OPINION: Tax man, heal thyself

On one hand, my telecom company and I have top secret security clearance from the federal government, and yet another part of the Ottawa bureaucracy is convinced we we're crooks.

It doesn't add up.

There has been much talk lately about Canada feeling broken and our story does little to dispel such talk.

Unequivocally, we are not crooks.

And just as unequivocally, Ottawa is broken when one department – Canada Revenue Agency – accuses us of stealing from the taxman while law enforcement agencies see the value of us helping protect the treasury from nefarious people using technology and advanced networks to scam Canadians and our
government coffers.

We can't be such bad actors if the Royal Canadian Mounted Police (RCMP), the Canadian Security Intelligence Service (CSIS), and other law enforcement agencies give us top secret clearances to help them resolve complex telecom issues, including potential national security threats.

For example, to combat the tide of digital malevolence from domestic and foreign enemies, Ottawa has set up the Lawfully Authorized Electronic Surveillance (LAES) Sub-Committee. Its members include federal government officials, from many agencies who invite partners like us to offer expertise.graph

The LAES group is empowered to ensure the security and safety of Canadians while finding a balance with privacy protection and promoting coordinated approaches for dealing with challenges caused by ever-changing new technologies.

And like other telecommunications and technology firms, my company, Iristel, and I have been thoroughly vetted by Canadian law enforcement. I was also personally vetted by the Canadian Armed Forces in 2019 before being appointed Honorary Colonel of the 34 Signal Regiment

Which makes CRA's four-year (and counting) attack on us all the more perplexing.

Our case is before the courts, which limits disclosure.

CRA claims we are committing fraud by seeking GST rebates of more than $100 million without collecting a similar amount.

The GST – a value-added tax – is similar to consumption taxes around the world. On the corporate side, as opposed to consumers, the tax works this way: Companies pay the tax on goods and services, while collecting the tax on products and services they sell with the net differnce either paid to or refunded from the tax department.

But with advanced technology networks, this simple supply chain of sales and GST collection is not always so simple.

Take voice over internet protocol (VoIP) calling and how we got on the wrong side of the CRA. VoIP, in part or whole, is used in virtually all wireless and wireline phone calls today.

Whenever a VoIP call is placed, it pings around the internet, bouncing from server to server, to complete the transaction. According to CRA testimony, it sees each computer like a stop in the traditional supply chain and believes the GST should apply at each server.

But most of our telecom services are exported to the U.S. and elsewhere via servers on the internet. Under law, the GST is not charged on exports.

The big phone companies are shielded from CRA audits and harassment on this issue. That's because with their 90 per cent market share, Bell, Telus and Rogers are already collecting so much GST from all their Canadian customers that they are all remitting huge sums of GST money back to the CRA. With our smaller Canadian customer base, we end up in a refund position from the CRA.

Through our Canadian suppliers, for items like rent and telecom infrastructure, Iristel is paying the GST. But the CRA refuses to re-imburse us and make us whole because it thinks we're pulling some scam.

"Perhaps to obscure this deficiency, the CRA's presentation tends to wander from fact into poetry," international tax lawyer and professor Richard Ainsworth – who has 30 years' experience in VAT fraud, tax technology, and effective policy responses to tech-based frauds — said in a
written affidavit in our case.

"There are elegant software solutions to VoIP fraud. They have been around for over a decade," Ainsworth says. "It is unfortunate that Canada has not adopted these tools. Cases like (Iristel) only advertise Canadian vulnerability."

Other countries, such as the United Kingdom, have adapted tax laws to limit technology-based fraud and not just when it comes to VAT rebates, but also things like carbon credits and natural resources credits.

Two years ago, in February 2021, the Supreme Court of Canada ended a 13-year battle between the CRA and Saskatoon-based Cameco Corp., a publicly-traded uranium miner.

Like us, CRA accused Cameco of using shell companies to defraud the treasury.

"It has been incredibly disheartening for us, as a Canadian company, to have an agency of our federal government continue to pursue a flawed argument for 13 years, even after law-abiding companies like Cameco and Iristel.

If CRA feels the laws arenʼt written the way they want, itʼs clear they need to make the case to government to change those laws moving forward rather than unfairly dragging Canadian businesses through long and costly legal processes,” Gitzel added.

The GST amounts to 12 per cent of federal government revenues or more than $40 billion annually. Thatʼs a lot of money, especially considering the auditor general recently found that federal government may have overpaid as much as $32 billion in COVID-19 financial aid.

It sure feels like things are broken.