Bill S-5 (Historical)

Tax Conventions Implementation Act, 2006

An Act to implement conventions and protocols concluded between Canada and Finland, Mexico and Korea for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income

The purpose of this enactment is to implement the most recent tax treaties that have been concluded with Finland, Mexico and Korea.
The tax treaties implemented by this enactment reflect Canada’s effort to update Canada’s network of tax treaties. Those treaties are generally patterned on the Model Double Taxation Convention prepared by the Organization for Economic Co-operation and Development.
Tax treaties have two main objectives: the avoidance of double taxation and the prevention of fiscal evasion. Since they contain taxation rules that are different from the provisions of the Income Tax Act, they become effective only after an Act giving them precedence over domestic legislation is passed by Parliament. The process is initiated by the tabling of a Bill such as this one.

Settlement of International Investment Disputes Act

[Vivian Barbot, Bloc, Papineau, QC]

Mr. Speaker, on May 15, 2007, I had the opportunity here in the House to talk about why the Bloc Québécois supports Bill C-53, which is identical to Bill C-9, An Act to implement the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). Today, therefore, I will talk about how international treaties are now typically drafted with no regard whatsoever for democracy.

I would like to begin by saying that the Bloc Québécois wants all treaties to go through the House of Commons. The current way of doing things completely disregards democracy. Bill S-5, which provides for the coming into force of tax conventions, shows how important international treaties are to our daily lives. These days, treaties are brought before Parliament only when they require enabling legislation.

In Canada, Parliament and parliamentarians play a minimal role in negotiating and ratifying international treaties. The federal executive controls all phases of the process. The executive is also responsible for what takes place in negotiations, which are, for the most part, secret. This secrecy is an important part of the federal government's negotiation strategy. Next to nothing, and sometimes nothing at all is disclosed before the parties sign an agreement in principle on the content and even the wording of the treaty. Even though the provinces are usually kept abreast of negotiations for trade agreements, they participate very little in the process and, with few exceptions, are totally excluded from the decision-making process.

Where international treaties are concerned, democracy is totally absent. There is no complete compilation of such treaties. Governments release them when and if they see fit, and people cannot be sure they are all being disclosed. The treaty section at the Department of Foreign Affairs does not even have a list of signed treaties to consult. The government is not required to table treaties in the House of Commons. It does not even have to inform the House or the public that it has signed or ratified treaties. The House does not get to approve treaties. The government can sign and ratify any treaty it wants without consulting the representatives of the people. At the very most, treaties requiring legislative changes are brought before Parliament before ratification.

In Quebec, since 2002, a vote in the National Assembly is required. Being in no way involved in the negotiation of treaties, the House of Commons cannot consult the public. It is therefore not surprising to see people increasingly expressing their opposition in the streets. In fact, there is no other place for them to be heard. The government is not required to consult the provinces either, even though it cannot implement treaties that concern areas of provincial jurisdiction and the provinces are not bound by the federal government's signature. It is totally absurd that no formal consultation mechanism is in place.

The government is preventing the provinces from being able to act internationally by controlling their international relations and by not allowing them to reach treaty-like agreements. This is unacceptable.

It used to be that international treaties governed relations between states and had little or no impact on how society functioned or on the lives and rights of citizens. At the time, it was acceptable for the government to unilaterally sign or ratify treaties.

Now, however, international treaties, especially trade agreements, affect the power of the state, the workings of society and the role of citizens. Furthermore, they often have an even greater impact than many bills. The Canadian treaty ratification process is not in line with this new reality. The people's representatives must be involved in decisions that affect the people they represent.

During the election campaign, the Conservatives promised to bring treaties before the House prior to ratifying them, but they still have not kept that promise. Recently, the government signed an investment protection agreement with Peru. This agreement is based on chapter 11 of NAFTA, which has been criticized by many. Yet the government concluded it without putting it to the House. When the House presses the government to honour its international commitments, as it has done in the case of the Kyoto protocol, the government does what it pleases, with no regard for the will of the people or the promise it made when it signed the treaty.

As was the case when Bill S-5 was passed, the fact that Bill C-9 will be passed quickly is an opportunity to show the government that democracy is not something to be feared when concluding fair treaties. The government must honour its promise to submit to the elected representatives any treaties that it intends to ratify, as it is forced to do here today with the three tax treaties. Once it has ratified them, it must honour them, as we hope it will honour the tax treaties we are discussing here today, and the Kyoto protocol, which the House is pressing it to honour.

This failure to involve the representatives of the people is an anachronism. It is impossible to tell from the division of legislative powers provided in the Constitution Act, 1867 which level of government, federal or provincial, has authority to sign a treaty with a foreign government. No provision is made in the Canadian Constitution for a jurisdiction anything like external relations or international relations. This is understandable, however, because when the Constitution Act, 1867 was passed by the British Parliament in London, Canada was still a colony of the British Empire. In 1867, the British Parliament reserved for the British Crown the power to represent the Dominion of Canada internationally and to enter into treaties with foreign countries on its behalf.

