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.
10:20 a.m.
NDP
Malcolm Allen NDP Welland, ON
It seems to me we're at a juncture where either we believe we need to regulate these markets and what happens or we believe they are capable of actually looking after themselves.
Does that seem to be the juncture for you on that?
10:25 a.m.
Accountability Research Corporation, As an Individual
The evidence is overwhelming that they have messed up the Nortels and the business income trusts, and on and on. We can't gather evidence to support this. It doesn't exist.
10:25 a.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Mr. Rosen, on that note, can you circle the circle? What does the Nortel fiasco have do to with tax havens? You've stated it on a few occasions. What does that have to do directly with tax havens and offshore bank accounts?
10:25 a.m.
Accountability Research Corporation, As an Individual
Where do you think the money went that those people made? That stock went up to $124, and there were people doing all sorts of things with it—shorting it. They were also the executives, and I can't comment because there is this eventual criminal trial. There was a lot of those types of things. The money is all over the place. There were the business income trusts. You were taking companies that were ready for failure, or had already failed, and you were selling them as future income producers, when they didn't have any income. Nortel didn't have a profit under any sort of fair accounting. They rejigged their figures and paid bonuses on a fake profit figure.
10:25 a.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
They were recording sales even before it happened, based on—
10:25 a.m.
Accountability Research Corporation, As an Individual
Where is the money? I think I know where a lot of it is, but it would take a fair bit of proof.
10:25 a.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
You believe that if these companies are policed, there doesn't necessarily have to be any oversight or closure to people doing business in offshore tax havens.
10:25 a.m.
Accountability Research Corporation, As an Individual
I didn't say that. I'm just saying that you can probably cut off 70%, 75% of scams that you can work in Canada just by having a few pieces of decent legislation that provide the resources to investigate and prosecute.
10:25 a.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
How does somebody walk into Nortel and say they shouldn't be using offshore bank accounts, or that they shouldn't be transferring money from one account to another? We've been hearing that companies need to operate in offshore havens, and that there's a legitimate reason for it. We're talking about businesses particularly.
10:25 a.m.
Accountability Research Corporation, As an Individual
I'm talking about the individuals who are trading the stocks, getting the bonuses, and so on. This is all published. It is in the National Post and Canadian Business. We said, “Look, here's what these guys are doing. You should not be investing in this stock, because this is all artificial in the way the numbers are being produced.” That's being directed at the stock brokers, the advisers, the securities part of the banks. It's not picking at the company as such. It's the directors, the officers, and auditors who are involved in it.
10:25 a.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Mr. Cockfield, there's talk about having a legitimate reason to do business with offshore tax havens.
10:25 a.m.
Associate Professor, Faculty of Law, Queen's University, As an Individual
This gets back to my opening remarks on the distinction between evasion and avoidance. Evasion is bad and avoidance is acceptable. This is a free country. We all put our money anywhere on the globe we wish, as long as we comply with customs laws and disclose to the CRA. Industry would scream bloody murder if we tried to stop access to tax havens.
Certain countries are doing this: France is, and the U.S. has made some recent moves to cut back on tax haven use. Our government tried to attack the main problem, which is the double-dip financing, through the 2007 budget. This is the main revenue leakage. When you place an affiliate, you make a loan and get a deduction here in Canada, and the moneys come back tax-free. And then the government lost. They reversed their decision, in part because of the recommendation of the advisory panel.
10:25 a.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
One of the reasons we started with this study is that banks have a legitimate reason to use offshore tax havens. Again, I'm not sold on that. But let's assume that companies require these tax havens to do business. I can't see why an individual would need that.
10:30 a.m.
Associate Professor, Faculty of Law, Queen's University, As an Individual
Again, there is some legitimate usage by Canadian individuals and others. For instance, if you have foreign business operations around the globe, and maybe you have multiple homes around the globe, presumably you'd have offshore bank accounts. I think that's probably the rare case, and you're right that this is used mainly to avoid.
