Evidence of meeting #55 for Finance in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was havens.
A recording is available from Parliament.
9:15 a.m.
Liberal
Paul Szabo Liberal Mississauga South, ON
I'm speaking of the underground economy, domestic fraud linking....
9:15 a.m.
Researcher, Chaire de recherche du Canada en mondialisation, citoyenneté et démocratie, Université du Québec à Montréal
In the 1980s, Mario Possamai noticed that there was a way of laundering money through branches of Canadian banks. For example, research was done in this regard as part of an investigation by CBC. So, there are precedents.
9:20 a.m.
Liberal
Paul Szabo Liberal Mississauga South, ON
Do you have any privacy law concerns that limit the ability of those charged with dealing with these matters of tax evasion, etc., that inhibit or restrict the scope of the work that's being done by the government?
9:20 a.m.
Chartered Accountant, Agora, Services de fiscalité Inc., As an Individual
In response to your question about the cases in Liechtenstein and Switzerland, I want to remind you that a new phenomenon has emerged in how information was brought to the attention of the tax authorities of various countries. This phenomenon is that of the "super" tax informant who sells tax lists to countries all over the world. This was the case in Liechtenstein and Germany, where a tax list was sold for 4.8 million euros.
9:20 a.m.
Liberal
Paul Szabo Liberal Mississauga South, ON
Thank you.
Finally, Mr. Owens, I'll go back to you again, sir. I am a little concerned about the approach the OECD has taken, simply because the political push-pull seems to be interfering with the objective of the approach. Yes, we have agreements, but they take a long time to implement.
If the problem is so great, is there any champion out there who is suggesting that we haven't given this our best shot and that we have to get more aggressive?
9:20 a.m.
Director, Centre for Tax Policy and Administration, Organisation for Economic Co-operation and Development
I think if there's a delay in putting the agreements in place, that is a barrier. I think Canada is a good example. It's taking you too long from the time you sign an agreement to the time an agreement is ratified, and unless the agreement is ratified, you can't use it. There has to be a political will in countries to move from the signing towards the ratification.
Let me make one point on what the previous speaker said about informants. All countries use informants, and in a sense that's part of a citizen's duty. If you know that other citizens are evading taxes, you should actually inform the tax authorities.
This is not a new phenomenon. The scale perhaps has changed, but it's not new.
9:20 a.m.
Conservative
The Chair Conservative James Rajotte
Thank you.
Thank you, Mr. Szabo.
Mr. Paillé, you have the floor.
9:20 a.m.
Bloc
Daniel Paillé Bloc Hochelaga, QC
Thank you, Mr. Chair.
I see that there is a new kind of trade taking place around the world, namely, the selling of lists of users of tax havens. It could be profitable business to get into.
Mr. Deneault, you said that there will be reactions. Tax havens certainly engage in competition, because a tax haven is a business in itself. You need to be creative in the financial market. Think about the state of Delaware and Halifax. These places aren't very far away. Clearly, they aren't going to fall asleep at the switch. Since they have operated a very lucrative business for a number of years, the factors of defence and counterattack are at play. We see it clearly: Canada signs agreements, but does not ratify them. Pardon the expression, but things are "loosey-goosey."
Is Canada not essentially becoming the haven for users of tax havens? Is the transaction that led Scotiabank, whose headquarters are in Halifax, to buy the affiliates of BNP Paribas in Panama, Grand Cayman and Bahamas, not an illustration that Canada is the haven for users of tax havens?
9:20 a.m.
Researcher, Chaire de recherche du Canada en mondialisation, citoyenneté et démocratie, Université du Québec à Montréal
I would not point to Canada in particular. Most of the countries now appearing on the international stage as opponents of tax havens are often partly responsible for their existence, or at least their existence historically.
Given that we don't have a lot of time, the only thing that I would like to stress, from a fundamental point of view, is that, if we look into the problem of tax havens, we must stop seeing them as a pure face-off between valiant, honest constitutional states and nasty tax havens. Historically, tax havens were created by rules of law.
Dependencies of Britain, the Marshall Islands, which are a creation of the United States, the state of Delaware, the city of London and so on must not be considered in dogmatic terms of good and evil. If we think that we need to fight against something foreign, we're on the wrong track. We need to start by looking at Canada's responsibility in this double taxation treaty with Barbados, which, if we're honest about it, is, actually, a double non-taxation treaty.
9:25 a.m.
Researcher, Chaire de recherche du Canada en mondialisation, citoyenneté et démocratie, Université du Québec à Montréal
This is a question of responsibility.
9:25 a.m.
Bloc
Daniel Paillé Bloc Hochelaga, QC
I would like to ask Ms. Alepin a question about the request for information. You said that we need to ask about post office boxes. On this side of the House, we all recall the testimony of Ms. Bergevin from the Canada Revenue Agency. You seem to be proposing solutions that are relatively easy to put in place, but they are not, with the exception of the Bank Act, which requires charter banks to disclose their operations. What's good for the goose is good for the gander.
What do you think is preventing Canada from doing this? Is it just that there is a lack of political will?
9:25 a.m.
