Evidence of meeting #59 for Finance in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was problem.
A recording is available from Parliament.
9:35 a.m.
Accountability Research Corporation, As an Individual
The SEC, as far as I can see, probably cuts off 70% of what we see in Canada being successful. With regard to the other 30% or 25%, whatever that is, I have doubts, but some of that was because of the administrations at the time.
The point is that the stock market crash in 1929 was followed up in the U.S. by SEC legislation in 1933-34. Canada stuck with self-regulating organizations. They collapsed in effectiveness 20 years ago. I find it exasperating that we keep clinging to these groups as being successful. They're the ones that got us into this IFRS mess.
9:40 a.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
Have you considered what the potential impact of the merger of the LSE and the TSX could be on prosecuting securities fraud and tax evasion?
9:40 a.m.
Accountability Research Corporation, As an Individual
I've done probably 15 interviews on TV and radio since this came up. Yes, I've thought about it quite a bit. What bothers me is that we have the bottom of both of these. You have AIM in London; you have the TSX Venture Exchange. Most of those are iffy companies; maybe 10% or 15% are okay. There's another group that is suspect; there's another group that should not be invested in. It bothers me that suddenly Canada is going to have a whole batch out of England, and who's going to know what about it?
9:40 a.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
You believe that the merger of the London and Toronto stock exchanges could actually exacerbate the challenges we face in tax evasion?
9:40 a.m.
Accountability Research Corporation, As an Individual
Partly. The other side of the coin is, don't forget the volumes of both of these exchanges are dropping. I don't think there's a good business argument for not letting them merge. It's a lesser-of-evils situation. As long as we have weak prosecutions in Canada—and I'm being kind by using the word “weak”—it is a problem that needs monitoring.
9:40 a.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
Mr. Cockfield, you mentioned having a multilateral extranet to share this kind of information. You also cited WikiLeaks and other challenges. If we were to share more information using technology in an extranet type of format multilaterally, would that not create huge risk by making this kind of private information vulnerable to hackers?
9:40 a.m.
Associate Professor, Faculty of Law, Queen's University, As an Individual
That would be a concern. There may be technological mechanisms, encryption and so on, that would help to inhibit the risk of leaks. Currently, the only country that Canada engages in so-called automatic information sharing is the United States. We exchange bulk taxpayer information, mainly with respect to U.S. or Canadian residents engaged in cross-border portfolio investments. So if you open a bank account at the Bank of America in New York City, and it generates portfolio interest payments, the financial intermediary is mandated to collect it. It's shipped back and the CRA reviews it. That process has been going on for at least a couple of decades. To my knowledge, there haven't been any leaks. I think it may be possible to create this extranet and secure it from outside access.
9:40 a.m.
Bloc
Robert Carrier Bloc Alfred-Pellan, QC
Thank you, good morning, gentlemen.
Mr. Rosen, a document prepared by the Library of Parliament researchers says that Canada recently signed information-sharing agreements for tax purposes in certain countries and territories such as Anguilla, the Bahamas, Bermuda, the Caymans, etc. You are certainly aware of this. I think that in order to be able to be apprised of certain facts, this exchange of information is essential.
What do you think of these agreements? Is this an effective tool to solve the tax evasion issue? What results have there been? How much money do you think this has allowed us to recover?
9:40 a.m.
Accountability Research Corporation, As an Individual
I do not know the answer to the question about how much money was recovered. For the Barbados, I'd have to refresh my memory. But with the Cayman Islands, you would first of all have to prove that there was some criminal activity before you could get the access. This is the agreement the U.S. has with them. I don't think Canada's agreement goes beyond that, but I may be wrong. Given the circumstances of having to go into a Cayman court and wait your time before there is a trial and everything else, I would like to see the results. My gut feel is that it's not going to be terribly successful.
9:45 a.m.
Bloc
Robert Carrier Bloc Alfred-Pellan, QC
You think that it won't be all that useful. Is that what you are saying?
9:45 a.m.
Accountability Research Corporation, As an Individual
I think they can be partially useful. Again, you're talking about the low-hanging fruit concept, as opposed to seriously curing the problem. The point still is, why does that money go offshore? Many times it goes offshore because of other suspect or worse activity. I don't see that this is even being addressed, perhaps because it's not part of Finance.
9:45 a.m.
Bloc
Robert Carrier Bloc Alfred-Pellan, QC
In your presentation you mentioned several reasons why certain investors turn to tax havens to evade tax. That is useful, but I think that this is the way of the world and that we are not going to change human nature. The objective is to avoid abuse of our regulation and to ensure that taxation is fair for everyone.
Mr. Cockfield, what do you think of the information-sharing agreements that our country signs with certain other countries considered to be tax havens? Do you, like Mr. Rosen, think that this is not all that useful?
9:45 a.m.
Associate Professor, Faculty of Law, Queen's University, As an Individual
I actually had the chance to advise the government, the advisory panel on Canada's system of international taxation, two years ago on this issue. The interesting thing about TIEAs, tax information exchange agreements--and none of them are in force yet. We've negotiated them, but to my knowledge none of them are currently working. The jury is still out. Our government, in 2007, decided to negotiate these not to fight international tax evasion but because at that time they had passed a tax rule to inhibit something called double-dip financing. We needed to trace interest payments to tax haven countries. It wasn't to attack the tax evasion problem. Nevertheless I think it is a helpful reform.
