Category Archives: CRA Tax Fraud

There is a significant difference between the concept of income tax evasion and that of an income tax fraud. A comparison can be done by drawing a parallel to the Government of Switzerland and its tax treaty with the United States of America. For example, the Swiss Government will shield its largest bank from the investigative clutches of the tax authorities in the case of a tax evasion concept while an income tax fraud will signify a person who holds a Swiss bank account for the purpose of hiding illegal wealth.

To expand the example further, Switzerland is a place with full tax jurisdiction but it is also famous for its secrecy laws in the banking sector. About five years ago, the United States Justice Department deferred the prosecution of UBS AG, the largest Swiss Bank, in exchange for the revelation by the bank of the identity of about three hundred clients who were resident of USA. The bank, ultimately, acknowledged its contribution and participation in the violation of the laws of the United States. Secrecy or no secrecy, such principles or schemes contribute in defrauding the country from where the residents store their illegal and undisclosed wealth in Swiss banks, amounting to an income tax fraud.

Even then, the deferral of the criminal prosecution did not hold back the IRS from chasing claims against the U.S. taxpayers. IRS issued summons to UBS AG Bank asking for confidential information on not one but fifty two thousand accounts with an approximate value of about fifty billion dollars in assets. The Swiss Government, as expected, refused to help with the summons by declaring that such acts violated the Swiss banking secrecy laws.

There was another quaint angle to these proceedings. The U.S.-Switzerland Tax Treaty calls for information exchange requiring respective tax authorities to share the tax information for avoiding an income tax fraud. The Treaty, however, provides that neither parties is obligated to execute administrative measures that are in conflict with their domestic regulations and legislation.

The difference between income tax evasion and income tax fraud could be explained by this incident in full. The summons from IRS to the UBS AG Bank have given rise to a legal battle on an international front that are testing the tax treaty obligations against the laws of banking secrecy. The Swiss government has drawn the line on the difference by maintaining that tax evasion cannot, by itself, be evidence of an income tax fraud.

The big conjectural question on this issue is that the UBS AG Bank has admitted being guilty to activities that resulted in the deferral of the criminal prosecution, but it holds its ground at the same time that an income tax fraud is not the same as tax evasion by not disclosing the requested confidential information.

The vital distinguishing feature of an income tax fraud is an intent by the taxpayer to defraud the government by not paying the taxes which are lawfully due. An income tax fraud is punishable by both civil and criminal penalties. The government has to show the burden of proof to determine the case of an income tax fraud by a taxpayer. Practically, if the taxpayer has a reasonable legal argument to back up why he or she has not paid the due taxes, it is likely that the taxpayer will escape criminal charges.