Under section 132 of the Constitution Act, 1867, however, the federal government was given responsibility for implementing, in Canada, treaties entered into by the British Crown, where these were applicable to this country.

In 1931, pursuant to the Statute of Westminster, Canada, as well as several other dominions of the British Empire, acquired full independence and, along with it, the authority to act with all the attributes of a sovereign state on the international scene. It was then that the federal government acquired jurisdiction over external affairs. Considered a royal prerogative when the Constitution was written, this authority was transferred to the government which, as the sovereign's representative, exercises it alone and without involving Parliament.

Once the governor in council approves an agreement reached between Canada and a foreign country, no matter who negotiated the treaty, that agreement becomes an international treaty. The representatives of the people do not have a say in it because the federal government has simply inherited a royal prerogative dating back to the British Empire.

Parliament only becomes involved when the ratification of a treaty requires an enabling statute. Canadian legislation may have to be amended because of the treaty. The legislative implementation of these treaties is the only occasion when Parliament has a say in the entry into force of a treaty in Canada.

It should be pointed out that many treaties requiring the Canadian state to adopt specific standards are not presented to Parliament for the adoption of enabling legislation. In such cases, the government believes that the Canadian legislation already conforms to the international obligations adopted or that the subject of the treaty does not require the adoption of new legislative provisions.

Consequently, no amendments are made to existing laws nor is a new law adopted by Parliament. For example, Parliament did not adopt legislation to implement or approve the ratification of the International Convention on the Rights of the Child. In such cases, the treaty never goes before Parliament.

In short, Canada is less democratic today that in was in the 20's. In June 1926, Prime Minister King introduced a resolution that was unanimously adopted by the House of Commons. It read as follows:

Before Her Majesty's Canadian ministers recommend ratification of a treaty or convention involving Canada, Parliament's approval must be obtained.

In 1941, Mackenzie King reiterated his commitment to this formula:

With the exception of treaties of lesser importance or in cases of extreme urgency, the Senate and the House of Commons are invited to approve treaties, conventions and formal agreements before ratification by or on behalf of Canada.

Over the years, approval by resolution has been sought less and less. During the cold war, the government dropped the convention of seeking Parliament's approval before signing treaties or engaging in military intervention on foreign soil.

The government even stopped tabling treaties in Parliament. Except for the Kyoto protocol, not one treaty has been approved by resolution since 1966—over 40 years ago—and that was the Auto Pact. As for Kyoto, the government has refused to honour it. So much for democracy.

Furthermore, Canada is less democratic than the rest of the industrialized world. Most other major industrialized democracies support greater involvement of their parliaments in ratifying treaties. For example, the constitutions of France, Germany, Denmark, Italy and the United States require legislative approval of some types of international agreements prior to ratification.

Some countries that share constitutional traditions with Canada have tried to enshrine their parliament's role in examining treaties.

In the United Kingdom, a convention established in the 1920s, the Ponsonby Rule, requires the tabling of international agreements in both Houses of Parliament at least 21 days before they are to be ratified. This gives parliamentarians the opportunity to debate them before the government ratifies them, even though these debates are not binding. This kind of thing does not exist in Canada.

More recently, in 1996, Australia changed its procedure for concluding treaties. Under this procedure, treaties must be tabled in parliament at least 15 sitting days before any binding decision is made by the executive branch; a national interest analysis of the expected impact of the treaty obligations must be done, for each treaty, and tabled in parliament; a standing joint committee on treaties must be established to examine potential treaties and report on them. There is nothing of the sort in Canada.

As usual, Canada trails Quebec.

In Canada, the provinces pass laws in their constitutional fields of jurisdiction. As the British Privy Council ruled in 1937 in the labour conventions case, the provinces' legislative authority also extends to the implementation of international treaties.

As soon as a treaty or part of a treaty involves a provincial jurisdiction, the provisions in question can be implemented only by the provinces. Since 1964, Quebec has concluded some 550 international agreements involving many fields of jurisdiction for which it has full or partial responsibility, such as culture, economic development, drivers' licences, international adoption, the environment, science and technology, and communication.

For a major agreement to be binding, the Government of Quebec must first submit it to the Quebec National Assembly for approval. Only then will Quebec be bound by an international agreement entered into by Canada and agree to pass legislation to implement the agreement. Furthermore, under the legislation, Quebec's Department of International Relations must list and publish all of Quebec's international agreements. There is nothing of the sort in Canada.

The Bloc Québécois has introduced three bills on treaties to modernize the entire process for concluding international treaties.

The Bloc Québécois bill on treaties was designed to build transparency and democracy into the process of negotiating and concluding international treaties. Since such treaties have an increasingly large impact on our lives, it was more important than ever to make such a change. Moreover, the bill required that the federal government respect the provinces' jurisdictions.

