CRA paid out $37M to tax scammers, unsealed affidavit alleges

A once-sealed affidavit filed with the Tax Court of Canada and obtained by The Fifth Estate details how alleged scammers tricked the Canada Revenue Agency and made off with $37 million of taxpayers' money.

In the document, a litigation officer with the Canada Revenue Agency alleges that Toronto-area company Gold Line Telemanagement made "material misstatements" on tax returns and was "part of a group of companies that participated in sham transactions."

The affidavit, which lawyers at KPMG said could cause "irreparable harm" to Gold Line if it was released, was kept off the public record for 10 months.

After a petition to the court from The Fifth Estate, KPMG eventually reversed its position late last year and said its client would no longer oppose the release.

In its own court filings, Gold Line has rejected CRA allegations, stating "there was no deceit, intentional or otherwise," in its filings and that it was genuinely engaged in the long-distance telecom business.

Gold Line has been in the telecom business for decades, selling prepaid long distance telephone cards and other services. 

The CRA alleges that starting in 2016 Gold Line acted as a middle party in the world of wholesale telecom, purporting to buy and sell international telephone call minutes. Based on what the CRA now alleges were "sham" transactions, the company claimed — and received — $37 million in sales tax refunds. 

Some of the companies in Gold Line's supply chain are alleged to have participated in a separate case reported on by The Fifth Estate late last year. In that instance, the CRA admits it paid out more than $63 million in what it now calls "illegitimate" tax refunds.

WATCH | The "Swindling the System" from The Fifth Estate:

Between these two cases, the CRA claims to have wrongly dispersed $100 million to carousel schemes, a type of fraud that has been well-known to Canadian tax authorities for many years.

Also known as "missing trader fraud," carousel schemes rely on complicated supply chains filled with fake companies and invoices to create the appearance that legitimate business transactions are taking place. The companies then submit bogus tax refund claims that are paid out by unwitting governments.

"How much do you have to lose before you realize that your tax system might be vulnerable?" Mike Cheetham, a Dubai-based tax fraud analyst, said in an interview. "If I have to put the blame anywhere, it's all squarely and fairly on the CRA."

Cheetham has previously appeared as an expert witness before European Union committees regarding carousel schemes. He said other countries have implemented a "reverse charge mechanism" to sectors prone to carousel fraud, like telecom and precious metals trading — something Canada has not done. 

With a reverse charge mechanism in place, certain industries are exempted from collecting sales taxes, in order to prevent bogus refunds.