Finance Committee on Dec. 13th, 2010

[Lyse Ricard]

I said we have audited and completed that number of cases and we have uncovered $3.7 billion in tax dollars.

[The Chair, Conservative, James Rajotte]

So, just ballpark, is there a problem with 50% or 20% of the cases you audited?

[Lyse Ricard]

How many we assessed, do we have that?

[Lucie Bergevin]

I don't have this information with me. I guess your question is how many of those 6,700 cases have an amount re-assessed?

[The Chair, Conservative, James Rajotte]

If you can get that to me, I'd appreciate that.

I did want to return to the issue of banks in other jurisdictions with you, Mr. Ernewein, and I've got about two and a half minutes left.

Take the example of BMO, which owns Harris Bank in the United States. They obviously pay taxes in the U.S., but they're not avoiding tax in Canada. A Canadian bank owns a bank that operates in the U.S. and therefore complies with U.S. laws with respect to tax and other matters. In my view, that is a good thing for Canada and a good thing for Canadians, in the sense that our companies owning companies in other jurisdictions is a good thing. We obviously want to have as much investment in Canada as possible, but we want our companies to be global champions as well.

But I think some people may think that's somehow avoiding tax when it's not. So I wanted to give you an opportunity, in a couple of minutes here, to clarify the activities of our banks and insurance companies and others in other jurisdictions and the issue of tax avoidance, because I think that does really need to be clarified.

[Brian Ernewein]

Thank you, Mr. Chairman.

I appreciate the opportunity to return to this. Yes, I think the example you give of a Canadian bank owning a U.S. financial institution is an excellent one. U.S. tax rates are at or are increasingly above Canadian tax rates, and that may mean that the amount of tax paid in the United States on the U.S. bank income is greater than the Canadian tax bill. We provide a foreign tax credit; that is, we allow a deduction for foreign taxes against Canadian taxes paid.

So in those circumstances, the profits of the U.S. financial institution owned by the Canadian parent bank would produce no additional Canadian tax, and that seems reasonable because you need to provide the foreign tax credit to eliminate double taxation. That's one case.

Another case is where a financial institution owned by a Canadian bank, a subsidiary, is located in a jurisdiction that has a lower tax rate than Canada's. In those circumstances we don't impose current tax on that foreign subsidiary's business profits, just as almost every other country does not tax to that income.

That leads me to my third point, which is the suggestion that we can look at these foreign financial institutions owned by Canadian banks or other financial institutions and simply apply a Canadian tax rate to it. I think this is misleading at best, because it suggests that if we imposed a 25% tax on these profits, the Canadian bank would still get the business. Every other bank in the world having operations in that same location is subject to the same non-taxation rules, and that's why for competitive reasons we don't tax. So applying a fictional tax rate or applying a tax rate to this fictional income would, I think, be a misleading way to measure Canadian revenue losses.

[The Chair, Conservative, James Rajotte]

I very much appreciate that clarification.

I want to thank you all for being with us here this afternoon and for responding to our questions. If there is anything further you wish the committee to consider, please do submit it to the clerk. We will ensure all members get it.

Thank you so much.

The meeting is adjourned.