Chartered Accountant, Agora, Services de fiscalité Inc., As an Individual
No, it isn't that. If I was Prime Minister of Canada, even with all my goodwill, I probably wouldn't do it because you need an international consensus to come to a decision on these kinds of practices relating to tax havens. We don't want banking information disclosed in Canada, but we do in tax havens. This must be negotiated within the OECD. The discussion must take place in the international arena.
Canada can draw attention to this problem and constantly insist on the importance of improving transparency standards in tax havens. I would not say that the Canadian government lacks political will. I would not point the finger at the Canadian government on this specific matter.
9:25 a.m.
Bloc
Daniel Paillé Bloc Hochelaga, QC
You're turning the argument over to Mr. Owens of the OECD.
You said that there are 600 agreements relating to the information and that they're signing them like they're going out of style. At the same time, it seems that a country that signs a dozen of them is avoiding this type of list. Previously they were corporate bonds, and now they are tax havens.
On the one hand, is this not too little? But on the other, there is a type of system where, if you sign an inter-country information agreement, users from those countries are exempted from taxes. It seems to me that, today, thanks to all the methods of communication and all the information equipment we have, it is easier than ever to get information. Don't you find that the cost-benefit analysis…
We sign an information agreement to ensure that companies using these former tax havens are not taxed. It seems to me that it costs far too much to obtain information after the fact that poses some difficulty. In fact, the name, address, telephone number and name of the bank seem to be a little basic.
What do you think, Mr. Owens?
9:25 a.m.
Director, Centre for Tax Policy and Administration, Organisation for Economic Co-operation and Development
I can make a comment on that. As I said earlier, this is a good investment. Look at the United Kingdom. They've put £4 million into better offshore compliance, and they expect a yield of £7 billion. That's a pretty good return. I think the cost-benefit analysis of exchange agreements comes out very much in favour of having these agreements and implementing them.
My second comment is that in our discussion this afternoon on tax havens, think we need to be clear concerning what we're talking about. To me and for the OECD, a tax haven is a jurisdiction that has either zero tax or a very low tax, has bank secrecy, lacks transparency, and is badly regulated. Of all those criteria, the key is bank secrecy. You can't get information out of Panama. You couldn't get information out of Barbados; that has now changed.
I think for us the next step involves moving beyond these agreements, getting these reviews out of the way and getting them completed, and identifying what more these tax havens have to do. As I said, we've completed 18 reviews. Barbados got a thumbs down; Botswana got a thumbs down; Panama got a thumbs down. In those 18 reviews, we identified 64 recommendations for improvement. It may not go as fast as you would like, but there is real progress being made here.
There is perhaps is one other comment. I think an earlier speaker was confusing things. There is a difference between evading taxes and using tax incentives that governments put in. If a country wants to offer tax incentives—and Canada, like almost all other OECD countries, does that—that's a sovereign right. We've nothing against that. If a country condones or facilitates tax evasion, that's something that I think is not acceptable, and this is what the OECD has been fighting about.
9:30 a.m.
Conservative
The Chair Conservative James Rajotte
Okay. Thank you.
Thank you. Merci.
We'll go now to Ms. Glover, please.
9:30 a.m.
Conservative
Shelly Glover Conservative Saint Boniface, MB
Thank you, Mr. Chair. I want also to say that I'm thrilled to be here at my first meeting on the finance committee. I expect it's going to be interesting, and I look forward to working with all of the opposition members and, of course, my colleagues next to me on this committee.
First, I want to thank you for testifying today. Mr. Deneault and Ms. Alepin, you have clearly expressed that there is a real international problem. I have heard what you said, and I am in full agreement.
I would like to ask Mr. Owens a question about this, because it's important to understand the history of tax havens.
Mr. Owens, I would like to ask you to briefly touch on the history of tax havens. It's been indicated a couple of times in committee that this is an international problem, and of course Canada is one of the cogs in the wheel that's trying to move forward to resolve this.
You have mentioned a couple of things that you think are good advancements—the agreements, the reviews—but I need to have you explain a little bit of the timeline. When did Canada first start to address this issue, and what are the significant things that have been done to date that have impacted on this in a positive way? Can you give me the timeline and an approximate idea of the years these came into place?
When did this start? When did the positive action begin to take place? What were those positive actions? Tell us about that in respect to the international aspect of this issue.
9:30 a.m.
Director, Centre for Tax Policy and Administration, Organisation for Economic Co-operation and Development
The OECD project started back in 1998. At that time, I think we had perhaps an oversimplistic approach to the issue of tax havens. It was very much a “name and shame”: you identified a tax haven using the definition I've just described, and then you put it on a list, and then you whacked in sanctions as defensive measures.
It was an aggressive approach. We were actually surprised that the tax havens responded to that approach by saying, “Before we get down to sanctions, let's start talking. Let's see whether we can have an agreement, because if we can have an agreement that we all buy into, then the agreement is much more likely to stick than just hitting us with sanctions.”
Between 1998 and 2000, we worked on that. We got a set of standards. In 2002, we had an agreement between the OECD countries and the tax havens on a model information exchange agreement. It wasn't easy getting places like the Caymans, Barbados, and OECD countries like Switzerland and Luxembourg to sign on to that, but we have it, and that agreement now forms the basis for these 600 tax information exchange agreements around the world.
