Oh, oh!
Evidence of meeting #106 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was evasion.
A video is available from Parliament.
Evidence of meeting #106 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was evasion.
A video is available from Parliament.
9:45 a.m.
Some hon. members
Oh, oh!
9:45 a.m.
Barrister and Solicitor, Morris Kepes Winters LLP Tax Lawyers, As an Individual
The room actually got a little warm.
It doesn't surprise me, because there is the existential dilemma between a self-reporting and a self-assessing system, and there is a market economy and competition amongst law firms and accounting firms to attract and to retain clients.
I suppose the point is that if those law firms have broken an ethical law or have contributed to a client being able to commit tax evasion—that in and of itself is a crime, and I would definitely not condone that.
The fact that there is a beauty contest amongst lawyers or multinational accounting firms to provide clients with the most tax-efficient structures doesn't surprise me. That's just a function of the market economy and of competition amongst those firms.
9:45 a.m.
Conservative
Mike Wallace Conservative Burlington, ON
Thank you.
Let me ask Professor Hejazi or Professor Collier from Oxford—you are from two very reputable schools that are well known around the world—would I be fair to say, from listening to both presentations, that you disagree as professors?
If I'm wrong, tell me I'm wrong, but if I'm right, what would you say the difference is?
9:45 a.m.
Professor, Rotman School of Management, University of Toronto, As an Individual
We are looking at this from different perspectives. The whole idea of Starbucks is that it's exciting, and all of a sudden it talks about tax fairness and so on.
What I think about, in the research that I talk about, is this. This can be applied to any OECD country, but when a Canadian company deploys a global strategy through a jurisdiction such as Barbados, doing so increases the tax base in Canada. The simple fact that the revenues generated by a Canadian company globally can be repatriated to Canada free of tax does not mean that there are no tax implications. When one of our financial institutions does business in Latin America or Asia and the money is repatriated through Barbados, all of a sudden dividends are higher, head office functions in Canada are higher—there is a much larger tax base.
Most people talking about the Starbucks example are taking a very narrow view of the issue and are not thinking of it holistically.
9:45 a.m.
Conservative
The Chair Conservative James Rajotte
Thank you.
Thank you, Mr. Wallace.
Mr. Caron, you have the floor.
9:45 a.m.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
Thank you, Mr. Chair.
I would like to thank you for your presentations. The subject is very interesting but quite complex.
My first question is for Mr. Saint-Amans.
In your presentation, you mentioned that a key issue in tax avoidance, tax evasion and tax havens was the question of transparency. But when measures like the Foreign Account Tax Compliance Act or even other automatic mechanisms for information exchange are mentioned, people complain because they say it is an invasion of privacy.
Where do you think we should draw the line between the need for transparency and the need to protect privacy?
9:50 a.m.
Director, Centre for Tax Policy and Administration, Organization for Economic Co-operation and Development Donor Assistance Committee Peer Review Team
Thank you for this question. Again I'm sorry to respond in English, but I heard your question in English through the interpretation.
I have a couple of comments. One is that we have made very significant progress towards better transparency through exchange of information on request, which is very protective of privacy and confidentiality, as one of the conditions to exchange the information is to make sure that confidentiality will be protected within the requesting party.
Contrary to what Professor Collier indicated, exchange of information on request is working. There is evidence. I'm here in Malaysia to assess the effectiveness of information exchange, and we have published reports describing this. So the evidence is there.
When you move to some other forms of information exchange, such as automatic exchange of information—and that's the case through FATCA—the U.S. has been able to convince dozens of countries throughout the world to agree to an automatic exchange of information with them, or something that is equivalent to automatic exchange of information. Please note that the G-20 is now moving in that direction.
Within the OECD, we're working at developing a platform to facilitate automatic exchange of information for countries. One of the challenges is to ensure that a country will exchange automatically with another country that will respect the confidentiality of the information. We are working on establishing standards to make sure that we check the ability of another country to respect that confidentiality.
But privacy is respected. The exchange of information is limited for tax purposes, and the information will remain within the tax authority— or might go, if both countries agree, to other enforcement agencies, but it's not for public disclosure.
9:50 a.m.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
I would like to make sure I've understood correctly. According to you, a mechanism, a philosophy or a direction like the Foreign Account Tax Compliance Act is acceptable on the condition that it is not unilateral, but multilateral, like in the context of the G20, for example. Is that correct?
9:50 a.m.
