Bill C-621 (Historical)

An Act to amend the Income Tax Act (economic substance)

This enactment amends the Income Tax Act to require the Minister or the court to take into consideration the economic substance of a transaction in the determination of whether that transaction is an avoidance transaction and whether that transaction results in a misuse or abuse of that Act. Further, it establishes the presumption that an avoidance transaction that does not have substantial economic substance in relation to its anticipated tax benefit results in a misuse or abuse of that Act.

Tax Avoidance

[Gord Johns, NDP, Courtenay—Alberni, BC]

Madam Speaker, I am pleased and honoured to have the opportunity to rise today to speak to Motion No. 42, regarding the Canada-Barbados income tax agreement. I want to thank the member for Joliette for bringing forward the motion.

Millions of hard-working Canadians pay their taxes in full every year, year after year. Meanwhile, some of the wealthiest people in this country are able to avoid paying their fair share by stashing billions of dollars in offshore tax havens. This unfair, sweetheart deal for millionaire tax evaders is leaving less money for health care, infrastructure, transit, and the other crucial public services all Canadians rely on.

Motion No. 42 seeks to ensure that all Canadians from billionaire corporations to single-income families would pay by the same fair tax rules. Instead of executives from Petro-Canada enjoying a new yacht or a luxury vacation thanks to the savings they benefited from due to filtering their money into tax havens, I would prefer to see middle-class Canadians benefit. People in my riding of Courtenay—Alberni could certainly benefit, as could people across the country.

We can look at the needs in our country. There are people living on the streets. We need money for homeless shelters. We have talked about a national child care program to help tackle inequality. This is billions of dollars that could pay for this important infrastructure and the needs we have in our communities, such as a pharmacare program. We know aboriginal education is heavily underfunded, yet we are giving tax breaks to the rich.

The amount of money that these big corporations and CEOs are saving could be huge if invested in clean energy and tackling climate change. We have opportunities to move forward if we do the right thing, and that is to make sure that these big corporations are paying their fair share.

The NDP has always fought for the rights of hard-working Canadians. As a party, we wholeheartedly support the idea of fighting tax havens that cost Canadian taxpayers. We believe that Motion No. 42, by the member for Joliette, is a good initiative for restoring Canadians' trust in our tax system and closing a multi-billion tax loophole.

In 2014, an NDP MP tabled a private member's bill, Bill C-621, that sought amendments to make it easier for the government and the courts to identify, prosecute, and convict tax cheats who hide their money in tax havens.

In 2013, Peggy Nash said that over the past 10 years, Canadians have invested over $390 billion in Barbados, which has a population of 284,000 people. They invested $175 billion in the Cayman Islands, which has a population of 55,000 people. Obviously, some of the money is absolutely above board and legitimate, but the money that is not legitimate means that the average middle-class family gets hammered and ends up paying more in taxes while getting less in government programs and services than they would have if the money were adequately reported and taxed.

Barbados has become the tax haven of choice for Canadian corporations and billionaires, ahead of other countries such as Luxembourg and the Cayman Islands. In 2007, there was a reported $33.4 billion parked in Barbados tax havens. Moving forward to 2008, it was $53.2 billion. Over the last five years, since 2011, it has gone from $45 billion to $108 billion, being parked offshore.

Simultaneously, Canada has been lowering income tax rates for Canada's largest corporations. In the last 25 years, we have seen taxes reduced from 28% to 15%. Corporations are getting a great tax break here at home, yet they are moving money offshore.

When I think about my riding, I think about a third of the children living in poverty in the Alberni Valley. A fifth of the children, 20% of the children in the Comox Valley are living in poverty. Seniors in Oceanside are living in poverty. The average income in my riding is $26,000 a year.

The government has brought forward a tax break for the middle class, while anyone earning $23 an hour, working full time or less, gets nothing. That is two-thirds of Canadians. It is more like three-quarters of the people living in Courtenay—Alberni.

When we see tax breaks for CEOs that cost Canadian taxpayers $750 million a year, when we see corporations pushing money offshore and not paying their fair taxes, when we see so-called tax breaks for the middle class that benefit the most those who earn between $50 and $100 an hour, we know there is a problem.

