Andre Lareau told CBC News during a trip to the Isle of Man this summer.


And, as always, CBC online insisted on dragging what were clearly irrelevant issues into the article;

Michael Hamersley, a former KPMG lawyer turned whistleblower in the U.S., also reviewed the documents filed in court in Canada.

His testimony helped the Internal Revenue Service convict three KPMG U.S. executives in a different tax shelter scheme in the mid-2000s. In that case, KPMG U.S. also agreed to pay a fine of nearly half a billion dollars.

The KPMG Canada case "resonates plenty," Hamersley said. "It's exactly the type of behaviour that I saw in the U.S. at the time."

"When your transaction and the tax results are dependent upon hiding the true facts, you start to cross into potential criminal liability," Hamersley told CBC News.

KPMG Canada declined to speak with CBC News about the Isle of Man offshore scheme.

"Professional standards and obligations preclude us from disclosing, responding to, or discussing any matters that involve clients," Kira Froese, KPMG Canada's director of communications, wrote in an email. "It is inappropriate for us to comment on matters that may be before the courts."


Here is the Canada Revenue Agency's side of the story. It explains the scheme in detail;

https://www.documentcloud.org/documents/2303938-2015-07-13-cra-vs-peter-cooper-amended-reply.html
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Re: KPMG Credible Tax Scam?

Postby YiamCross » Sun Sep 13, 2015 12:17 am

Burnaby49 wrote: Also, as his Notice of Appeal states, he's 85 years old and suffering from dementia.


So how was he considered legally comptent to manage his affairs? Surely he can't be with it enough to be allowed to take resonsibility for massive cash transactions but not with it enough to be held responsible when he's caught out?

If it looks like scam, smells like a scam and acts like a scam, then I can't see how it could be anything other than a scam.

I bet these companies have a lot of clauses in the contract which ensure they're not responsible if the proverbial hits the fan. I imagine if they were liable to their clients for losses due to bad advice there would be far more reluctance to cook up wild avoidance schemes which turn out on closer examination to be near as dammit pure evasion.

I have to say I'd be very reluctant to pass money over to any person or corporation as an irrevocable gift but for anyone out there who thinks it's a good idea I have a scheme you might be interested in. What are you going to do if I turn around and say it's my money now? Sue me for renaging on an illegal tax evasion scheme? You can't, you don't have any money left.

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Re: KPMG Credible Tax Scam?

Postby Prof » Wed Sep 16, 2015 10:10 pm

The "Son of Boss" tax construct destroyed the fine old Dallas firm of Jenkins and Gilchrist. J&G had picked up a Chicago lawyer with his own version, which he promoted heavily through J&G (to the HUGE profits of all of the partners, of course). When "whatever" hit the fan, the impact on clients, and resulting malpractice claims, destroyed the firm.

The collapse of Arthur Anderson and certain large law firms all reflects that greed does motivate a lot of "reputable" firms to do very improper things. Dewey get my point? (See the Dewey Leboeuf bankruptcy.) Kuhn you believe it? (See Bowie Kuhn, once commissioner of MLB.)
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Re: KPMG Credible Tax Scam?

Postby grixit » Thu Sep 17, 2015 9:50 pm

Lots of otherwise honest and reputable folks are willingly clueless when they think they're going to Madoff like bandits.
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Re: KPMG Credible Tax Scam?

Postby Burnaby49 » Mon Sep 21, 2015 11:27 pm

And now politics rears its ugly head;

http://www.cbc.ca/news/business/cabinet-ministers-met-publicly-with-kpmg-while-firm-s-tax-sham-under-cra-probe-1.3234876

It does seem that our current federal government is a bit too cozy with KPMG. It is possible that government ministers did not know the extent of the CRA investigation but they did know about the scheme and the demand for information that KPMG refused to obey. And, given the amount of money involved, the government does seem very lacadaisical about getting the Federal Court to schedule the hearing. The parties said;

A letter filed in Federal Court on July 20, 2015, written by a KPMG lawyer — stating the letter was "approved in …advance" by lawyers at the Department of Justice on behalf of the minister of national revenue — said that both sides are pursuing "confidential" discussions to try to settle out of court.


We're well into our third year of those discussions. As an ex CRA guy I get a strong wiff of back-office politics in this with wealthy targets lobbying our federal politicians behind closed doors. If the government was serious about enforcing the Income Tax Act in respect to this scheme it would have taken this to Federal Court at least a year ago. There may be a valid excuse for the delay but "confidential discussions" doesn't cut it. A chat over brandy every six months or so?
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Re: KPMG Credible Tax Scam?

Postby Fussygus » Tue Oct 06, 2015 9:40 pm

It seems the government and the accountant association better watch their step,

http://www.cbc.ca/news/business/harper- ... -1.3257994

Treading on thin ice can have much farther reaching effects than simply the boardrooms of KPMG, CPA and the federal government. Show signs of favouritism to a class of person, no matter how logical the reasoning to do so (to big to fight) can degrade confidence in the system and be far more costly than the fight itself is worth.

The issues of charter privacy and unreasonable search and seizure that I'm sure are being bartered here, necessarily need to be weighed against the act of criminal tax evasion.

When a bank is robbed and the culprit that spearheaded the theft is caught, is it properly an issue of privacy or unreasonable search and seizure when the authorities search the instigators clubhouse for the records of the co-conspirators who have all the booty?

I do not doubt that a search of the offices of KPMG would be a daunting task, but if they don't diligently act on this issue they risk a loss in consumer confidence. Confidence that what they preach is what they practice, first and foremost "all people are equal before the law".

This scheme was developed with the written intent to mislead the public authorities of the true identity of the lawful owners of the property were in order for members of this society to renege on their duty as members of the society for a fee.

This scheme is welfare fraud to the tune of millions of dollars each. It is shameful that the KPMG executives can actually sleep at night knowing that they were in essence screwing their own offspring.....or is it just a sign of how the the public disrespects the administration so totally that they would go so far as to promote others to not support the very system that provides for them as a business? (no taxes likely means no need for large accounting firms....such as KPMG and the likes of the CPA).

I can't help but worry that the direction we are heading is not too far off the path that Greece probably followed.

If the court allows the records to not be disclosed then they will effectively be sanctioning the use of two sets of books, they will have succumbed to the Mafia. Thereby opening the door to every business to do the same (redacted books for the government).

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p.s. I'm sure someone will roll their eyes to me saying as such. :roll:
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Re: KPMG Credible Tax Scam?

Postby Burnaby49 » Fri Nov 27, 2015 8:51 pm

KPMG executives are finally getting arrested. Not in Canada however. For the moment.

http://www.cbc.ca/news/business/kpmg-tax-evasion-charges-1.3339719

The Canadian case is going back to Federal Court sometime next year. That means that a court order for KPMG to reveal it's Canadian client list has sat without compliance for three years. I'm going to have to get poitical here. Canada just replaced it's long-serving Conservative government with a Liberal majority government. I'm a conservative but I couldn't support some of our previous government's past actions. Too much of the old-boy network stuff with their lawyer and business friends. I suspect this is why the KPMG matter hasn't moved in three years, a lack of diligence at the political level. Hopefully things will get moving again under Justin Trudeau's liberals.
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