Finance Committee on May 3rd, 2016

[Steven MacKinnon, Liberal, Gatineau, QC]

And what is your role now?

[Gregory Wiebe]

I am now a partner at KPMG Canada.

[Steven MacKinnon, Liberal, Gatineau, QC]

Very well.

For a Canadian, it's quite an achievement to be appointed KPMG International's global head of tax.

[Gregory Wiebe]

It was a nice honour for a Winnipeg boy to have that role, frankly, and it was probably the best job I ever had. I loved it.

[Steven MacKinnon, Liberal, Gatineau, QC]

What were your responsibilities as global head of tax at KPMG International? Were you responsible for tax strategy development or, rather, business development?

[Gregory Wiebe]

It was a little bit of both. I was responsible for the overall strategy for the tax business for KPMG International. I also would have been very cognizant of our responsibility, and that's why we developed and deployed our global tax code of conduct. If you just give me one second, I'd like to read a couple bits of it because I think it's important and it's something that I believe in and have been promoting for four and a half years, frankly, in my previous role.

I'll just paraphrase a couple of aspects. We act lawfully and with integrity and expect the same from our people, member firm clients, the tax authorities, and other parties with whom we interact. We provide tax advice to our clients to allow them to pursue their commercial objectives respecting the needs of our people and the communities in which they operate and we support a relationship with tax authorities based upon mutual trust and respect, which enables constructive dialogue and responsiveness by all parties in order to fulfill our responsibilities.

I truly believe that there needs to be co-operation and dialogue between taxpayers, tax authorities, and tax advisers like ourselves.

[Steven MacKinnon, Liberal, Gatineau, QC]

Thank you.

KPMG is structured as a partnership. Are the partnerships established nationally, meaning that the profits and losses stay within the country, or internationally?

[Gregory Wiebe]

Right. We are structured internationally as a network of 155 different member firms, so the Canadian firm would be a member firm and the partners in Canada would partake in the profits and losses of that particular partnership.

[Steven MacKinnon, Liberal, Gatineau, QC]

So there are common services at the international level that members in other countries contribute to, and most of the accounting, if you will, within your partnership is done at the national level, in each country.

[Gregory Wiebe]

That's correct, and if you think about the evolution of our business from a tax perspective, especially dealing with multinational corporations, it's so complex now that the biggest growth area for us, frankly, was in cross-border taxation, whether that was international tax, whether that was transfer pricing, whether that was expat tax. That now is a larger part of our global business than the domestic part of the business because, heaven knows, it's very hard to comply with Canadian tax rules, but as soon as a business decides it wants to expand in the United States or sell elsewhere in the world, the complexity goes through the roof, and that's the area in which we provide most of our services.

[Steven MacKinnon, Liberal, Gatineau, QC]

Do you also provide services on a contingency fee basis?

[Gregory Wiebe]

We have not entered into contingent fees for quite some time, except in two areas. There are two areas remaining where we still provide services on a contingent basis and it's because it's industry practice. One area is with respect to GST/HST or provincial sales tax recoveries. The way the industry is, clients don't want to pay for you to investigate whether they've overpaid in those areas unless you can show a return, so industry wide, that's still there.

The other area is with respect to research and development. If people are applying for research and development tax credits and there's a bunch of uncertainty there, we'll get paid, where we can get paid, on a contingency basis. About six or eight years ago—and I don't know the exact date—the Department of Finance introduced tax shelter rules in which something becomes a tax shelter if it has a contingency fee or a confidentiality agreement. We don't do tax shelters.

Except for those two areas...it was recognized at the time that those were two areas of tax where it was acceptable to continue to have a contingency fee. Otherwise, we don't have them.

[The Chair, Liberal, Wayne Easter]

I'm sorry, Steve. We'll have time at the end for some supplementary questions, I think.

Mr. McColeman.

[Phil McColeman, Conservative, Brantford—Brant, ON]

Thank you for being here and sharing your perspective on things.

I'm going to move in a couple of directions, but first, thank you for your comments about the initiatives our government took to combat some of the tax-evasion, tax-avoidance issues. It was recently reported that our 2013 measures brought in $1.57 billion in the 2014 fiscal year alone. Thank you for being complimentary about the initiatives we took to close some loopholes.

I want to talk primarily about your views, and it's a little anecdotal on this. A little bit is from experience in the mid-1990s in the building industry when I was president of Ontario Home Builders'. We tried to study the black market, the underground economy, to quantify it for the Ontario government of the day, and through the study we came up with an estimate that the government was losing somewhere around $6 billion, which was a fairly shocking number. It made the front page of the Globe above the fold.

I'm fast-forwarding to 2016. I speak with people in the accounting industry who are some of the top professionals about what the issues are right now regarding what people are doing in light of higher levels of taxation they're facing. These, in many cases, are people like your client base who would be high net-worth people looking for every opportunity to pay their fair share but not to pay more than their fair share. The anecdotal comments that I get back are, why concentrate on that? Why not go after the underground economy because it is rampant? This is some of the comment I'm hearing back.