I think the key turning point occurred in April 2009 at the London G-20 summit. At that point all of the G-20 leaders, including the Canadian leader, basically sent a very strong message to the offshore world: “Your time is up. We are no longer prepared to tolerate tax havens.”
To me it was surprising that it took so long to get there. I think there are many reasons explaining why that was the case, but at that London summit it was very clear that the political message had gone out that it was not acceptable.
At that point you saw the changes. You saw countries like Switzerland and Luxembourg saying they would come on board and sign the standards. You saw countries like Panama and Barbados saying they would come there as well.
This was because at the same time as the G-20 made that statement, the OECD issued its list—we don't call it a list, but that's what it is—that basically identified three categories of jurisdictions. There are those that have committed to the standard and have these 12 agreements, and so have partially implemented them. People call that the white list. I don't like that, because having 12 agreements doesn't mean you've done everything you need to do. The second part of the list was those that have committed to the standards but have not substantially implemented them. The third part was those jurisdictions that neither endorsed nor implemented the standards at all.
That list, because it was made with a “name and shame” approach, was very effective, because then you can saw the way countries began to move forward. What we've seen from April 2009 right though the Toronto G-20 summit and then to the last G-20 summit in Seoul is a massive increase in the number of these agreements.
Our focus now is on making sure that these operate in practice. I think one of the speakers said a moment ago that you have to be able to provide the name, the address, and the name of the bank before you can ask for information. That's not correct. All you have to do is provide sufficient information to enable the requested state to be able to go to the banking community and get that information. For example, if you have an e-bank number, that in itself is enough to do this.
These are some of the key timelines for this project. It's going to be ongoing, because as long as we have taxes, we'll have people who want to evade taxes. As long as you have people who want to evade taxes, you'll have offshore standards that would facilitate doing so.
9:35 a.m.
Conservative
Shelly Glover Conservative Saint Boniface, MB
Very good.
I only have a couple of minutes left, but I am really glad that you touched on the G-20 summit that happened in Toronto.
As far as I remember, there was an article in the newspaper that quoted you as saying that Mr. Flaherty, our Minister of Finance, was showing leadership in getting the G-20 members to crack down on tax havens with new sanctions.
Do you still agree with that comment here today?
9:35 a.m.
Director, Centre for Tax Policy and Administration, Organisation for Economic Co-operation and Development
I do, yes.
You can see that the language that was put into the G-20 communiqué was strong language. It emphasized that we want to see progress, and it also said that if we don't see progress, then sanctions will be put in place.
9:35 a.m.
Conservative
Shelly Glover Conservative Saint Boniface, MB
Very good. Thank you.
I know you touched on five recommendations. I appreciate those recommendations.
I want to ask about the fifth one. You talked about enforcement. I just want to get clear what that fifth recommendation was, because as I was taking notes, I don't think I quite got what you had to say about the fifth recommendation. Could you repeat it for me quickly?
9:35 a.m.
Director, Centre for Tax Policy and Administration, Organisation for Economic Co-operation and Development
Yes. I think it was the importance of making the linkage in the fight against money laundering, bribery, corruption, terrorist financing, and tax evasion. At the end, all of these illicit activities thrive when you don't have cooperation and don't have much transparency.
One of the things governments need to do is to ask themselves whether we can get better cooperation between the tax authorities on the one side and other law enforcement agencies on the other. For example, if the tax authorities find a case that looks like money laundering, they can pass that information to the financial intelligence units, who can then progress, or if the financial intelligence unit finds something that looks like a tax crime, they can pass that back to the tax authority. It's a whole-of-government approach.
9:35 a.m.
Conservative
The Chair Conservative James Rajotte
Thank you. Merci.
We'll go now to Monsieur Mulcair, s'il vous plaît.
February 1st, 2011 / 9:35 a.m.
NDP
Thomas Mulcair NDP Outremont, QC
Thank you, Mr. Chair. I am pleased to have this opportunity to welcome Mr. Deneault, Ms. Alepin and Mr. Owens.
Mr. Owens, I'm going to start with a quick question to you.
The Tax Justice Network has a number that's quite a bit higher than the OECD's as an estimate of what's currently being held in tax havens. Have you studied the difference between your two estimates? What is the current OECD estimate?
9:35 a.m.
Director, Centre for Tax Policy and Administration, Organisation for Economic Co-operation and Development
It's quite difficult to study the Tax Justice Network, because every month it seems to increase by $50 billion. It started at $50 billion, then it was $250 billion, and the nearest figure I've seen is up around $600 billion. It's a number that is continually moving.
We have consciously chosen not to put out such a number, because frankly, I don't think you have the methodology or the data that would enable you to reliably estimate how much we are losing to tax havens.
What we are confident of is that it's big and it's growing. How do we know that? It's by looking back. I'll give you an example. Ireland, a small country—not a low-tax country, but a high-tax country—last year collected €1 billion from Irish residents using Channel Islands offshore havens. That is 26% of the total revenue that they get from unearned income. That's an enormous amount.