The bill provided for five changes: all treaties were to be put before the House of Commons, the House was to approve important treaties, a parliamentary committee was to consult civil society before Parliament voted on important treaties, treaties were to be published in the Canada Gazette and on the Department of Foreign Affairs website and the government was to consult with the provinces before negotiating a treaty in an area of provincial jurisdiction.

The treaty bill came to a vote only once, on September 28, 2005. All the federalist parties voted against it.

No strangers to contradiction, the Conservatives made two promises about international treaties during the last election campaign. They promised to put international treaties before the House prior to ratification and to give the provinces a role in concluding treaties pertaining to their jurisdictions. Both these promises were broken.

Since they were elected, the Conservatives have amended NAFTA. They have signed two investment protection agreements based on NAFTA chapter 11, one of which has been ratified. They have concluded a military cooperation agreement to authorize British soldiers to train in Canada. They have signed cooperation agreements on higher education, even though education does not come under Ottawa's jurisdiction. They have concluded an agreement to facilitate technology transfers from Canada to China. And they have amended the free trade agreement with Chile.

Aside from the amended NATO treaty, which was brought before the House at the last minute for a mini-debate and vote, none of these international treaties has come before the House.

And where is the nation of Quebec in all this? The federalist parties say they rejected the Bloc Québécois bill because of two clauses, 4 and 6.

First, clause 4 provided for a mechanism for consulting with the provinces:

Canada shall not, without consulting the government of each province in accordance with the agreements entered into under section 5, negotiate or conclude a treaty

(a) in an area under the legislative authority of the legislatures of the provinces; or

(b) in a field affecting an area under the legislative authority of the legislatures of the provinces.

As for clause 6, it recognized the validity of the Gérin-Lajoie doctrine:

Nothing in this Act in any manner limits or affects the royal prerogative of Her Majesty in right of a province with respect to the negotiation and conclusion of treaties in an area under the legislative authority of the legislatures of the provinces.

The clause on consulting Quebec and the provinces is nothing revolutionary. When the federal government discusses, in an international forum, the text of a treaty having an impact on the provinces, then it consults the provinces beforehand.

Under an agreement concluded in 1975—and still in effect—between the Trudeau government and the provinces, Ottawa consults the provinces at every stage of the negotiation of treaties involving human rights.

Every federalist party in Ottawa is more centralist than Pierre Elliott Trudeau on the issue of international relations.

It is not just a Bloc Québécois bill that the federalist parties have rejected, it is a Quebec law. Section 22.1 of the Act respecting the Ministère des Relations internationales requires the consent of the Government of Quebec with respect to the signing, ratification or adherence by the Government of Canada, before the latter acts internationally on any agreement concerning matters under Quebec's constitutional jurisdiction.

As far as the section recognizing the provinces' right to negotiate and conclude international treaties in their jurisdictions is concerned, it was simply a recognition of the Gérin-Lajoie doctrine which every Government of Quebec has been following since 1965.

The Gérin-Lajoie doctrine is closely linked to Quebec's independence: the provinces are completely sovereign within their jurisdictions and they must exercise their authority over the entirety of their jurisdictions, which includes signing and ratifying international treaties.

In closing, these are some of the arguments in favour of more involvement by parliamentarians in the negotiation and ratification of international treaties for the good of democracy.

Income Tax Amendments Act, 2006

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Mr. Speaker, I am pleased to rise today to speak to this fascinating bill, Bill C-33, An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that Act.

The bill represents a necessary update to the Income Tax Act, particularly as it relates to foreign amendments and other domestic measures. The majority of the bill's provisions are taken from the Liberal government's budget of 1999. The government put the proposed changes up for public comment in July 2005. The changes we are debating today also contain revisions made to that July 2005 release.

Although the amendments to the income tax will be mainly administrative, it is important to highlight them to have a better understanding ahead of an eventual vote.

The bill can be broken down into three parts.

Part one deals with amendments to provisions of the Income Tax Act governing the taxation of non-resident trusts and their beneficiaries and of Canadian taxpayers who have interests in foreign investment entities.

Part two deals with technical amendments that were included in part one of a discussion draft entitled “Legislative Draft Proposals and Draft Regulations Relating to Income Tax”, released by the minister of finance in February 2004.

Part three deals with provisions of the act not opened up in parts one and two.

The proposed measures in part one deal with non-resident trusts and foreign investment entities designed to ensure Canada is properly taxing those Canadians who are earning income through foreign intermediaries in the same manner that income would have been taxed had it been earned directly.

It is essential that Canada close tax avoiding loopholes, not only to protect our own tax base but also to demonstrate our commitment to the international community. We must show our international partners that Canada takes its international responsibilities seriously and that Canada is not a destination for taxation loopholes.

If I look at the bill, it is over 500 pages long. It is not likely that anybody in the chamber has read it. Even if people have, I am not too convinced they can understand this type of bill. However, as vice-chairman of the finance committee, I look forward to sending the bill to the finance committee after second reading so we can further study to determine if any amendments will be needed to make it an even better bill than what it is today.