I am somewhat cynical. I don't think it will help too much. There are a number of reasons why tax scholars are suspicious that it won't help. Those TIEAs are to be distinguished from our Barbadian treaty. Since the 1970s, we have had a full-blown tax treaty with Barbados that includes an exchange of information provision in it. So it's not a TIEA.
Previously governments, such as that of Switzerland or the Cayman Islands, would share information with us only if there was an allegation of criminality or fraud. The TIEAs don't require that. That's no defence. They have to share the information even if it's just regular old tax avoidance or there's no allegation of fraud.
These are positive developments, but I still don't think we'll see meaningful sharing.
9:45 a.m.
Bloc
Robert Carrier Bloc Alfred-Pellan, QC
Some of the clients of our Canadian chartered banks invest in branches of those banks that are established in recognized tax havens. What do you think of the role of those banks?
9:45 a.m.
Conservative
9:45 a.m.
Accountability Research Corporation, As an Individual
The ones I run into are fairly careful if they are Canadian banks. This goes back to the Bank of Nova Scotia situation many years ago, in which they had to go through a thorough investigation. I know of certain people and so on who will stay away from the Canadian banks as a place to put their money. In Cayman, there are 500 other choices. Why would anyone go to the three or four that are Canadian owned?
In that sense, that's been effective.
9:45 a.m.
Conservative
Kelly Block Conservative Saskatoon—Rosetown—Biggar, SK
Thank you, Mr. Chair.
I'd like to echo my colleagues' welcome and thank you for being with us today.
My questions and comments will be directed to Mr. Cockfield.
In your opening remarks, you mentioned that Canada is participating in a number of international organizations when it comes to dealing with the avoidance of taxes and tax evasion. You mentioned the OECD, the Joint International Tax Shelter Information Centre, the Seven Country Working Group on Tax Havens, as well as the Pacific Association of Tax Administrators.
Right after that, you stated that any significant reforms will require greater levels of global cooperation. I'm just wondering whether you would agree that it's important for Canada to participate in these international partnerships. If you do, could you elaborate on why it's important?
9:50 a.m.
Associate Professor, Faculty of Law, Queen's University, As an Individual
I absolutely think it is important that we continue to participate. In fact, Canada typically plays an important role within the OECD, the Organisation for Economic Co-operation and Development, which is the main international body that drives international tax reform efforts. They're the ones that in 1996 began, through their harmful tax competition project, attacking aggressive international tax avoidance by multinationals, but it also has led to attention focused on international tax evasion.
It's important to continue our participation, but the OECD is only 30 countries. It's sometimes referred to as the rich countries' club. It's highly criticized by the Bahamas, Barbados, and elsewhere for ignoring their interests. All non-OECD countries, of course, don't play a formal role. Increasingly, the OECD is giving them observer status so they can at least watch and maybe deliberate some of these international reform efforts.
Yes, we have to keep pushing internationally, but just given the political economy of what's out there, countries have always been very reluctant to bind their tax systems together. We all want to preserve the political right to make whatever taxes we wish, unlike in trade laws and other areas that I mentioned. So that's the main barrier. On the one hand, we realize we need enhanced global cooperation, and on the other hand, the U.S. and certain other countries, at times, prefer a go-it-alone approach that maybe inhibits our addressing this problem in a multilateral fashion.
9:50 a.m.
Conservative
Kelly Block Conservative Saskatoon—Rosetown—Biggar, SK
Canada is one of 95 jurisdictions that have agreed to the international standard for exchange of information, including providing access to bank information. We also have an extensive network of tax treaties. I think we're one of the largest, with 87 treaties in force.
I heard you respond to my colleague's question, talking about the Barbadian tax treaty, in response to his question about how effective tax information exchange agreements are. Can you highlight what is the difference between a tax treaty and a TIEA?
9:50 a.m.
Associate Professor, Faculty of Law, Queen's University, As an Individual
A tax treaty is a full-blown bilateral agreement that governs all cross-border income tax flows. It doesn't typically concern itself with consumption taxes, like our GST. It gives tax relief for certain things. Traditionally, if you're a Canadian multinational and you open a corporation in Barbados, then because of the fact that it was a tax treaty, you could bring all the profits from that Barbadian entity back to Canada on a tax-free basis. So we give reciprocal benefits, a whole host of tax benefits.
TIEAs are much shorter agreements that only focus on one issue, namely, the exchange of taxpayer information. As mentioned, we have 87 bilateral tax treaties. We've had them in place, I guess, since they started, since the First World War. But the TIEAs are a new thing. None of them are in force currently. Again, they just focus on this narrow area of taxpayer information exchange.
That's another reason that certain observers are cynical as to their ultimate feasibility, because if you don't give benefits to a country, a tax break, why should they cooperate? They can sign the agreement. We force them to--the OECD, the G-20. We've put them on potential blacklists if they don't sign. So they've all agreed to sign, but it's an open question whether they'll actually enforce the agreement. They have really no incentive to enforce it. We're not giving them anything, unlike in the Barbadian tax treaty, in which we give them certain tax breaks, certain rights. It encourages actual investment via multinational firms, typically. So the TIEAs, again, are very narrow in their focus.
9:55 a.m.
Conservative
