Mr. Speaker, I am pleased to speak on this important matter of taxation pertaining to tax avoidance and tax evasion which is part of Bill C-33. For those who are watching, the bill is at third reading. It is an important issue for all of Canada.
Bill C-33 may be a bill about technical matters and may contain some necessary steps that are long overdue. However, we support it because we, through this legislation, are taking steps to ensure that money that is owed to the country is not lost through arrangements that are questionable in nature.
Yet, we have to wonder why it is taking so long to close tax loopholes, to shut down tax havens, to deal with tax evaders, and to crack down on tax avoidance.
Why in the world are we still here talking about something that has been raised in the House on numerous occasions over the last two decades? It is a matter that has been studied to death by the Auditor General of Canada and here we are today taking a few baby steps to deal with some of the most egregious problems pertaining to tax avoidance.
This is a government that promised, in opposition, to take on the Liberal government, to crack down on tax evaders, and to do everything in its power to ensure that money that rightfully belonged in Canada stayed in this country and was not allowed to be frittered away through different loopholes and avoidance schemes.
Today we have a bill finally that has taken probably about five years. A good number of those years are a result of Liberal delays. The current government has only had a couple of years to really get its teeth into these matters, so we applaud the government for actually bringing this forward. But we regret that the government is not yet prepared to in fact deal with some of the big issues around tax avoidance and tax evasion that are so obviously present in our system today and around which the government has spoken a great deal.
It made a lot of statements about trying to ensure that we have a fair system of taxation. A system where in fact corporations pay their fair share and the wealthy are not able to use the system to avoid paying taxes. We would in fact move away from a system that is inherently biased in terms of the wealthy and the powerful in our society today, and is without concern for the needs of ordinary working families and hard-working Canadians.
The question we have today is, why in fact did the government, when it had the chance following the budget to implement its promise about dealing with interest deductibility, back off? It had a chance to actually make a difference. It had a chance to do something that had been identified by many as a significant step in the right direction.
Members in the House will know that we had a fairly lengthy discussion about interest deductibility at committee. It was an issue pursued quite rigorously in the House.
I think the government should have been able to detect considerable support for a complete crackdown on this issue and should have in fact been able to know that it would have considerable backing if it had decided to in fact go the complete distance and do what its own budget said. Budget 2007 said:
Assuming an exemption from withholding tax on both arm’s length and non-arm’s length interest is implemented in the Canada-U.S. Tax Treaty as expected, Budget 2007 will further simplify the Canadian international tax system by eliminating Canadian withholding tax on interest paid to all arm’s length non-residents regardless of their country of residence.
The budget speech went on to very clearly indicate that it was prepared to take on an issue of tax evasion, or I should not say tax evasion, of tax avoidance that has no place in our system today.
It has no place in the international scheme of things when we have countries such as Great Britain and other countries actually dealing with an international taxation system, so that one cannot move money around to different countries and avoid paying taxes.
The members in the House will know that in fact at committee and at other times organizations spoke out in favour of the government's position. In fact, the Canadian Labour Congress was very vocal at these hearings, recommending that the minister stick to his guns, stick to his plans to actually crack down on this particular egregious example of tax avoidance.
In fact, at committee hearings the representative of the CLC basically suggested to us that we needed to push the government to prevent corporations from deducting foreign affiliate interest here. It did not say to only limit it to double-dipping or talk about tax towers, but actually said to deal with the fact that corporations are deducting foreign affiliate interest here and get them to start paying their fair share of taxes from foreign affiliate income.
Other countries do it. They tax the income regardless of where that corporation has moved money or opened up new affiliates. They consider it as income earned and therefore as taxable income. Therefore, it is money that is then put back into the economy of a country like Great Britain to be used for expanding other job opportunities in the domestic economy, for training workers to meet new challenges, or dealing with a loss of manufacturing capacity. That is what this country should be doing. It should take that money and use it to make a difference.
It was very disappointing to in fact see the Minister of Finance backtrack on this promise. That was regrettable on his part.
I know the Liberals do not agree with us, do not agree with me certainly, and do not agree with the need to crack down on tax avoidance. They seem to want to keep all avenues open for tax avoidance to occur. That is not surprising given the past practice of the Liberals when they were in government.
There is a long history of Liberals in Canada standing up for the corporate elite, for the wealthy and the powerful, and for any scheme imaginable that will allow those individuals and those entities to avoid paying taxes.