We need bills like this. They may be complex, but in debating the bill in the past, members have decided to concentrate their points on other areas. As an accountant, I know the foundation of these bills are important. They are just as important as any other bill we debate in the House. That is why, if read some of the debate that went on in previous sessions by members of the opposition, especially government members, they had trouble determining what was a tax haven, what was a tax treaty and what were international tax agreements.

Tax havens are jurisdictions where people park their money, or investments, and they pay no income tax on the income generated on these moneys. Tax havens are countries like Bermuda, Cayman Islands, Turks and Caicos, Gibralter, just to name a few, where people or companies put their money, leave it there and it accumulates tax free. The purpose of the bill is not to address tax havens.

The second point is government members feel these are tax treaties. This is not a tax treaty. A tax treaty is like one of the bills we discussed a few months ago, Bill S-5. Tax treaties are conventions between two countries. Normally the purpose of the tax treaty is to avoid double taxation so Canadians or residents of the other countries do not have to pay double tax. Bill S-5 was our agreement with countries like Mexico, South Korea and Finland.

Some of the other problems we get into when we speak about tax treaties, tax havens and international conventions is our tax base does not get protected. Canada's tax base needs to be protected. If people start taking their hard-earned money and parking it elsewhere, Canada will be unable to maintain the revenue stream that we need so we can rely on the social programs.

The other item that makes Bill C-33 important is there are advantages to using a non-resident trust. If we do not put limits on it, the foreign investment entities will be eliminated.

There are a lot of points on which I would like to speak, but one of the items is the international tax agreements. We can sign these international tax agreements because this affects foreign entities. From what I understand, in the 1990s, although I was not in the House then but perhaps the Speaker was, a tax treaty with Italy was passed by the House. Italy has yet to ratify that treaty.

Italy now has two members of Parliament from other countries who sit in the House of Commons. It has an elected member of Parliament representing the riding of North America. One member of Parliament was born in the United States. The other one was born in Canada. It even has a senator. These elected members of Parliament and senator live outside of Italy but they have full right of vote. One MP seems to be lobbying. He has asked what has happened with the treaty. It was signed with Canada but it has not been ratified.

This is a typical example of a treaty we signed with a developed country and there has been no advancement. Some residents of both countries have had to pay double tax. Then they have to file their tax returns to get some of the money back, all because one country has ratified the treaty and the other country has not.

We can talk about the tax treaties and what these types of bills do on the international scene. When we look at what the government has done in the last little while on its international tax position, we think about regulation. I read in the today's paper that we have a regulation as to foreign ownership in the telecom sector, but we still see foreign entities trying to take over one of our biggest corporations in Canada, BCE, formerly Bell Canada.

Some of the articles say that they are looking for Canadian partners. If we do not protect ourselves with agreements like this, foreign corporations can come here, set up non-resident trusts, with Canadian owners but not really beneficial owners, and take over our corporations. We have seen that in the last few years. We just saw it last year when Inco was taken over by another foreign company.

If things continue as they are, all our historic corporations, which have added to the country's past, will slowly slip away. CN has its head office in Montreal, but it is just a skeleton. Most of the decisions are made in Chicago. We have lost part of that.

These agreements are important. The government has to realize that when it makes a decision, it has to be an overall decision to protect Canadian interests. Canada's financial markets represent 1% or 2% of worldwide markets. We need to protect Canada's corporations or they will be swallowed up in this international global economy that we live in today.

In the budget just tabled one of the items concerns me when it comes to the international tax system and fairness. Canada and the U.S. apparently have agreed in principle to update the Canada-U.S. tax treaty. They want to eliminate the non-resident withholding tax on interest payments and Canada also plans to unilaterally remove the withholding tax from arm's length interest payments to other countries.

What does that mean? Does that mean we will not collect any money on interest payments that are made to foreign companies? How about having an agreement with the U.S. in this case to ensure that the money will be taxed on the other side? When companies from the U.S. pay Canadians, we can collect our taxes from those Canadians.

The government then says that we need to promote more business investment. We turn around and look at the budget. Budget 2007 proposes to eliminate the deductability of interest incurred to invest in businesses and business operations abroad.

How does that make any sense? The government wants Canadian businesses to buy foreign entities. Does it want foreign entities to buy Canadian businesses? This will eliminate the deductability of interest incurred to invest in business operations abroad.

How will that help Canadians to expand, to go abroad and increase productivity? It will not. I am not sure what the government is trying to avoid here. There is no basis for saying it is going to affect revenues in Canada. Most Canadian companies that borrow to purchase foreign affiliates borrow from Canadian financial institutions. The Canadian financial institutions from what I understand pay taxes here.

Perhaps the government should have put a disclaimer that said if a Canadian business was to purchase an operation abroad, as long as it borrowed the money from a Canadian financial institution, that interest could be deducted.