Tax havens are not only unfair but are also helping to fuel growing inequality in Canada. We are seeing huge inequality. Inequality is one of the biggest economic crises in our country today. This tax loophole is the biggest economic leakage in Canada right now.

The government has an opportunity to take concrete action to prevent Canadian companies and taxpayers from using these loopholes to avoid paying their fair share of taxes. According to 2015 Statistics Canada data compiled by Canadians for Tax Fairness, the Caribbean island of Barbados is now Canada's third-biggest destination for foreign investment, after the United States and the United Kingdom.

I want to thank the government member across the floor for bringing forward the actions the government is going to take to deal with these tax loopholes, through which companies can avoid paying tax. It is one thing to invest money in the CRA to chase people who are avoiding paying tax, but it is another to actually change the law so that we can make sure that it is illegal for those who move money into tax havens. We have an opportunity to change these agreements with other countries and close these tax loopholes. There is a big difference between that and breaking the law when right now it is legal to move money offshore.

Again, I want to thank the member for Joliette for bringing the motion forward, because this would be an important solution. The government needs to look at legislation to do that, and this is the right legislation to get it started. We have many deals with other countries that also need to be looked at, but this is an excellent start.

Former Prime Minister Paul Martin registered companies in Barbados to avoid paying Canadian taxes. No wonder the current Liberal government is so unclear regarding its policy on tax havens.

I will talk about another former Liberal, who at the time was a New Democrat. I am speaking of Bob Rae. To the CBC in 1980, Bob Rae said, “the government is entering into these tax treaties without being fully aware of the impact they will have on domestic taxation in Canada.” Income that is not taxed at the corporate level and from which the government receives no revenue has the unfortunate effect of increasing the tax load on the average citizen. Is that not true?

In an era when we have skyrocketing health care costs and infrastructure costs that are soaring through the roof, and when we need to address our greenhouse gas emissions, this is a really important time for us to plug this economic leakage.

Dennis Howlett, executive director of Canadians for Tax Fairness, sums this up perfectly when he says, “It isn’t just Donald Trump who likes to brag that it is 'smart’ to avoid paying taxes. Some Canadian multinationals and wealthy individuals are unapologetic about setting up shell companies or foundations in tax havens for no other reason than to avoid paying their share at home. In some—but not all—cases it is technically legal. But it contravenes the spirit of the law and is simply not fair.”

We have to talk about fairness, because when I talk about everyday Canadians, I think about my friends at home; my friends Jennifer and John, who run a whale watching company; my friend Mike Madison, who went to work this morning at the mill, and his wife Michelle. I think about my friend Cory, who is working on the golf course today, and law-abiding Canadians from Qualicum Beach to Tofino, who are doing everything they can to make sure they pay their fair share of taxes to build a healthy Canada while these corporations are taking the money out of the country.

Motion No. 42 tabled by the member for Joliette is a step in the right direction for restoring Canadians' trust in our tax system and closing this multi-billion dollar tax loophole. While Barbados appears to be the tax haven of choice for Canadians, there are several other countries, including Panama and the Turks and Caicos and Bermuda, with similar sneaky taxation agreements with Canada. Motion No. 42 is a good start, but it is just the tip of the iceberg when it comes to tax fairness for all Canadians.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Madam Speaker, once again, I would like to thank the sponsor of today's motion, the member for Joliette, for his speech and his initiative on an extremely important and timely issue.

In 2016, I believe it is more important than ever to address this problem. Although efforts have been made by the current and previous governments, there is still much work to be done in several areas. Therefore, it is quite appropriate to raise the issue of Barbados today.

It is fairly obvious that there is a problem with Barbados. We need only look at the numbers to realize it. My colleague mentioned a few. In 2014, $71 billion was invested in Barbados. Over the past 10 years, $390 billion has been invested there. It is the second-largest destination, after the United States, for Canadian foreign direct investment, ahead of the entire Asia and Pacific region. The reason is quite simple, and I will explain later.

