Finance Committee on Dec. 13th, 2010

[Thomas Mulcair, NDP, Outremont, QC]

In 2007, thanks to the actions of one person who made the UBS list public, the Americans were able to impose a fine of US$780 million on UBS. It was also revealed that hundreds of Canadians were on the list, which you have, which you confirmed earlier. How much money have you recovered so far, based on the UBS list? We will then move on to the HSBC list.

[Lucie Bergevin]

The amounts we recovered were recovered under the Voluntary Disclosures Program. I do not have the chart here. We are studying the lists we received following peremptory requests, but we still have not received any results from the audit.

[Thomas Mulcair, NDP, Outremont, QC]

I will word the question differently. Are investigations systematically undertaken to look into the foreign activities of foreign banks, yes or no?

[Lucie Bergevin]

Absolutely. That is part of our population of major files and we have a wide coverage as far as the population of these major files is concerned.

[Thomas Mulcair, NDP, Outremont, QC]

In that case, how is it that, if investigations are conducted on a regular basis, it was only when the Americans received the UBS list, or when the French received the HSBC list, that we learned about the Canadians who were on these lists? How is it that we do not get any information, unless is leaked from sources like those?

[Brian Ernewein]

Mr. Chairman, may I jump in here for a moment?

I think the honourable member is conflating two different points. One is the legitimate concern, and that's what we've been trying to address, of those who would seek to hide income in foreign financial institutions. The other is the taxation of investments of Canadian financial institutions themselves abroad.

We are familiar with the study to which you referred, and the calculations that were made essentially seemed to be based on taking the amount of income that Canadian banks have earned abroad over a number of years and multiplying it by a Canadian tax rate to come up with an estimate of taxes that in the view of the authors of the study have been avoided. That is not in our view a valid analysis of taxes sought to be avoided.

[The Chair, Conservative, James Rajotte]

We'll have to come back to this in another round.

Mr. Pacetti is next, please, for five minutes.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Chair.

Thank you to the witnesses for coming forward.

I think there are two purposes for our being here. First, we're trying to understand the magnitude of this, whether you want to call it tax evasion or offshore bank accounts—but basically, tax evasion is tax evasion. The way I see it, there are basically two types of tax evasion, domestic and international.

I can't believe that there is no estimate. I guess our first priority would be to determine how much the amount would be, and then after that what kinds of tools we can provide you with so that you can go after that money. I think it's a very basic philosophy of what we're trying to do here.

I can't believe we don't have numbers. We do see different numbers, whether it be from OECD-independent professors making estimates or from elsewhere. My question was going to be, how are these calculated internally? There must be an amount that you calculate. I'm sure the Department of Finance does it for the CRA.

So my question would be, how do you calculate tax evasion, whether it be domestic or international? I understand it's not going to be a hard number, because if you actually had the hard number, then you'd actually have the dollar amounts in your bank account. Isn't that correct?

[Brian Ernewein]

Again, I'm sorry, but we don't know what we don't know. You can make assumptions about some of this stuff, and that will certainly produce a number--

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

Okay, let me stop you there.

When you have the voluntary disclosure program, when you start seeing people actually voluntarily disclosing, is there not a trend? Do you see it more when times are tough, or when there are economic booms, or when the U.S. is going after some of the offshore bank accounts? There must be a trend.

What other countries have done is decide to give amnesty. They have said, bring in your money and we'll charge you either 5%, 10%, 15%, or 20%. There must have been some analysis done whereby that could be an option; you just say bring in your money and we'll tax you at a flat rate.

[Brian Ernewein]

My colleagues from CRA may have other comments, but I would say that we believe that reducing the opportunities to evade tax will reduce tax evasion. What we're doing as a policy shop at Finance is to try to put forward, as you call it, those tools to allow CRA better access to information and thereby to reduce tax evasion. In tax it's the same as an extradition treaty, for example. If you have an extradition treaty with another country, that takes one country off the list of those a fugitive might move to. If you take a jurisdiction off the list of somebody who has bank secrecy laws protecting them from our getting access to their investments, then that's one less place for them to go, seeking to evade taxes.

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

But every time we sign a tax information exchange agreement—I think that's the term—do we see more voluntary disclosures? Do we see more money coming in? Should we be moving faster?

[Brian Ernewein]

That's a fair question. I would say that at this stage it remains unanswered, because the tax information exchange agreements we've signed have not yet themselves been brought into force. One of them was tabled earlier this year, or perhaps even late last year; 10 more were tabled within the past few days, I guess, to be—

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

I'm not so sure that's the answer. I'm sorry to interrupt.