When other members spoke on the bill, they spoke about income trusts. Income trusts have a non-resident aspect to it. We see now that the rules were changed. Some REITs are still allowed, but the government has put a limit as to how much foreign ownership or foreign property they are allowed to invest in.

In the news it said that Canadian REITs were not allowed to invest in foreign entities or foreign real estate up to a certain level. How will that help Canadian companies if they cannot go abroad? As we say in French, “Les bâtons dans les roues”.

Getting back to income trusts, the government has imposed a 31.5% tax on income trusts, which is fine if it chooses to do that. Now it has totally eliminated that sector because it says it did not pay tax or claimed too much tax. The government keeps flip-flopping in terms of its position.

Now we have income trusts that are now going to have to pay 31.5%. People were interested in investing in income trusts, especially the energy sector, because these allowed corporations to go out and get capital at a cheaper price because they were selling units instead of shares. Then the government decided to implement this 31.5% tax. It said that trusts were no longer allowed to operate as of 2011. Existing corporations cannot be converted to trusts.

What has happened is there are no restrictions for foreign entities to buy these companies and turn them into private entities or private trusts to be controlled by foreign entities? There are no restrictions on the actual way in which incomes trusts can now function.

The Liberal way would have been to tax earnings only, to keep the income trusts and tax the non-residents who benefit from the tax free distribution from these income trusts.

Before I get to my next point on private members' bills, I want to go over the tax treaties. The government has also decided to unilaterally provide U.S. companies to borrow in Canada on these limited partnership payments.

What has happened again, if we look at what is in the news, is these limited partnership entities that are allowed to operate in Canada and are allowed to deduct interest payments in the United States are now going to be able to buy up Canadian companies and get a deduction in the United States as well as here in Canada. The only problem is that Canada is not getting cooperation from the U.S. They will probably be able to deduct the interest here in Canada, buy up Canadian companies and use Canadian capital. There is no consistency in how these fee agreements are treated.

There is a whole page on the interest deductibility on the foreign affiliates. There are going to be a lot of problems when we go through this in the finance committee. We are already hearing that Canadian corporations with foreign affiliates are not happy that they are not able to deduct these payments. These items will have to be dealt with when the budget implementation bill is sent to the finance committee.

There was just one more aspect that I want to talk about. If the government is serious about getting a handle on money offshore or making sure that people are not hiding income from Revenue Canada, there are certain procedures that could be used. Some of the departments here in Canada could monitor these moneys or shifts in large sums of money that seem to go offshore and are not accounted for.

FINTRAC, the Financial Transactions and Reports Analysis Centre of Canada was established a couple of years ago. We just did the five year review so it has been around for five or six years. There are financial institutions that have to report to FINTRAC whenever they receive payments of more than $10,000, so FINTRAC could easily monitor any payments that are going offshore.

The problem is that FINTRAC's basic responsibility is to look at whether sums of money are used for terrorist financing or money laundering. It is for crime proceeds. Tax avoidance does not seem to be within its mandate. This is one of the amendments that I had asked for when we were doing the five year review of its mandate, to see if FINTRAC could look at the way tax avoidance is handled in this country.

Another idea that I had was similar to an initiative which has been done in Europe and a couple of countries. It was to provide Canadians with a once in a lifetime opportunity to declare all their worldwide income, and if they repatriated back here, to charge them something like 10% or 20%, and split that amount with the provinces. It would be a good way to generate some revenue even for the provinces. If somebody had forgotten to declare some money or they happened to have some money in another country, they could bring it back. We could assess a tax of 10% or 20% tax. They would not have to pay any interest or penalties on those sums of money.

This initiative seems to have worked in a few other countries. I do not have the stats but apparently there was a good take on it and it increased government revenues by a good 10% or 15%.

There are other ways in which we can look at how tax havens and tax treaties are handled. A 500 page bill is definitely an interesting way to look at all these complex items. The bill tries to amend the Income Tax Act. The Income Tax Act is one of the more complex pieces of legislation, although apparently, the Employment Insurance Act is much more complex.

These are all issues the government should be looking at. I am looking forward to seeing Bill C-33 come to committee so we can analyze it and get a better understanding of what this 500 page document is all about.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Mr. Speaker, I will continue to address tax evasion and the tax havens used in Barbados.

As my colleagues who spoke before me have said, Bill C-33 is somewhat technical and contains a number of provisions to prevent circumvention of the tax rules and to prevent tax evasion. It responds to a number of requests made by the Auditor General. The Bloc Québécois will therefore support the bill. However, as I said in the question I asked earlier, I think that it does not go far enough in dealing with tax havens. Contrary to what my colleague from the Liberal Party said, we are not talking about people committing tax fraud, we are talking about people who avoid tax and find legal schemes so that they do not pay tax. The reason they can do that is that the existing legislation lets them.

In my presentation, I will try to explain how these people operate and what has to be done to stop this. On the question of tax havens, I would like to tell the House about a comment made by the Auditor General on February 27, 2001. He said that one of the biggest threats to the tax base lies in the international activities of Canadian taxpayers, particularly the use of tax havens.