Director, Centre for Tax Policy and Administration, Organization for Economic Co-operation and Development Donor Assistance Committee Peer Review Team
FATCA is unilateral legislation, and the way it has been implemented is largely through bilateral agreements. If a country wants to negotiate an agreement with the U.S., it can negotiate this agreement, which can be reciprocal or not reciprocal. As regards the confidentiality part of it, if you move towards automatic exchange of information, the very strong recommendation is to make sure that the partner who will automatically get your information is able to protect it.
9:50 a.m.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
I have a quick question. I would like a brief response from Mr. Saint-Amans, Mr. Hejazi and Mr. Vaillancourt.
This is our fourth and last meeting on tax havens, tax evasion, aggressive planning and transfer prices. These are important and complex matters. But there will be only one report at the end of four meetings. Do you think the committee should study each of these issues separately and draft separate reports on each one?
9:50 a.m.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
My question is for Mr. Saint-Amans, Mr. Hejazi and Mr. Vaillancourt. I would like a brief answer.
9:50 a.m.
Conservative
9:50 a.m.
Director, Centre for Tax Policy and Administration, Organization for Economic Co-operation and Development Donor Assistance Committee Peer Review Team
Transfer pricing is a matter different from transparency.
Transparency can help better implement transfer pricing rules, because if you have companies doing transactions with a secretive jurisdiction, you may lose track of the transaction and will not have the comparables, and therefore you will not be in a position to implement transfer pricing.
Transfer pricing raises a much broader issue, which is about how to price and whether you can locate the profit in a jurisdiction in which there is no physical or real activity. This is being addressed in the report addressing base erosion and profit shifting that I referred to.
9:50 a.m.
Conservative
The Chair Conservative James Rajotte
We're out of time.
Perhaps you could add a very brief comment, Monsieur—
9:50 a.m.
President, Quebec Association for the Taxation of Financial Transactions for the Aid of Citizens
I fully agree with Mr. Caron. The issue of transfer prices is a basic one. That is probably where the amounts are the highest and most considerable. It isn't an issue that is addressed very often. The report will be quite valid, if only for that issue.
9:55 a.m.
Conservative
9:55 a.m.
Professor, Rotman School of Management, University of Toronto, As an Individual
To respect the time of the committee, I'll pass.
9:55 a.m.
Conservative
The Chair Conservative James Rajotte
Thank you very much.
We'll move on to Mr. Hoback, please, for your round.
9:55 a.m.
Conservative
Randy Hoback Conservative Prince Albert, SK
Thank you, Chair.
Thank you, gentlemen, for being here this morning.
The comments you made about studying, Mr. Saint-Amans, are very enlightening. I agree with you in many ways. I'm a grain farmer. When I go to look at my field in August, it would be nice to know how much wheat is sitting in that field. But I'm not going to spend a lot of time and effort which I could use in harvesting the field in studying it.
I think it's very important that we acknowledge that the best thing we can do is, as you said, keep going on taxing and on going after those who are evading taxes, instead of spending too much effort in trying to identify what the problem is. Both are important, but I think one is more important, and that's getting results.
Would you not agree with that, Mr. Saint-Amans?
9:55 a.m.
Director, Centre for Tax Policy and Administration, Organization for Economic Co-operation and Development Donor Assistance Committee Peer Review Team
I fully agree that it all needs to start with proper implementation of the legislation and proper enforcement of the legislation. We have a very close relationship with the CRA, the Canada Revenue Agency, which partakes in the forum on tax administration where the tax commissioners exchange best practices and the best way to implement and enforce the legislation.
It all starts with proper compliance, which needs good auditing services and good enforcement. But that doesn't prevent governments from identifying the problems. With tax avoidance, you may have some problems, and there, of course, you need to identify the roots. If something is legal, but you don't like it, what do you need to do? You need to change the rules. So when you have hybrid mixed matches, for instance, you have one qualification on top of another one in another country, and then you have double exemption, which is unintended. You may not like it because it's a loss of revenue, and then you may want to take action. This is also what we're doing.
9:55 a.m.
Conservative
Randy Hoback Conservative Prince Albert, SK
Okay.
I'm going to take advantage of Ambassador Delgado being here, because I know Canada just did a tax information exchange agreement with Costa Rica, I think last August. You've done tax agreements with other jurisdictions. When you look at these tax agreements, how do you find them? How are they implemented in Costa Rica? What challenges do you face as a mid-economy? What are the things that we could do to help you meet up to those agreements, or make those agreements easier?