I would like to go back to a couple of examples. I would like to make the case that instead of simply waiting for community organizations, the labour movement, individual parliamentarians, and the non-governmental community to fight for changes to the tax system which might eventually produce some good results, the government ought to start to take some initiative, show some initiative, be proactive and not wait.
Our history on this issue is nothing but waiting for the government to catch up with the community, waiting for the government to finally address something after an issue has gone through the court systems and finally resulted in some pretty clear direction for the government.
I want to go back to an issue that actually began under the Conservatives during Brian Mulroney's time. It went through most of the Liberals' term and finally resulted in some changes, but not before some individuals were able to take advantage of the system.
I want to take members back to what we in Manitoba call Project Loophole. Folks might remember that it was in 1996 that Winnipeger George Harris decided to force the Canadian government to collect an estimated $750 million in taxes that were owed to the government by one of Canada's wealthiest families. Harris and Project Loophole forced the courts to acknowledge that the government had acted as if a citizen had no choice but to pay his taxes and be quiet. It was a David and Goliath situation in the battle for tax fairness and for an end to tax loopholes that allowed the wealthy and powerful to rewrite the tax laws in their favour.
It was a volunteer initiative. I was part of a group, back then in Winnipeg in the mid 1990s, called Choices, a Winnipeg-based coalition for social justice. It was out of this organization that George Harris found the backing and the support in order to go forward with this court challenge. It was a lengthy, costly battle, with money raised from ordinary consumers, Manitobans and citizens everywhere concerned about taxation fairness.
It really was a stinky case. Some lawyers called it a smell test. They were concerned that this was about power being abused or rules being bent. According to one of the judges in the case along the way, Federal Court Justice Frank Muldoon, it reeked and really did not seem to be about transparent government.
The case started with a wealthy Canadian family. It is not important to know the name of the family, although I think it is well known now, but it is important to know that the family was wealthy enough to be able to set aside a family trust worth $2 billion, not the typical college fund nest egg. It was a wealthy family with an incredible amount of money that wanted to avoid paying taxes. This trust was established in Canada under Canadian law to take advantage of Canadian tax rules.
Let us go back to 1991 when in fact the case first came to light. For its own reasons, the family decided to transfer the assets in the trust to a trust in the United States that it would control. This was back in 1991. Normally when this happens the family would be required to pay taxes on the increase in the value of the fund since it was established and it was estimated those taxes could have amounted to $750 million. However, in November of that year the family asked the federal government for a tax ruling that would allow it to move the money to the United States without paying taxes.
To cut a long story short, the issue went back and forth between the family's lawyers and officials in the finance department in the Government of Canada and eventually officials backed off and agreed to this family's request. It was then that Project Loophole took shape and began to mount a very serious campaign that went right to the Supreme Court.
Regrettably, the courts, in the end, did not precisely rule in favour of the citizens' coalition but sent a message to the federal government. It sent a message to say that the provisions that allowed this to happen had to be changed. In other words, everything that the government did in conjunction with this wealthy family's lawyers was apparently okay according to existing law and regulations. That is what the court said, but it also said this should not be allowed to continue.
Finally, after this lengthy battle and all of this uproar by community members across this country, governments finally listened and did something. As we learned from the officials at the finance committee, when we were dealing with Bill C-33, the rules have been changed to prevent that kind of development from happening.
Why does it have to come to this? Why does an issue of such obvious unfairness need a voluntary citizens group to raise money and take it through the courts before the government will act? Why can the government not see the wisdom of acknowledging the tax avoidance schemes, the tax havens and this trend of setting up these offshore centres? Why does the government not take a hard look at that and do something about it? Why are we studying this again?
That is what came out of the federal budget, finally, after the government backtracked and said that it really was not going to crack down on interest deductibility, that it really was not going to make foreign corporations pay their fair share of taxes and that it really was not going to collect taxes that rightly belonged to this country.
What does the government do? It sets up a couple of more studies. We now have a short term round table over the summer to draft legislation pertaining to this issue of interest deductibility on its limited basis involving double-dipping and towers. We do not have anything in place yet in terms of double-dipping, never mind the broader issue of interest deductibility in terms of foreign affiliates.
On the broad issue of tax avoidance, the government has agreed to a longer term panel, called an expert panel, that would look at the fairness and the competitiveness of the tax system as a whole. The panel will report back sometime by the end of 2007 or 2008.
I think this issue has been studied enough. We have lots of credible information. We have been going around the mulberry bush at the finance committee.