Tax havens are countries that have a zero or very low tax rate and loose tax rules. That combination is an incentive for taxpayers to settle there or transfer a portion of their activities there in order to be exempt from the Canadian tax system and not have to pay taxes here. Most of the time, these are countries that are notable for their absolute bank secrecy, which makes it impossible to trace all the movements of capital that take place there.

Because of that bank secrecy, it is difficult to measure this phenomenon. In 1998, the OECD estimated that from 1989 to 1994 foreign direct investment rose three times faster in tax havens then elsewhere. That is not a small matter. The OECD drew up a list of tax havens based on four criteria: no or only nominal taxes; lack of effective exchange of tax information; lack of transparency in the operation of tax laws; and no substantial activities in the country where operations are purported to occur. Thirty-five countries met those criteria. The OECD pointed a finger at 47 other countries which, while they were not tax havens, had provisions worthy of a tax haven in certain areas. It should be noted that Canada was on the list of 47 countries because of its tax policies relating to the international shipping of goods.

In 2001, that list was amended by a group of 13 OECD member countries, including Canada, to remove the no substantial activities criterion, which brought the number of tax havens—on paper, obviously—down to 7 from 35. Those countries have not ceased to be tax havens; they are still tax havens.

In 2002, Barbados was removed from the list of countries regarded as tax havens by the OECD. However, Barbados has not changed its fiscal practices; quite the opposite is true. The tax system in Barbados is interesting. I hope that the fact that I am talking about it will not encourage any Quebec or Canadian companies to move there, despite the wonderful conditions it provides, such as a fixed fees of $250 per year and a tax rate of only 2.5% on the first US$5 million in profits. It then declines gradually, to 1% after $15 million. For a company that does not want to pay income tax, this is extremely advantageous.

In Canada, the tax system is tailor made, expressly for Barbados. Let us look at how it operates. The general rule is that all income earned in Canada or abroad is taxable in Canada. However, if income is earned in a country with which Canada has signed a tax treaty to avoid double taxation, that income may not be taxable.

If the foreign subsidiary is deemed to be non-resident in Canada and the tax treaty prohibits double taxation, the general rule that all income received by a Canadian is taxable is bent. It is then the tax treaty that applies.

In theory, in the case of Barbados, the treaty does not apply to subsidiaries that have a tax rate of virtually zero. Like the tax treaty with Cyprus, the Canada-Barbados tax treaty specifically excludes what is known as international business companies or any other similar kinds of companies that enjoy the favourable tax treatment I referred to earlier in Barbados. If we exclude these companies and consider only the normal tax rate in Barbados, which is approximately 40%, virtually all the Canadian companies with a subsidiary in Barbados have established it specifically to enjoy favourable tax treatment. For the most part, these have been established under the Barbados International Business Companies Act and are therefore excluded from this convention.

The companies covered by this provision of the tax treaty are therefore considered under the Income Tax Act to be resident in Canada and therefore subject to Canadian taxation. Based solely on the Income Tax Act and the tax treaty between Canada and Barbados, dividends received by the Canadian parent corporation of a subsidiary in Barbados should be taxed in Canada when they are transferred home. So far, so good.

There are, however, provisions in the Income Tax Regulations which are specifically designed to enable companies to circumvent this difficulty and transfer profits from Barbados tax-free in Canada. I will spare you the whole list of provisions; suffice it to say that paragraph 5907(11.2)(c) of the Income Tax Regulations, if anyone feels like looking it up, renders moot article 30 of the tax treaty, the one that excludes international business companies. It sets out a series of criteria for a company to be considered non-resident in Canada and therefore not subject to tax. Thus, Barbadian subsidiaries of Canadian companies fall into that category.

By invalidating article 30 of the tax treaty, the regulation allows the dividends of Barbadian subsidiaries of Canadian companies to be tax exempt in Canada. Incidentally, through the Access to Information Act, the Bloc Québécois obtained a copy of correspondence between the Minister of Finance and an accounting firm, confirming that this section of the regulations was drafted specifically to allow Canadian businesses to use Barbados as a tax haven.

In July 1994, Wallace Conway, of the taxation policy branch of the finance department, confirmed the following to Craig Cowan, who was employed by the accounting firm Arthur Andersen:

Be advised that proposed paragraph 5907(11.2) is intended to ensure that a Barbados international business corporation which is a foreign affiliate will remain eligible to earn an exempt surplus.

So, the bill did not come into force until 1997, but it was specified that it would be retroactive to 1994. With this amendment to the regulations, Canadian businesses with a subsidiary in Barbados win on both fronts. First of all, since their business is not covered by the tax treaty, Barbados is under no obligation to share information with Canadian tax authorities and, second, since the income tax regulations disregard that exclusion, profits sent back to Canada are tax exempt. The behaviour of the Canadian government, particularly under the Liberals, was all the more deplorable considering that Canada even worked to undermine all the efforts being done by the OECD, this to ensure that Barbados would not be deemed to be a tax haven.