Why are such incredible amounts of money being invested in a country like Barbados, which has a population of 284,000 and a GDP of roughly $3.7 billion?

In 2014, Canadians invested $71 billion in Barbados. There has to be a reason. I do not think it is because the sun is warmer than in the Cayman Islands or Hong Kong. There is a very simple fundamental problem: Canada signed a tax treaty with Barbados that prevents double taxation.

My Conservative colleague explained the rules. When someone brings back profits reported in a foreign country and Canada has an agreement with that country to prevent double taxation, the individual simply needs to prove that he has paid taxes in the original country so that he will not have to pay taxes again in Canada.

It makes sense to have an agreement to prevent double taxation with countries like the United Kingdom or United States, since this is fair for our businesses. However, Barbados has a tax rate of 0.25% to 2.5% for international companies, so it is clear why Canadian businesses are interested in investing there and reporting their profits there. Why pay 15% tax in Canada, or 11% in the case of small and medium-sized businesses, if you can get a better rate in Barbados?

It is not surprising that $71 billion from Canada ended up in Barbados in 2014. That was handed over on a silver platter. It is not difficult to come up with such strategies, and they are completely legal.

It is all well and good for the government to say that it will invest $450 million to go after cheaters, since everyone acknowledges that tax evasion is illegal, but all of that money will do nothing to prevent perfectly legal activities. How can we prosecute someone whose actions are legal?

This is a serious problem. I thank my colleague for raising this issue. It is not a new one, but it is still very important.

Earlier I said that tax evasion was simple. I do not want to encourage Canadians to engage in it, but I just want to make my point to parliamentarians.

Imagine that there is a company here in Canada with a subsidiary in Barbados. Obviously, the company hires a consultant to make things easier. There are consultants on every street corner in Barbados, and some in Canada too. The company hires a consultant who starts a company in Barbados in accordance with that country's laws. That company becomes a subsidiary of the Canadian company, which then becomes a multinational corporation. It is not difficult to conduct all of the business in Canada and then have the subsidiary in Barbados issue an invoice for $5 million, for example, for expert or advisory services, even if no services were rendered. The subsidiary will bill $5 million, which will be paid. Then, the company owner will declare in Canada that the year was somewhat but not overly profitable. In Barbados, the subsidiary will declare profits of $5 million or $4.5 million. The subsidiary will then be taxed in Barbados, according to that country's tax rate for multinational corporations. Obviously, if business is really being done in Barbados, that is legitimate. It is legitimate to have companies throughout the world, in Barbados or elsewhere. However, these corporations are not even taxed at such low rate in Barbados. It is therefore quite obvious that there is a problem.

Just last Monday, the Minister of National Revenue responded to journalists by saying that what the government also wants to work on is trying to make what is immoral illegal.

She also said that if any changes need to be made to the legislation, they will be made.

According to her, the trap is set.

It seems pretty clear that something can be done in the case of Barbados. That is what my colleague from Joliette is proposing today. Solutions are within our reach, for this is not the only possible solution. However, it is quite clear that the minister and the members of the other parties really need to take a serious look at this matter and the problem of Barbados. This situation could be resolved, although it is far from simple.

As everyone knows, the NDP has always fought for greater tax fairness to ensure that our fellow citizens and our businesses pay their fair share. We are pretty fortunate in Canada. Our country delivers important services to Canadians, but someone has to pay for those services. Things like health care and education come to mind, for example.

As more and more individuals and businesses try to avoid their tax obligations, our base will shrink progressively, and it will become harder and harder to pay for the services people expect.

I can guarantee that when the people and the CEOs who engage in these immoral but legal practices have a health problem, they will not go to a hospital in Barbados. They will go to a hospital here in Canada. They will use our health care services. The first thing they will do is come here to take advantage of our good services, but the first thing they will do when they leave the hospital is continue to avoid paying their fair share for the services they received.

It is time to legislate a solution. My colleague from Victoria proposed a solution in the previous Parliament, and it still makes sense: it addressed the economic substance of a transaction. People would have to prove that there is real economic substance for a transaction, not just tax reasons. That is one solution, and there are other legislative solutions.

