Evidence of meeting #83 for Finance in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was barbados.
A recording is available from Parliament.
12:10 p.m.
Conservative
The Chair Conservative Brian Pallister
Merci.
Monsieur Lareau, I'm sorry, but I've used enough time. We must allow other members to ask questions.
Monsieur Dykstra, please continue.
May 15th, 2007 / 12:10 p.m.
Conservative
Rick Dykstra Conservative St. Catharines, ON
Thank you, Mr. Chair.
Ms. Alepin, I want to follow up, and I'm going to try to move as quickly as I can because we have only four minutes.
This government has addressed small and medium-sized businesses with respect to whether it will be reducing the general corporate tax rate, eliminating the corporate surtax, eliminating the federal capital tax. We moved the capital gains from 500 to 750, which was the first time since 1988 that any direction was been taken on that.
We are certainly trying to address issues with small and medium-sized businesses in this country. I'm interested to hear whether you agree that we're taking the right direction, and specifically what you think we need to do in terms of further reductions, or are we moving in the right direction?
12:10 p.m.
Chartered Accountant, Fiscalist, As an Individual
As a matter of fact, I held a series of lectures on fiscal planning for SMEs. As we look at the Canadian fiscal system, which is favourable to SMEs, we can see that the Canadian government is making efforts. Even if we recognize that the government is making the right kind of effort, we must make sure that our SMEs are subject to lower taxes than large companies are, because taxes should be proportional to the ability to pay. Naturally, SMEs are less able to pay than big companies are. If I were the Minister of Finance—although I do not want to—I would make sure that there is a fiscal system favourable to SMEs so that they can maintain the hope of becoming big companies some day. We presently do not have this.
12:15 p.m.
Conservative
Rick Dykstra Conservative St. Catharines, ON
Mr. Hejazi, a couple of things intrigued me with respect to your comments. When you look at foreign investment, there's always this dichotomy that plays out when we have these discussions, based on what percentage of foreign investments are made by Canadian companies in other countries, versus how many investments are made by foreign companies in our country, or how high those investments are.
In the last couple of years, KPMG showed very clearly that investments by Canadian firms in foreign companies far outweigh the investments that foreign companies have made in this country.
When you spoke, you were moving toward comments with respect to the global economy and the importance of Canada playing a role in that. When you go into ridings like mine, where there's a high contingent of manufacturing and industrial jobs, many of which have left the community....
I was at a meeting on Friday, and I can tell you that they certainly wouldn't agree with your assessment in terms of what we should do, or that we should continue to do that. In fact they would say that we need to put more walls up to ensure that competitiveness within the country is here, in terms of investment or tax policy, to ensure that there are high tariffs when countries are trying to import into our country.
I know I haven't left you much time, but I really would appreciate your commenting further on the importance of why we need to be competitive, and why any tax savings or tax money that we find from closing loopholes will actually be, as the minister committed to yesterday, reinvested back into making sure that we can lower corporate tax rates here in this country.
12:15 p.m.
Conservative
12:15 p.m.
Professor, International School of Business, Rotman School of Business, University of Toronto
I think we're mixing together two really important issues. One has to do with how competitive the Canadian economy is and some of the challenges we have within Canada with respect to productivity, and so on. The second has to do with Canadian multinationals reaching out into the global economy.
There's one point I really want to make, going back to the question raised earlier. Roughly half of the world's trade goes through multinationals. The idea that we can sit in Canada, produce goods, and export to the global economy without having a multinational network--it just doesn't work. You have to be out in the global economy.
So these are two really important issues, and there are issues about how competitive and productive resources are within Canada. I would argue that allowing multinationals to move into the global economy enhances our competitiveness.
12:15 p.m.
Conservative
The Chair Conservative Brian Pallister
Thank you.
To conclude, last but certainly not least is Mr. Pacetti.
12:15 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Thank you, Mr. Chairman.
I thank the witnesses for their testimony.
Only a panel like this can make a complex issue even more complex. We haven't been able to find very many solutions, but I'm going to try in four minutes.
My first question is to you, Mr. Hejazi. I think when you answered somebody's question you were a little contradictory. We just said that Canada doesn't have competitive corporate tax rates, yet we still have Toyota installing their plants here. How do you address that and compare it to a Canadian multinational--it doesn't matter if it is Canadian or not--investing offshore in another situation?
12:15 p.m.
Professor, International School of Business, Rotman School of Business, University of Toronto
Canadian multinationals and multinationals generally are going to locate production facilities where the resources and the environment are best. In the auto industry many multinationals, Toyota in particular, have made—
12:15 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Fine. I'm going to cut you off, because time is limited. So corporate tax is just one factor of many?
