Thank you, Mr. Chairman.
This morning I'm joined by a number of other officials from the Canada Revenue Agency, including Brian McCauley, assistant commissioner, legislative policy and regulatory affairs branch; Wayne Adams, chief technical officer for the Canada Revenue Agency and director general, income tax rulings directorate; as well as Fred O'Riordan, director general, international large business directorate, compliance program branch.
I would also note, given that we received the invitation to appear from the committee mid-morning yesterday, that we have a number of additional officials in the room who, depending on the question, and with the concurrence of the chair, could be asked to respond as subject matter experts.
Mr. Chairman, we are pleased to be here this morning.
The CRA is very active in taking action to identify, deter and challenge non-compliance with tax laws. We believe it is important to communicate more about what we do and why—to let taxpayers know about the risks and consequences of non-compliance, and to make sure that compliant taxpayers are fully aware that we do take action against those who do not comply.
On the subject of tax havens, I would like to share CRA's views, which are based on our role as tax administrators. Canada is part of a global trade and financial system. We know that countries compete to attract investors and trade partners, and we know that this competition extends to tax systems. Countries offer tax concessions and favourable tax rates to all or some industries and/or investors. Some of these competing countries are commonly referred to as tax havens.
Every country has the right to structure its tax system to meet its needs, and these are issues of tax policy for each country, not for tax administrations. Residents of Canada must report and pay tax on worldwide income. The CRA has no view on where Canadian businesses or individuals invest, so long as they report their income and pay taxes as required under Canada's tax laws. The CRA's concern lies not with the use of tax havens, but with the abuse of use of tax havens, for example, when taxpayers use bank secrecy laws or the absence of effective exchange of information provisions with other countries to conceal assets and income that should be taxed.
We are concerned where abusive schemes and transactions are being used to reduce, avoid or evade Canadian tax. We’re also concerned where these actions might influence others to do the same, or leave others with the perception that some are not paying their share of taxes.
We know that tax havens can attract tax avoidance promoters who actively provide opportunities to businesses and individuals so they can avoid their tax obligations. We are aware that unsophisticated investors can be lured into tax haven schemes and arrangements, where they ultimately lose their capital investment: this is not only damaging to the investors but also erodes the tax base.
We are also aware that advances in technology have increased the risks for both investors and tax administrations. For example, Internet access provides increased awareness of tax havens and allows promoters to actively attract individuals and businesses to avoid their tax obligations. Internet access also extends the prospect of abusive use of tax havens to middle-income Canadians. And electronic fund transfers facilitate the ease and privacy of transactions and make identifying transactions more difficult.
The issue of reducing, avoiding, or evading taxes through the abusive use of tax havens does not exist as a risk in isolation. It is an element of aggressive tax planning, which is one of the CRA's four key priority risk areas.
In general, the Canada Revenue Agency's strategy with respect to tax havens is to focus on schemes wherein people and businesses use a tax haven's bank secrecy laws and/or ineffective exchange of information provisions to hide assets and income upon which Canadian taxes should have been paid. Specifically, we have extensive audit programs, foreign reporting requirements, a number of specific anti-avoidance provisions in the Income Tax Act, and a broad network of 86 treaties.
We also have the general anti-avoidance rule, which is designed to prevent access to tax benefits that were not intended by Parliament.
Examples of these measures include our regular audits of small and medium businesses and large corporations, where the use of tax havens is an indicator of risk, and our more specialized audit programs that focus on international tax and tax avoidance issues.
As part of our strategy to combat aggressive tax planning, the CRA established 11 centres of expertise across the country in August 2005, creating teams of experts from the specialized audit areas of international tax and tax avoidance to, among other things, combat aggressive tax planning and the inappropriate use of tax havens and tax shelters, both at home and abroad.
We know that the abusive use of tax havens is an international issue, and we are working with other tax administrations and organizations to address it. For example, the CRA works with the Organisation for Economic Co-operation and Development, including its seven-country tax haven working group, and the Joint International Tax Shelter Information Centre, or JITSIC. Indeed, the Canada Revenue Agency leads the seven-country tax haven working group. The group exchanges information and approaches to dealing with compliance challenges associated with the abusive use of tax havens. It comprises Australia, Canada, France, Germany, Japan, the United Kingdom, and the United States.
The second organization is the Joint International Tax Shelter Information Centre. It was established in April 2004, when the revenue commissioners from Australia, Canada, the United Kingdom, and the United States signed a memorandum of understanding to increase collaboration and coordinate information about abusive tax transactions. The centre became operational in September 2004 in Washington, D.C. The CRA has had a delegate there since that time, staffed on a rotational assignment basis.
JITSIC's objectives include enhancing compliance through real-time exchanges of information, improving knowledge of how promoters operate, identifying emerging trends and patterns, and sharing best practices for identifying and addressing schemes.
Mr. Chairman, the CRA recognizes the challenges associated with the abusive use of tax havens and tax avoidance. This has been a long-term challenge, and we must continue to take the long-term view in addressing it, as initiatives, such as working with other countries and tax organizations, take time to bear results. We have been aggressively pursuing such abuses, and we intend to continue doing so.
We have some indicators that our actions are having an effect. For example, during 2005-06, the CRA assessed additional taxes of $174 million directly related to aggressive international tax planning, including the abusive use of tax havens. And in the first six months of 2006-07, the CRA assessed additional taxes of $215 million.
Mr. Chairman, that concludes our opening remarks.
Thank you.