I don't have empirical evidence to give you today for 2016. That is some from a study we did in the mid-1990s. That said, it's also around your comment that really hits the nail on the head—no pun intended for the building industry—which is the fact that if your neighbour does it, all of a sudden it validates that you should do it. When they have the roof replaced and the guy says “Here's the price for cash, $4,000. If you want to pay me and get an invoice, it's $5,500.” This happens every day, on every street in Canada.

In your estimation, having the tax knowledge, where is money best spent in terms of making sure we get our fair share from that kind of underground economy that is, anecdotally, right now growing? I would put it that way. I would say the evidence is it's not being subdued, it's actually growing. Can you lend a perspective on that, please?

[The Chair, Liberal, Wayne Easter]

It's not really on the subject matter, but go ahead. We've talked about this several times, so go ahead, Mr. Wiebe.

[Gregory Wiebe]

Okay. I don't have any data from a Canadian perspective, but I believe, from analysis I've seen in other countries, that it is one of the fundamental issues that governments need to address because it is a significant part of the tax gap, and once it gets rampant, if people don't trust their neighbour to pay the amount of tax they should pay, then the system tends to break down.

I think it is very difficult for the tax authorities to actually combat it. A lot of it is attitudinal within society that, frankly, today just shouldn't be accepted. Work around the whistleblower. Work around more resources to enforce those particular areas. We all know there are certain areas of the economy where there are more cash transactions that happen than in other areas of the economy, so to have a laser focus on those particular areas would be another way to try to combat it.

[Phil McColeman, Conservative, Brantford—Brant, ON]

I appreciate the chair's comment on the fact that it does veer off and I agree with that, but in some ways it's at the heart of the conversation here. The issue we're talking about is how people avoid paying tax. This scheme that was going on with your firm, with the product you were offering, allowed people to either defer or to somehow develop something legal, as you've said, to move their money somewhere that they had to pay less tax on it.

For sure, we need to do more. We need to look into how people move their money around, but there is a much bigger...especially with rising taxation. When personal taxes start to approach, combined provincial and federal tax, the 50-plus range in most jurisdictions, then people who are high net worth start to ask, is it worth it, or businesses start to say that it just isn't worth the effort to go through.

Again, anecdotally, are you seeing that attitude unfold in any of your client base or do you wish to comment on my comment?

[Gregory Wiebe]

At this particular point, the new marginal tax rates are fairly new. Whether it's beer or anything else, I mean, people look to save taxes anywhere they can.

This is a personal comment. We must be careful that we are competitive internationally and especially within North America. That means a corporate tax rate that's effective and fairly low. We're at the high end of the OECD average and, frankly, from a personal income tax rate perspective, we can't allow ourselves to get too far from where the United States is or we will see people that will decide to buy their beer in a different province or move. It's just human nature.

[The Chair, Liberal, Wayne Easter]

Mr. Grewal.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Mr. Chair, and thank you, sir, for coming today.

This essentially is about tax fairness and the perception that all Canadians who make income should pay their fair share.

Our Prime Minister has publicly stated that the international community has to work together to make global finance more transparent, to prevent the sort of inequality highlighted by the Isle of Man and the Panama papers. Our government is committed in the budget to increase CRA's budget by $440 million.

Would it be appropriate to say that KPMG stands to profit a great deal on such tax avoidance mechanisms? You mentioned earlier that the firm made $1.6 million on implementing these 16 Isle of Man tax avoidance structures.

How much of that money was returned because this structure ultimately did not work in the best interests of your clients?

[Gregory Wiebe]

The answer to that is none because at this particular point in time, there hasn't been a determination as to the effectiveness of the planning. The matter is in front of the courts. I believe in our court system, but at this particular point in time, there has been no need for a refund of any fees.

[Raj Grewal, Liberal, Brampton East, ON]

We spoke about the average you charge individual taxpayers, $1,400 to file their tax return. That's a far stretch from the $49.95 that H&R Block charges.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

They're behind the times.

[Raj Grewal, Liberal, Brampton East, ON]

I got the student rate up until last year.

More importantly, does KPMG take on pro bono initiatives to help Canadians who can't afford $1,400 to get tax advice from experts such as KPMG?

On a daily basis in our constituency offices, we don't deal with major corporations complaining about the CRA because they can afford...We don't deal with the wealthiest people either in Canada.

We deal with the average Canadians who are being audited by the CRA and can't afford a KPMG to come and defend them. There's a lien on people's homes and individuals are very uncomfortable with their tax situation. Does KPMG do pro bono work?

[Gregory Wiebe]

There are two answers to that.

The answer is yes, we help out. Every April we go to seniors' homes on a voluntary basis to help them file their tax returns. I think that's critical. Even though our tax system is getting simpler, it is still far too complex, and for the average individual to try to deal with their issues in filing their tax return it's still too complicated. It needs to be streamlined somehow, in my humble opinion.

The second thing is, the one good news is that technology has enabled a lot of Canadians to be able to do more of their tax returns on their own. I said we do 15,000 personal income tax returns. I'll speculate that 20 years ago we would have done 150,000, but now people can do their tax return over the phone, they can have their information uploaded on their computer. They can deal a lot more easily with compliance issues through technology than they would have. I think that's the trend that needs to continue, because if you want a self-assessing system to work effectively, you can't have someone struggle with trying to comply. It just isn't fair in my opinion.