Finance Committee on Feb. 17th, 2011

[Arthur Cockfield]

They are taken into account. The OECD, working with the G-20, most recently reformed the list and indicated that all the listed countries are now in compliance, that is, they've signed 12 TIEAs. The next step is to see whether or not they're sharing information, and as I said, our TIEAs aren't in force yet, so they're not working yet. But certainly the hope is that through this OECD/G-20 process we'll get greater or enhanced information sharing among the countries, but I'm still skeptical it'll work.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you.

We'll go to Mr. Wallace.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

It's been a very interesting conversation this morning and a little bit different from what we've had thus far. All our guests who have been in front of us have indicated the difference between avoidance and evasion. I like to use a simple example. Buying an RRSP is a tax planning system that's an avoidance. Taking advantage of tax credits that are available, whether it's for your kids' fitness tax credit or whatever they are--those are tax avoidance issues, and I think most people understand that.

But when we talk about evasion, they think of other things, and based on the conversation today, I think the area gets greyer and greyer instead of clearer.

Professor Cockfield, you teach tax law at Queen's. Is that correct?

[Arthur Cockfield]

Yes.

[Mike Wallace, Conservative, Burlington, ON]

Is there a course on ethics for lawyers at your school?

[Arthur Cockfield]

There are courses; it is an area. For instance, this year I teach contracts law and I teach extensively on legal ethics and our rules of professional conduct. In two years the law society is going to mandate an exclusive course on legal ethics focused in the first year of our JD program.

[Mike Wallace, Conservative, Burlington, ON]

You did indicate that at one time you were a professional accountant before you became a lawyer. Is that correct?

[Arthur Cockfield]

I was trained as an accountant; I was never licensed as one. So I never apprenticed with a firm.

[Mike Wallace, Conservative, Burlington, ON]

Okay.

Was there ethics training for accountants?

[Arthur Cockfield]

This was at the Richard Ivey School of Business. No, at least when I went through the program.

There is a course. I'm just saying I wasn't trained in it.

[Mike Wallace, Conservative, Burlington, ON]

The reason I'm asking is we're talking about trying to catch those who are breaking the rules, and I might be very naive about it, but I'm guessing that a number of them...maybe not everybody, but not everybody understands how the system works and how to evade taxes. Somebody has to teach them or show them or give them instructions on how to do it.

We talked about voluntary disclosure and trying to get the money back and not pay interest and so on, but do we have enough teeth in the legal system to go after those who are counselling cheating, breaking the law?

[Arthur Cockfield]

Certainly, it would be a violation of the rules of professional conduct of this province and any other province to counsel any kind of illegal activity, to aid and abet in any illegal activity. Are there some bad apples? Absolutely.

Another interesting facet of this problem is the rise in websites that tell you exactly how to engage in international tax evasion. One article mentioned there are several thousand websites now on the Internet that'll say, “Give me a call in the Caymans. Send me $150 and I'll set up an account and tell you exactly how to engage in this activity.”

It's not clear, at least to me, that it's the Canadian advisers. Certainly, there are a few bad apples, but even if we were to get rid of those, the problem is not going to go away.

[Mike Wallace, Conservative, Burlington, ON]

Mr. Rosen, I have a question for you, and then I think I'm done.

This morning I was at a meeting with the Investment Industry Association of Canada, and they had a guest speaker. One of the reasons he was interested in and has been an active promoter of a single securities regulator is in the area of prosecuting those who are cheating. On the security side, because we have 10 different security regulators, the issue of catching people who are breaking the rules or the law and actually bringing them to court and getting it resolved is much more difficult. His view was that it's one of the areas that a single securities regulator could add value to this country's ability to protect investors from unscrupulous folks.

Based on your resumé and everything else you've said today, you have been involved in these prosecutions and you've have had some difficulty. Is it because these individual provincial regulators don't have the teeth, don't have the money? If we were to go to a single regulator, what would your advice be?

[Lawrence S. Rosen]

IIROC is also in our building and we use the same elevator banks.

I'm not against the single regulator at all. What bothers me, within the realm of the single regulator, is that very little has to do with investigation, prosecution, and so on. That's why I want them split off. I don't think what you're describing is going to work.

The people who are handling it also, to be honest, are the wrong mix of people.

[Mike Wallace, Conservative, Burlington, ON]

You'd like a separate arm.

[Lawrence S. Rosen]

It has to be, because we have the situations where you work this particular scam in British Columbia, you scoop out what you can, you move to Alberta to work it, and so on.

The databases don't exist in this country, to my knowledge. Even the lists of the people who are doing it don't exist. That's not going to be collected by the single regulator. It's something they've pushed off down the road.

We have to get a second one going and we have to get a government organization to sponsor...at least, to get away from the self-regulating organizations. Those are the cures.

[The Chair, Conservative, James Rajotte]

Thank you.

I want to thank our witnesses for being here today.

Mr. Rosen, I do have one question. If you want to follow up with the committee, I'd appreciate that.

You talked about where it comes from is a problem and where it goes. When you talk about either tax avoidance or evasion, you talk about individuals, corporations, or enemies like organized crime. I understand why they're doing that, but I thought you also said that governments engage in avoidance and evasion as well. Then you said it was naive not to believe so.

At the risk of sounding naive, I'm having a hard time understanding how governments do that.

[Lawrence S. Rosen]

What the governments do is have offshore bank accounts. I spent 15 years with three of the auditors general here in Ottawa, and the point is, in trying to take the budget information, it's just about impossible to see where that goes. Some of that can easily be leaked into an offshore account for a particular government purpose.

What I mentioned is not tax evasion so much as an allocation problem that leads to offshore accounts that may have acceptable purposes within Canadian ethics and so on.

[The Chair, Conservative, James Rajotte]

It's more government policy resulting in it rather than governments actually....

[Lawrence S. Rosen]

Yes, and it's a choice. Whether the opposition parties know that this is going on or not, I can't comment on that. Things have changed.

The point is, you cannot wipe out all of the offshore accounts when you're using them yourself. That is my point.

[The Chair, Conservative, James Rajotte]

Okay. If you have anything further on that, I would appreciate that, as the chair.

I do want to thank you both for coming in. It's been a very interesting discussion here this morning. If you have anything further, please submit it and I will ensure that all committee members get it.

Thank you.

[Paul Szabo, Liberal, Mississauga South, ON]

Mr. Chair, are we going to deal with this?

[The Chair, Conservative, James Rajotte]

It's more a point of information.

[Paul Szabo, Liberal, Mississauga South, ON]

Okay. Could I raise whether the committee would be interested in hearing from the Auditor General on tax evasion, simply because she did a report in 2007?

[The Chair, Conservative, James Rajotte]

Yes, you can submit a witness at any time.