This work to get Barbados off the list was done in two stages. In 2000, the notion of tax havens was replaced with the notion of non-cooperative tax havens, following a recommendation made by a 13 member committee, which included Canada.

Secondly, that same committee changed the criteria to determine whether these countries were cooperative or not. Now, a tax haven simply has to commit to being transparent and to sharing tax information with other countries to be taken off the list. That is really very little.

The tax treaty is essentially based on the exchange of tax information. Thus, once a tax treaty is signed with a tax haven, it is virtually automatically removed from the list. That change made the working group on harmful tax practices completely pointless, and Canada, as a result of what the Liberal government of the time did, was a major participant in weakening it.

For years, the failure to act could be laid at the doorstep of the Liberal Party. We must now recognize, however, that the Conservative government has proposed nothing to fix this. I hope it will soon do so. Probably the budget will be an appropriate opportunity to do it.

The Auditor General has repeatedly deplored Canada's failure to act. She first did this in 1992. In 1996, she took up the issue for the second time; in 1998, for the third time; in 2001, for the fourth time; and ultimately, in 2002, for the fifth time. Still there has been no action by the government, no action by the Liberals at the time and still no action by the Conservatives today. In fact, Canadian investments in tax havens continued to multiply over the same period when the Auditor Generals were issuing us their warnings.

From 1990 to 2003, Canadian companies invested major and growing amounts in countries recognized as offshore financial centres, particularly in the Caribbean. Between 1990 and 2003, Canadian assets in those countries grew by a factor of eight, rising from $11 billion to $88 billion. In 2003, the five main OFCs I referred to earlier were among the 11 countries where there were the most Canadian assets, and so on.

We must realize, from the various reports on television that have dealt with the subject, that this is a situation in which there is more and more money being invested in tax havens, despite the warnings from the Auditor General and, of course, from the Bloc Québécois. The government has never done a thing and we still see nothing being done about this. This is particularly unfortunate from the Conservatives, who claim to want to stand up for taxpayers. What are they waiting for, to ensure that big businesses pay their fair share of taxes, by preventing them from using tax havens?

The Bloc Québécois proposes that all tax treaties go through the House of Commons, which they do not do at present. Bill S-5, which provides for tax treaties to come into force, shows the importance of international treaties in everyday life.

These treaties do not need implementing legislation to be passed. In this case, no treaty will be submitted to Parliament, quite simply.

The federal executive controls all phases of the process of adopting an international treaty. The executive is also responsible for what takes place in negotiations—which are for the most part secret. Nothing is made public during negotiations.

The provinces are seldom consulted, and in many cases they are completely excluded from those negotiations, even though, because of something that falls under their jurisdiction, they often have an interest in the negotiations.

Today, there is no democracy at all when an international treaty is involved. It is worth noting that there is no complete collection of treaties published. The government makes them public on a sporadic basis, and we do not even know whether it discloses all of them. Even the treaty section of the Department of Foreign Affairs does not have a list that we can consult. This is quite incredible, when you think about it.

The government is not even required to table them in the House. It is not even required to inform the House or the people when it signs or ratifies treaties. I find it incredible that in 2007, in our democracy, a government can sign an international treaty without even informing the population. Obviously, the House does not approve them, yet since 2002, in Quebec, the agreement of the National Assembly has been required for Quebec to sign any treaty. This improvement was brought in by the Parti Québécois at the time. It would be interesting to propose such an improvement in this House.

Not only does the House not approve international treaties, but the members are not involved in any way in the process. All we can do is consult with the people and try to obtain their approval.

As I said earlier, the government is not required to consult the provinces even when treaties concern areas of provincial jurisdiction. It is totally absurd that no consultation mechanism is in place. This situation is completely unacceptable.

It used to be that international treaties governed relations between States and had little or no impact on how society functioned or on the lives and rights of citizens. At the time, it was acceptable for the government to unilaterally sign or ratify treaties.

Now, however, international treaties, especially trade agreements, affect the power of the State, the workings of society and the role of citizens. Furthermore, they often have an even greater impact than many bills.

The Canadian treaty ratification process is not in line with this new reality. The people's representatives must be involved in decisions that affect the people they represent.

During the election campaign, the Conservatives promised to bring treaties before the House prior to ratifying them, but they still have not kept that promise. Recently, the government signed an investment protection agreement with Peru. I would note that the agreement still has not been put to the House and that it was already signed before the members could approve it. This agreement is based on chapter eleven of NAFTA, which has been criticized by many.

When the House presses the government to honour its international commitments, as it has done in the case of the Kyoto protocol, the government does what it pleases, with no regard for the will of the people or the promise it made when it signed the treaty.

