Finance Committee on Feb. 26th, 2013

[Luis Carlos Delgado Murillo]

Perhaps what we are looking for is more cooperation between countries like Canada and ours, because in that sense if we improve the mechanisms within both countries, I am sure that we would reduce the intentions for those financial influence capitals that are willing to move to other places.... Perhaps they would still like to move, but personally I think if we work together, if there is more transparency between countries, I'm sure that those impacts will be reduced in the long term.

[Randy Hoback, Conservative, Prince Albert, SK]

In your exchange agreements that you have, for example with Canada and the United States and other countries, are they all fairly similar in the way they process, the way they work?

[Luis Carlos Delgado Murillo]

Yes, they are very similar.

[Randy Hoback, Conservative, Prince Albert, SK]

When you take a developed country that could be considered a tax haven or a place of tax evasion—avoidance is a different topic, but let's talk about tax evasion—what hurdles do they face, do you think? Do they actually have the ability and technical know-how in some of these smaller developed countries to tackle this type of problem?

[Luis Carlos Delgado Murillo]

I beg your pardon?

[Randy Hoback, Conservative, Prince Albert, SK]

In a smaller country, with a small economy that is known to be a haven or a place of tax evasion, do they actually even have the resources to combat that type of problem?

[Luis Carlos Delgado Murillo]

Perhaps. What we are looking for is, of course, to invite those influences to come to our country in order to reduce the asymmetries between the economies. In that sense, we can use those resources in suitable areas—you know which ones, medical devices, high-tech industries. These industries have very big inputs into our economy.

[Randy Hoback, Conservative, Prince Albert, SK]

I think I'll leave it there, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Hoback.

We'll move on.

Monsieur Côté, go ahead, please.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Thank you very much, Mr. Chair.

I would like to thank the witnesses for being here and for being available to answer our questions. My first question is for His Excellency.

Thank you for coming here to present the situation in Costa Rica. My question has to do with the steps taken by the Costa Rican parliament.

A few years ago, the OECD established that Costa Rica was one of the countries maintaining very strict banking secrecy. There was even some question that if the banking secrecy was violated, the death penalty could possibly be applied. Among the measures taken, was the possible application of the death penalty abandoned and was the criminal code amended? Unless my information is incorrect.

[Luis Carlos Delgado Murillo]

I didn't understand the question very well.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

A few years ago, an employee who violated the banking secrecy in your country could be subject to capital punishment.

Is that one of the measures that was changed, in addition to what was adopted by parliament?

[Luis Carlos Delgado Murillo]

I'm not familiar with that situation.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Okay. Thank you.

Mr. Saint-Amans, in a meeting of this committee, some American elected representatives said that, given that Canada has greatly dropped its corporate taxes, Canada had become sort of a tax haven. That is their interpretation, obviously.

With respect to the work of the OECD to implement a multilateral cooperation to counter this situation, do you think this cooperation is worrisome given that multilateral negotiations have failed in various respects?

[The Chair, Conservative, James Rajotte]

Mr. Saint-Amans, please.

[Pascal Saint-Amans]

Maybe before responding to your question, I can say that Costa Rica didn't vote this legislation. I was not aware of it. Costa Rica is now fully compliant with all the standards, and of course has put an end to bank secrecy so there is no death penalty for that. I'm not even sure there is a death penalty in Costa Rica in general.

That said, Canada obviously is not a tax haven in any sense. Just the opposite, Canada is trying to improve its competitiveness, which I think is good policy, while ensuring companies and individuals comply with their legislation. Canada is also supportive of the work we are doing to improve the standards to ensure taxes on profits are paid where the profits accrue.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

The chair is telling me that I have one minute left.

Mr. Kepes, you said that the legislation had to be applied very clearly. In any case, this interpretation comes from the courts, given that tax legislation does not set out the criterion of the object and the spirit.

I think you had an opportunity to study the Antle case, which involves a Canadian couple that established a tax avoidance strategy using a trust in Barbados. In this case, the court found that their stratagem was very far from the spirit of the law.

Do you have any comments on that?

[Robert Kepes]

I think there's a fundamental difference between when the Canada Revenue Agency talks about the object and spirit or the intention of the legislation versus the letter of the law itself. Canada has introduced what is known as the general anti-avoidance rule.

I'm familiar with the case you're speaking of. That particular situation involved somebody who wanted to set up an offshore trust in Barbados. That case introduced a very new concept to Canadian tax law, which is a corporation is resident either where it's incorporated, or where its mind and management is. That particular case, the Garron case, decided a trust can be resident where its mind and management is. I don't think that's the situation whereby the court looked at the object and spirit of the legislation. I think they took a concept under corporate tax law and applied it to a trust.

Canada did introduce the general anti-avoidance rule, which does say that a transaction can be re-characterized by the Minister of National Revenue to achieve a tax result as is reasonable in the circumstances if the avoidance transaction was an abuse or misuse of the act. The GAAR is probably 10 or 15 years old, and there are some cases now at the Supreme Court level that have looked exactly at what is a misuse and abuse.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

Merci,Monsieur Côté.

Your Excellency, I understand you have a very brief response to Monsieur Côté.

[Luis Carlos Delgado Murillo]

Yes. I'm sorry for the answer, but in our case the penalty was abolished in 1870, so....

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Very well.

[Mike Wallace, Conservative, Burlington, ON]

That's money you can put in the bank.

[The Chair, Conservative, James Rajotte]

I think that clarifies it very well. Thank you.

Mr. Jean, please go ahead for your round.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Thank you, Mr. Chair.

Thank you to all the witnesses attending today.

Mr. Hejazi, the last time you were here, I think three years ago, testifying on tax havens, one of the suggestions you made was that Canada should continue on to lower its corporate tax rate. Now of course Forbes magazine has ranked Canada as the number one place in the world to do business and the jurisdiction with the eighth-lowest corporate taxes in all the world.

Are you quite pleased with how Canada has moved forward as a government in relation to corporate tax?

[Dr. Walid Hejazi]

Absolutely.