Finance Committee on Dec. 13th, 2010

[The Chair, Conservative, James Rajotte]

A very brief comment, Mr. Ernewein.

[Brian Ernewein]

I will say that the committee has considered that question before, and I'm happy to attend again. I'm happy to offer a couple of observations today on that, if the committee is interested, to explain what I thought was the concern with that, but just to make note of the fact that I think it has been considered by the committee previously.

[The Chair, Conservative, James Rajotte]

Okay. Thank you.

[Thomas Mulcair, NDP, Outremont, QC]

I want to thank Mr. Ernewein for his diligence, considering our tight schedule. I want to reassure him that the team from UQAM will do its duty and come to defend its study. I will be there to hear the debate, because this team produced a study, and Mr. Ernewein has some statements to make about it. I am also eager to see the face-off between both.

[The Chair, Conservative, James Rajotte]

We'll be pleased to have them.

We will go to Mr. Pacetti, please.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, Mr. Chair.

Ms. Bergevin, you said that since the Swiss banks announced that the information was available, the number of cases grew from 26 to 30. Is this accurate?

[Lucie Bergevin]

I said that we had conducted 26 audits on the Liechtenstein accounts as of April. I also provided you with more up-to-date data for the month of October, namely 30 audits. I believe that these two figures have been published.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So as of April, you had carried out 26 audits. And from April to October, only four other audits took place. Is that correct?

Are you satisfied with the number of files that you opened during this time period? I realize that this takes time, but are you satisfied with these results? Personally, I do not think that four files in six months is very impressive.

[Lucie Bergevin]

Considering the complexity of the files and the lack of information available to us, I am satisfied with the progress.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

You have said that these matters are complex, but are not most offshore bank accounts, regardless of whether they are in Swiss banks or elsewhere, similar to each other?

[Lucie Bergevin]

Yes, that is to some extent the nature of the beast. These are complicated files. At any rate, it usually does take some time to do audits, under normal circumstances. However the circumstances for these audits are more complex and therefore it is understandable that they take more time.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Do the cases you deal with pertain primarily to individuals or businesses?

[Lucie Bergevin]

A little of both. I do not have the exact percentage, but these accounts can involve entities such as foundations, trusts or individuals.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Are these charitable foundations?

[Lucie Bergevin]

Only foundations.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

I have suggested that we take an amnesty approach. I raised this issue earlier, during the first round. Would this approach not be faster and more effective, we would not get better results if we were to give these people an amnesty for a lump sum amount? I do not know what this amount would be, but I know that this is done in other countries, in Europe in particular. Would that not be a good tool?

[Richard Montroy]

Every country must decide on its policies in accordance with its requirements. I have been working in the taxation field for some time. We have always thought that the Canadian way was to ensure that the law was being enforced and that our resources were being used to ensure that Canadians who owed taxes paid their share. The amnesty given by certain countries may have sent some people the wrong message.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

My colleague Paul Szabo has just said that, in the immigration sector, our refugee system sometimes allows certain people to come into the country. Perhaps we could do the same thing and bring some money in.

It is a bit disappointing to see that only four files have been processed and that, six months later, they still are not even finalized. We do not even know what the results will be, because even when you send out a notice of assessment, that does not necessarily mean that you will be able to collect the money.

[Lyse Ricard]

We are dealing with many files. In one year, our aggressive international tax planning initiative enabled us to process 1,251 files.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Just imagine how much money we could save if we were to send the auditors elsewhere. We could simply have the money come flowing in, without any work or effort. We could ask for a percentage though, I do not know what it should be. I am very surprised that you have not done any analysis or study on the issue. As the years go by, people know that they are going to have to pay more, and they are therefore less inclined to want to return or repatriate the money.

[Brian Ernewein]

I have a comment--hopefully it's responsive--to add to my colleague's comments.

The idea of an amnesty is not patently unreasonable; I don't think anyone is suggesting that. But there are incentives it incorporates that give us pause. Functionally it's a reward for non-compliance, if by virtue of not paying your taxes you're forgiven interest and penalties and perhaps repay a fraction of the tax--that's better financially than if you paid your tax all along.

There's also the issue of there being an expectation of repetition. If one amnesty is declared, what are odds that it will be declared again some time in the future? That can be an incentive to evade tax to try to get in on the next one. So it's a balancing act.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

I understand all that. That's why I was saying there should be a study done on that.

[The Chair, Conservative, James Rajotte]

Thank you.

Monsieur Paillé.

[Daniel Paillé, Bloc, Hochelaga, QC]

I would like to go back to the statement made by Mr. Ernewein about information that we apparently do not have regarding banking institutions in particular. That really surprises me because under the Bank Act, which is under the purview of the Minister of Finance, banking institutions must submit a report every year. Some of them have already published the October 31, 2010, report and I am presuming that both the Department of Finance and the Revenue Agency have these reports. One thing is clear, we have all of the reports for October 31, 2009. I find it strange that you are saying we do not know what these figures are.

For example, on page 133 in the Scotiabank annual report, it says that there were 10 tax havens and that resulted in a Canadian tax savings of $325 million. On page 128 in the RBC annual report, it says that this bank has 28 subsidiaries in tax havens which resulted in a Canadian tax savings of $360 million. These reports are not talking about taxes on income, but rather taxes owed. As for TD, on page 129 of the report it states that it has four subsidiaries resulting in a savings of $450 million. With respect to the CIBC, on page 150 it states that there are 12 tax havens and that savings amounted to $118 million. These people are not very effective. With respect to the Bank of Montreal, page 152 refers to three tax havens and $212 million. Finally, on page 144 of the Banque Nationale report, the bank states that, with only two countries, it saved $45 million. So, in total, we are talking about 59 countries, including 9 on the grey list; 11 of them have signed agreements with Canada that have not yet come into force and 14 have not signed agreements but are currently participating in negotiations. This represents $1.5 billion for 2009. I am very surprised to hear you say that we do not have information.

Why is it that the left hand of the Minister of Finance is not able to tell the right hand that $1.5 billion are available? We say this every year, and I will bet you my shirt—although you may not want it—that it's going to be even worse yet for October 31, 2010. In my opinion, negotiating an amnesty is tantamount to becoming amnesic. It is as though we are saying that everything is going well and that all is forgotten.

Why do you not go after this information, which is available, or why do you appear not to know about it?

[Brian Ernewein]

Thank you very much for the question. I appreciate the opportunity to come back to this, because I think it's an important point.

First, if I've given the impression that I thought we didn't have information relating to our banks, I didn't mean to say that. I don't believe that's true. I think the honourable member has demonstrated that indeed we do have the information on Canadian banks.

My point earlier was that we don't have information on tax evasion, which might mean we don't have information about what foreign banks hold by way of investments from Canadians. But I don't believe that's true in relation to Canadian banks. As their own reports put forward, we do have that.

Point two, I don't think this is a matter of tax evasion. This is a matter of our Canadian banks having operations in Canada and outside of Canada, and in relation to their investments and operations outside of Canada they don't pay current Canadian tax when those operations are subsidiaries. I think that is the same rule that applies in every country in the world. As far as I'm aware, only one country ever sought to tax the business income of foreign subsidiaries, and it has stopped doing that. No one else does. Our system is very much like that.

So I think the characterization of that as tax avoided or even evaded is wrong. It's actually income earned in a foreign jurisdiction and is subject to the tax laws we impose in that jurisdiction.