Sometimes they're used for asset protection--going back to the multinationals' captive insurance companies--but asset protection is perfectly legal as well. You set up a trust in an offshore account. Maybe you want to protect it from the spouse, as somebody mentioned earlier, but typically it's from certain business creditors. I don't think we should try to stop usage, but from the multinational aggressive avoidance perspective, the government has undertaken a lot of initiatives with respect to the accounting profession. Enhanced disclosure could help. We could have avoided the Nortel-type situation if firms and their accountants were disclosing to the marketplace what they were up to, if there had been greater transparency. Then Canadians would have yanked their moneys out, presumably, earlier from Nortel. But in terms of evasion, I don't think you can stop people from using it, because this is a free country and you can put your money wherever you want, as long as you follow all the laws.
10:30 a.m.
Conservative
The Chair Conservative James Rajotte
Thank you.
Thank you, Mr. Pacetti.
Monsieur Carrier, s'il vous plaît.
10:30 a.m.
Bloc
Robert Carrier Bloc Alfred-Pellan, QC
Thank you.
I share Ms. McLeod's opinion; she was talking earlier about victims. We are studying this topic today because we are concerned by the situation of those who must assume an additional tax burden because others are avoiding their taxes.
Mr. Rosen, you said in your conclusion that it is much more reasonable, when it comes to prosecution, to target those bank accounts that are clearly being used to defraud taxation authorities,and that we should then quickly undertake criminal prosecution. That is a nice statement, but do you think that the Canada Revenue Agency staff has everything it needs to do that? How is it possible to identify these bank accounts at source?
10:30 a.m.
Accountability Research Corporation, As an Individual
I think we're saying the same thing. What I'm trying to say is there are certain transactions and events in Canada, as in the case of Nortel, which was asked about before, in which you have to ask where that cash went, because many Canadians lost, and the losses were in the billions of dollars. So then you go after those transactions, and you may find that these are very clever people and they will take it through five or six different jurisdictions and end up in one where the laws are not going to protect you.
But there are others you can trace--and we have done this before--and we have turned some of them over to the police forces. So it can be done, but it has to be focused, and it requires a fair bit of effort and a client behind you to pay for these.
10:30 a.m.
Bloc
Robert Carrier Bloc Alfred-Pellan, QC
You seem able to identify these cases directly, but does the Canada Revenue Agency have the necessary expertise to identify these problems at source? If we could identify the bank accounts that are exported abroad and then analyze that right from the beginning, that would be ideal.
Do you believe that the Canada Revenue Agency has all the tools that it needs to do that?
10:30 a.m.
Accountability Research Corporation, As an Individual
I think as I said in the material distributed, that compartmentalization drives me crazy, with the various governments across Canada, because I'm always off the particular subject. So cooperation has to occur across different government departments, and this can be done. I don't see any reason, for example, why in a number of the cases I've had, OSFI or its predecessors could not have said, look, this stinks, with regard to Northland Bank or Canadian Commercial Bank or something like that.
So if CRA sees its role too narrowly, then it's a problem, but I think that requires a bit more cooperation, among multiple committees, including standing committees, to say let's get our act together.
10:35 a.m.
Bloc
Robert Carrier Bloc Alfred-Pellan, QC
I would now like to talk about the role of the OECD.
Mr. Cockfield, the first reform you recommend consists in particular in ratifying the OECD Convention on Mutual Administrative Assistance in Tax Matters. If I understand correctly, Canada signed it in 2004, but it has not yet been ratified. You conclude that this convention would be important to avoid tax evasion.
10:35 a.m.
Associate Professor, Faculty of Law, Queen's University, As an Individual
Yes, exactly. It's the only multilateral tax agreement that Canada participates in. It's the only way for governments as a collective to get together and share information, at least in an effective fashion.
I think it would help to reduce international tax evasion if we signed it.
10:35 a.m.
Bloc
Robert Carrier Bloc Alfred-Pellan, QC
... the OECD draws up a grey list of countries that are not participating in the exchange of tax information.
Do you think that this information compiled by the OECD is important? Is it taken into account by Canada?