The Canada Revenue Agency is preparing to refocus its audit machinery on the country’s largest multinational corporations, acknowledging that scarce enforcement resources may be diluted by pursuing smaller firms while complex offshore structures go unchecked.Blacklock's Reporter says an internal report said international and large businesses present heightened compliance risks because of the size and complexity of their transactions and the potential for base erosion and profit shifting to low-tax jurisdictions.“International and large businesses pose higher compliance risks due to the materiality and complexity of their transactions as well as the potential for base erosion and profit shifting,” the report stated, noting such files require “substantial administrative capacity.”For roughly two decades, the CRA has defined a large business as one reporting more than $250 million in gross revenue for two consecutive years. Based on that benchmark, about 1,600 economic entity groups and more than 25,000 legal entities fall within the large business audit population.As of 2023, those legal entities represented approximately 1.5 % of the total number of legal entities in Canada, according to the report. .That definition determines whether a company is subject to the international and large business income tax audit program.However, auditors noted the threshold may no longer reflect the modern corporate landscape. By comparison, the Organisation for Economic Co-operation and Development recommends a $1.2 billion gross revenue benchmark to better focus on high-risk multinational enterprises.“The evaluation team found the current revenue threshold used to define the audit population may no longer reflect the evolving landscape,” the report said. “Including lower revenue businesses in the population may dilute program focus and reduce overall effectiveness.”Because international and large business audits are resource-intensive and can take years to complete, officials warned that only a limited number of corporations can be reviewed in depth at any given time. That reality, they said, underscores the need for precise targeting to ensure the highest-risk files are prioritized.CRA managers agreed with the recommendation and committed to a decision by Aug. 1, 2027. The compliance programs branch said it has developed an action plan but cautioned that raising the threshold would have ripple effects across other compliance areas..The agency has long faced criticism that everyday taxpayers and small businesses bear the brunt of audits. In 2018 testimony before the Senate national finance committee, then-assistant revenue commissioner Ted Gallivan said the perception stems in part from volume.“It feels to the individual taxpayer like the Canada Revenue Agency is disproportionately focused on them because we’re mailing them a letter and asking them for receipts,” Gallivan said. “We do that two million times. We audit 300 multinationals and get far more revenue from it, but Canadians don’t necessarily appreciate that.”He added that enforcement decisions are not made solely on the basis of money but must also consider fairness in the tax regime.A 2020 CRA report titled Audit Yield found auditors recovered $5.90 for every dollar spent on GST audits and $4.90 for every dollar spent on domestic income tax audits. No comparable return was calculated for complex multinational corporate cases involving offshore accounts, which can stretch over several years.The latest evaluation signals that the agency may soon narrow its focus, seeking to concentrate its firepower on the biggest corporate players rather than spreading audit resources across a broader field.