It is rather paradoxical that the Kyoto protocol is probably the most important of all the treaties this House has approved, yet the government is refusing to acknowledge and implement it. This is a far cry from the Conservatives' promise to submit treaties to the House. I do not know whether the Conservatives meant that they would submit treaties to the House, but would not abide by the House's decision or respect its will. They may have forgotten to mention that when they made their election promises.

The government should have treaties approved and then enforce them.

Not involving representatives of the people is an anachronism in treaty ratification. I would like to point out that Canada is less democratic today than it was in the 1920s.

In fact, in 1926, Prime Minister Mackenzie King introduced a resolution that was unanimously adopted by the House of Commons. It read as follows:

Before Her Majesty's Canadian ministers recommend ratification of a treaty or convention involving Canada, Canada's approval must be obtained.

In 1941, Mackenzie King reiterated his commitment to this approach:

With the exception of treaties of lesser importance or in cases of extreme urgency, the Senate and the House of Commons are invited to approve treaties, conventions and formal agreements before ratification by or on behalf of Canada.

Over the years, the House of Commons had been consulted less and less, and even when it gave its approval in the case of the Kyoto protocol, the government refused to implement it. Nothing in the rest of the industrialized world can compare with that.

I said earlier that Canada was lagging behind Quebec. In Quebec, treaties signed by the Government of Quebec are approved.

On three occasions, the Bloc Québécois has introduced a bill on treaties to modernize the whole process of concluding international treaties. I am referring to Bills C-214, C-314 and C-260. Each time, the federalist parties have rejected the bill. This is very unfortunate.

In conclusion, this bill should be improved—

Business of the House

[Rob Nicholson, Conservative, Leader of the Government in the House of Commons and Minister for Democratic Reform]

Mr. Speaker, I will do better than just tell the hon. member what will happen next week, I will tell him how we will conclude this week.

This afternoon we will be on the report stage of Bill C-24, the softwood lumber agreement. As you may know, Mr. Speaker, tomorrow and Friday the House will be adjourned for the Liberal leadership convention, and we will all be watching that with interest.

On Monday it is my intention to call ways and means Motion No. 12, a motion to refer Bill C-30, the clean air act, to a legislative committee before second reading. We will continue that week with Bill S-5, on tax conventions, and Bill C-34, on the first nations education agreement.

On Tuesday we will then consider the third reading stage of Bill C-24.

Later on that week it is my hope that we will begin the debate on the marriage motion. I will continue to consult my colleagues with respect to a date for the final vote on that. After that it is my intention to proceed with Bill C-28, the budget tax measures.

I hope that is of help to the hon. member.

Motion that debate be not further adjourned

[Rob Nicholson, Conservative, Niagara Falls, ON]

Mr. Speaker, I want to say how pleased and proud I am to serve in the House with a dedicated public servant like the deputy House leader. When we talk about a consensus, I am sure there is a consensus on how valuable he has been to this Chamber and what an outstanding job he has done on behalf of the people of this country and his constituency. Again, a consensus develops on these things and that is what is very important.

The hon. member makes a very good point. We are adjourning a couple of days early. Wednesday will be our last day of business. Tomorrow is an opposition day so we really do not have much time to discuss other aspects of the nation's business. There are a number of bills that we would like to see passed, one of them being Bill S-5 on tax conventions with Mexico, South Korea and Finland. I think there is a certain urgency in that particular piece of legislation that I think all hon. members would want to see passed by the end of the year.

I would like to see the clean air act get sent to a legislative committee. This is important. This is part of the government's agenda. The softwood lumber agreement is another one that we would like to see concluded.

The government, in maintaining its campaign commitments and acting on the promises that we talked to Canadians about in the last election, provides a full agenda and to the extent that we can build consensus and get the cooperation from hon. members in the House, it is most appreciated.

Message from the Senate

[The Acting Speaker, Royal Galipeau]

I have the honour to inform the House that a message has been received from the Senate informing this House that the Senate has passed the following public bill, to which the concurrence of the House is desired.

Bill S-5, An Act to implement conventions and protocols concluded between Canada and Finland, Mexico and Korea for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.

Business of the House

[Rob Nicholson, Conservative, Leader of the Government in the House of Commons and Minister for Democratic Reform]

Mr. Speaker, in answer to the hon. member's first question concerning my preferred schedule, my preferred schedule would be a schedule where all government business gets expedited and passed in the next three weeks and have the other place return the bills that we have already sent them. That is my preferred option.

In any case, if that is not possible or probable, we will continue today with the debate on the Bloc opposition motion and tomorrow we will begin on the government's motion in the name of the Prime Minister, followed by report stage of Bill C-24 and Bill S-5.

We will continue with the business from Friday next week, with the exception of Tuesday, November 28, which of course will be the final allotted day. We will be adjourned for Thursday and Friday of next week, Mr. Speaker, as you may already be aware.

I can indicate to the hon. member that we will be proceeding with the motion that he referred to and we will get to it before the Christmas break. I will be continuing my discussions with House leaders of all political parties as to some parameters and to get some common agreement on the conduct of that debate.