12:15 p.m.
Professor, International School of Business, Rotman School of Business, University of Toronto
Yes.
12:15 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Okay, so we agree on that. It's not the essential point. It's not just corporate tax that's going to make you competitive or not. Is there a point where we can say that government revenues are going to be affected, whether they go up or down?
12:15 p.m.
Professor, International School of Business, Rotman School of Business, University of Toronto
It's a very complicated question. I challenge anyone here to show that tax revenue in Canada goes down when multinationals move abroad. The reason is that when multinationals move abroad through an offshore financial centre, to the extent those multinationals are more productive, economic activity in Canada is higher. So tax revenue from that increased economic activity is higher, and the dividends that flow back to Canada are also higher.
12:20 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
But the jobs won't flow with the economic activity?
12:20 p.m.
Professor, International School of Business, Rotman School of Business, University of Toronto
The evidence is clear that when multinationals increase their footprint abroad there's an increased demand for production within Canada. This is the complementarity idea.
12:20 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Okay.
Mr. Lareau, if we did not have an agreement with Barbados, what would be the solution for multinational companies that have to make investments abroad? What would they do?
12:20 p.m.
Professor, Laval University
If they do not go to Barbados, they could choose some other country with low tax rates.
For fiscal reasons, when doing business abroad, it is good to choose a country with which we have a tax treaty. Without a tax treaty, dividends that come back to Canada are taxable.
However, the most recent budget in March says that even if we are doing business with countries with which we have no tax treaty, we can still receive tax treaty dividends, if there is an agreement to exchange general fiscal information. The door has been opened more widely than before. Now this could be dangerous.
However, if it can no longer be done with Barbados, it will be done with other countries, like Iceland, for instance.
12:20 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Would you rather have a company invest in a country with which we have no tax treaty or—
12:20 p.m.
Professor, Laval University
No, a country would never go abroad to create an entity in a country with which we have no tax treaty, it would be committing fiscal suicide.
We will deal with a country with which we have a tax treaty. However, the most recent budget provides that even without a tax treaty, we can nonetheless repatriate tax-free dividends if there is a general agreement to exchange information.
What is the reason for this? I presume that the Minister of Finance thinks that we would have information that could give us access to further information. Nevertheless, it is not working, because we have this kind of exchange program with Barbados—
12:20 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Okay, thank you.
—inasmuch as there is an agreement to exchange information.
12:20 p.m.
Conservative
The Chair Conservative Brian Pallister
It has been a very interesting panel. We very much appreciate all of your presentations and responses to questions. Thank you.
We'll suspend for lunch and recommence shortly.
12:40 p.m.
Conservative
The Chair Conservative Brian Pallister
Welcome to our witnesses. Welcome back, committee members and interested viewers.
Pursuant to Standing Order 108(2), this is a meeting on tax havens and tax avoidance.
I understand that representatives today don't have a formal presentation, but they are here to respond to questions and exchange information with committee members.
Is that correct, Mr. Ernewein?
12:45 p.m.
Brian Ernewein General Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
That's correct, Mr. Chairman.
I'm the general director of the tax policy branch in the Department of Finance. I'm joined by my colleague, Lawrence Purdy, who is the senior chief of the tax legislation division in the Department of Finance's tax policy branch.
We don't have any opening remarks. I had the privilege of appearing before this committee in the previous Parliament on essentially the same general issue. Committee members will be aware of the statement issued by the Minister of Finance yesterday. We have provided to the clerk copies of that statement and the accompanying material. They've possibly been circulated to committee members. During the course of our discussion we may have occasion to refer to at least some of the examples in that material.
We are in your hands.
12:45 p.m.
Conservative
The Chair Conservative Brian Pallister
Thank you very much, sir. You're in very capable and friendly hands here.
We'll begin with Mr. McKay. Don't contradict that statement, please, Mr. McKay.
12:45 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
I'm just feeling the love in this room as we speak.
This matter was convened for a variety of agendas that various parties had. From the Liberal Party's standpoint there was a fairly bald statement in the budget that we were going to eliminate interest deductibility, take on tax havens, ensure tax fairness, and things of that nature. It was a rather less precise statement than more.
Over time the business community started to get a little upset by this proposal and the minister issued a series of clarifications, the latest of which was yesterday.
Presumably when you launch into an initiative of this kind you conduct some form of macroeconomic study. You were in the room when Professor Hejazi made reference to a study he's conducting. I wonder whether the department has conducted a similar type of macroeconomic study that shows not only the losses due to investments in so-called tax havens or low-tax jurisdictions, but also the benefits.
If you have a study, was it made available to the minister prior to the budget, and is it available to this committee?