Finance Committee on May 8th, 2014

[Mark Adler, Conservative, York Centre, ON]

Tax evasion is criminal.

[Stéphane Eljarrat]

Yes. What I'm saying, as a personal opinion, is that I think that a tax evasion whistle-blowing program should aim at tax evasion or criminal matters, and not at civil tax matters such as abusive tax planning.

[Mark Adler, Conservative, York Centre, ON]

Okay, would you agree that our government has been effective at enhancing the integrity of our tax system, closing tax loopholes? We have closed 85 of them since 2006. Is that a good thing, in your mind?

[Stéphane Eljarrat]

Yes, of course it's a good thing. As Canadian taxpayers, we all want to make sure that all taxes are paid in accordance with the act. There is no doubt about that, so anything that the CRA does to legally collect moneys that are owed to all taxpayers is a good initiative. The issue is just on the means, how you get there.

[Mark Adler, Conservative, York Centre, ON]

The reason that it's a good thing to close those tax loopholes is that everybody should be paying their fair share, right?

[Stéphane Eljarrat]

Everybody should be paying their share, but on the same principle, we accept that in Canada it's legal to plan your affairs in accordance with the act. As long as you're obviously arranging your affairs in accordance with the act, then there is no issue. But if you're abusing the act, then, of course, that would not be acceptable.

[Mark Adler, Conservative, York Centre, ON]

Okay.

Mr. Tonkovich, they obviously talk a lot about base erosion and profit sharing and all of that. Could you talk a bit about that in the Canadian context? How effective have we been in the last particularly two years in confronting that problem?

[Mark Tonkovich]

I can, but I'll preface that with saying that it's an ongoing issue and an ongoing discussion for all of the OECD countries.

[Mark Adler, Conservative, York Centre, ON]

Correct, yes.

[Mark Tonkovich]

I appreciate your comments about the loopholes that have been closed, and this type of thing. I would observe that some of those are not necessarily loopholes in the sense that something was missing. They may represent shifts in policy, where Canada now has this position that these types of practices should not be permitted. But certainly there has been a lot of activity to try to close these perceived loopholes with a view to improving the integrity of the system and making sure that less escapes the system where the position is that it shouldn't be leaving the country without paying tax.

[Mark Adler, Conservative, York Centre, ON]

Compared to other OECD countries, how are we doing on that front?

[Mark Tonkovich]

I think we are one of the leaders in the OECD as far as trying to think about and consider ways to address these issues. But the OECD countries as a whole are very active on this issue and I think we're all proceeding on that basis.

[Mark Adler, Conservative, York Centre, ON]

Yes, and Canada is doing well considering that all the OECD countries are pursuing this with a vengeance.

[Mark Tonkovich]

I would say that Canada is doing well in thinking about it, yes.

[Mark Adler, Conservative, York Centre, ON]

In terms of fiscal savings, or moneys that were brought in, earlier Mr. Dubourg referred to the government wanting to just get their hands on money, and it's more about people and corporations just paying their fair share of tax. Is that correct? It's not governments wanting to put their hands on more money, it's just about obeying the law as it stands.

[Mark Tonkovich]

I don't see those as being different. I think that underlying all of these tax policy choices is the view that everybody should pay their fair share and where the fair share is set depends on who you ask and which kind of provision you're dealing with.

[The Chair, Conservative, James Rajotte]

You have one minute.

[Mark Tonkovich]

It is an attempt to bring in more tax dollars because this is one of the mandates of the Canada Revenue Agency. It's not to say that they're necessarily doing it without some substance, without particular rules.

[Mark Adler, Conservative, York Centre, ON]

They don't act outside of the law, do they? They have to act within the parameters of the law that they're given.

[Mark Tonkovich]

They are to act within the parameters of the law. Sometimes there are exceptions, but it's a large organization that is carrying this mandate, yes.

[Mark Adler, Conservative, York Centre, ON]

What do you mean by “exceptions”?

[Mark Tonkovich]

Sometimes, as with any organization, there are attempts to get additional tax dollars in creative ways, in creative interpretations of particular tax rules. These follow the process and eventually work their way into the courts and then judges decide whether the CRA's interpretation was correct or the taxpayer's interpretation was correct.

But as a whole, all of these regimes are aimed at making sure that dollars that should be in the tax system remain in the tax system.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

Thank you, Mr. Adler.

We'll go to Mr. Rankin, please.

[Murray Rankin, NDP, Victoria, BC]

Thank you, Chair.

Welcome, to the witnesses.

I'd like to start with Mr. Tonkovich a bit further, if I may.

You spent a lot of time talking about the offshore tax informant program and concerns about confidentiality being provided to informants. I would just like to drill down a little further on that.

You said that there are CRA guidance documents, but I think you put it that there aren't legislative rules defining informant protection. Then we have the common law informant protections that I think Mr. Eljarrat referred to.

My concern is whether you are looking for clear rules that are written into regulations under the Income Tax Act, because if so, is there a concern that they would have to be amended every time in order to give you the comfort you need when the circumstances change? You have flexibility versus clear rules and I just wonder if you would speak a little further about that.

[Mark Tonkovich]

Certainly. You will all know this better than I will, being so closely involved and part of the legislative process. But with any kind of system of new rules—we're creating a new regime or proposing a new regime here—there is a set of overall rules, a framework if you will, that could be introduced. This provides basic fundamental propositions about how the system works.

Then to the extent that you require additional particulars in any given situation, there may be room for administrative discretion, or there may be room for Canada Revenue Agency guidance on the particulars. But most of the time when this kind of regime is introduced, it's done by way of an overarching framework and then allowing the CRA or another tax authority to drill down and provide particulars.

This is how the whistle-blowing regime works in the United States. There are legislative provisions in the Internal Revenue Code that give rise to that regime, and then there are regulations below it and there are IRS guidance documents that delve into the particulars.

My comments earlier have to do not only with the informant confidentiality but with providing a framework for the whole of the regime to make it easier for informants to appreciate how this thing is going to work and to make it easier for advisers to advise them as to how things will play out down the road.