We've had exchange of information with other countries. Even with such countries as the United States, not all amounts crossing borders is declared. I can just imagine how long it's going to take before we get proper information from countries like Bermuda, the Cayman Islands, or Dominica—not that I'm trying to pick on these islands, but the record keeping of some of them leaves much to be desired. If we have trouble tracking money coming in from the States, I think things are going to go a long way before we catch any of these people from these exchange-of-information countries.

[Brian Ernewein]

May I just make a comment about that?

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

Yes, go ahead.

[Brian Ernewein]

First, yes, it is the case that we have a very good exchange-of-information procedure with the U.S. In many cases, information with the U.S. is exchanged automatically. My colleagues can speak to that, but it's very advanced, if you will.

The second point is in relation to the new jurisdictions, if you want to call them that, which are coming on and agreeing to an exchange of information, perhaps for the first time, with us and other countries. Yes, there is a concern that, to be blunt about it, they may not be committed to doing this or may not have the capacity to actually deliver on exchange of information when asked to do so.

Part of the work of the Global Forum is a two-stage analysis that is under way now. It will first go through and review every jurisdiction's—including Canada's—legal architecture to see whether it has the laws in place and the agreements in place to exchange information.

Then the second phase, taking place for some now and others in the next year or two, will be to analyze and assess their on-the-ground performance with respect to exchange of information to make sure that everybody who is committed to exchange of information is actually delivering on that exchange.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Monsieur Carrier, s'il vous plait.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Thank you.

Good afternoon, ladies and gentlemen.

Ms. Ricard, the figures you have shown us are, in my view, astounding. On page 6, as a matter of fact—I will come back to that—you say: "In 2009 alone, the CRA uncovered $1 billion in unpaid taxes involving international activities". It is extraordinary to learn such a thing.

If you put yourself in the position of taxpayers who are currently listening to us, I think that this reflects badly on us as a government. Of course we have caught those people, but the fact that we discovered a billion dollars means that much more money is hidden. I am wondering what the problem is.

Have you called on the government to fix the problem? In my view, it doesn't make sense that, after having reviewed the files, we suddenly discover a billion dollars in unpaid taxes at some point during the year. When you think of all the headaches regular taxpayers have to put up with when they deal with the Revenue Agency, I think it makes much more sense to find greater amounts elsewhere. Are you making a recommendation to us?

The first two pages of your statement say that everything is great, everything is fine, everything is truly wonderful, but if you look at the numbers you are presenting, the situation, in my view, becomes dramatic. I would like to know what kinds of recommendations you will make to the government to improve the situation.

[Lyse Ricard]

Since we have more auditors, our approaches have become more sophisticated. We are working in collaboration with our international partners, who are experiencing the same problem. Abusive tax planning internationally has begun to attract more attention in the last few years. Therefore, we have started to unite our efforts with those of other countries. For example, a few years ago, we created the Seven Country Working Group on Tax Havens. Canada is the founder and leader of this group. Since our means are more sophisticated, we are able to collect information on abusive tax avoidance strategies, which have been discovered around the world, and we can follow the trails to where they lead.

In 2004, we created in collaboration with other countries, the Joint International Tax Shelter Information Centre. There is an office in Washington and another one in London. For now, there are six member-countries. As for us, we have a representation in Washington. We exchange information every day.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Regarding the files you are auditing, are these, in some cases, files relating to income generated by Canadian companies, and for which you have lost the trace, companies whose income appears nowhere, but suddenly turns up in a foreign account? Should we not begin by fixing that problem here, at the local level with an audit, to avoid learning from other countries that there is a lot of Canadian tax money in their accounts?

[Lucie Bergevin]

I will try to answer that question. What you have just described is one aspect of tax avoidance. We are operating in a global economy. It is therefore possible that companies attempt to transfer income to places where tax rates are lower and where treaties allow certain things to take place. But the way we are going about recovering money helps us to better understand the way the strategies function. Based on that information, we can make recommendations to the Minister of Finance and amend the act, as well as improve compliance.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Regarding the 2,000 cases linked to HSBC in Switzerland, you said a little earlier that the audit did not seem to be very advanced. If that is the case, I am surprised that you are not acting with more urgency, at least when it comes to auditing those files, which have been unveiled and brought to our attention. The investigation into those cases should happen more quickly.

[Lucie Bergevin]

I would like to point out that the audits have already begun. None has been concluded yet, but it must be said that the list was revealed only recently; I think it was in the spring of 2010. We are still analyzing the information we have received to determine what is missing.

[The Chair, Conservative, James Rajotte]

Merci.

We'll go to Mr. Wallace now, please.