Yes, the agency needs more resources. We do not oppose that. It is a good solution, but it does not solve the problem, which is purely a legal one.

We need tougher penalties and no more amnesty. That is another solution that still makes sense. When the agency finds that certain taxpayers have engaged in illegal activity, they should not be granted amnesty so they can avoid penalties and legal action.

Lastly, there is no denying that international co-operation is extremely important here. I look forward to hearing the rest of the debate.

Motions in amendment

[Murray Rankin, NDP, Victoria, BC]

Mr. Speaker, I am honoured to rise today and speak on Bill C-43.

The title of the bill is rather misleading as it describes a bill to implement the budget and other measures, which is exactly what I want to start with: the process that got us to this place today. This is yet another omnibus budget bill. It is a bill that would actually do much more than what Canadians might think a budget would do.

A budget would be about economic priorities, fiscal matters, and the like. However, yet again, the bill before us is 460 pages in length with 400 clauses and would do so much more than deal with budget measures. It is misleading, in fact, to call it a budget implementation bill when it deals with matters that have nothing in the world to do with budget. Of course, that is the pattern of the Conservatives. This is number five on a long list of budget bills.

I have the honour of representing Victoria, and I sit on the finance committee where, frequently, we deal with matters that have absolutely nothing to do with finance. I have a little trouble back in the riding explaining what I am doing talking about those measures, but that, I guess, is just the way it is. However, I also have difficulty explaining why amendments are proposed and uniformly voted down by the Conservatives, even when those amendments are self-evident improvements to a bill in specific matters.

Having spoken about the failed process, the anti-democratic process that led us to this place, I would like to talk about the substance. I will speak about the things we would support and oppose in the bill, and the things that are glaringly obvious by omission in the bill.

It must be said that there are things that are supportable in the bill. One that comes to mind initially is the NDP's long-standing proposal to deal with the pay-to-pay problem. Seniors in my riding of Victoria constantly complain about paying more for a telecommunications bill if they get it on paper rather than online. They do not have a computer and they do not want to do that. Well, the government, in its typical way, went halfway. The Conservatives went along with the pay-to-pay provisions vis-à-vis broadcasting enterprises and telcos, but I guess the banks had a better lobby, because glaringly obvious in omission is anything to do with bank fees. I guess that is because the banks had a better lobby than telcos, or perhaps there were disputes elsewhere with that sector of the economy. However, at least the Conservatives went halfway, and we give them credit for that half measure.

Second, there were measures to improve the clarity and integrity of the tax code, which is something New Democrats had been proposing for a long time. However, so much more needs to be done about tax evasion, and I will talk about that in just a moment.

There are other issues, such as the implementation of a DNA data code to help solve the crisis in missing aboriginal women and girls. This is a long-standing proposal that the government has now recognized, and we accept that.

Last, there is the backlog on appeals to the Social Security Tribunal. This will be addressed by allowing more members to be appointed, which, again, is something that has been sought by the NDP for many years.

I said that I would talk about what was missing from the bill. There is $7.8 billion a year that is missing, and that could be available to Canadians if the government were serious about the issue of tax havens. It has been a passion of mine to try to get the government to take this seriously.

However, $7.8 billion is an estimate, and it can only be an estimate. Contrary to the Parliamentary Budget Officer's attempts, our attempts, and the Senate's attempts to get the government to actually measure the tax gap, as our friends in the U.K., France, and the United States have been doing for years, the current Conservative government somehow thinks it is a waste of time and cannot be bothered.

If we do not measure something, how can we manage it? Is that not public administration 101? However, the government refuses, and so I can only give an estimate, which can be accused of being high or low, but it is a big number.

Corporate tax avoidance, in particular, is a global epidemic. Even though Canada is proud, and the Conservatives are, of having the lowest corporate tax rate in the G7, we still have corporations that send their money abroad.

An example is tax shifting or transfer pricing. In order to pay even less tax, those companies that have the lowest corporate tax rates in the G7 still have their favourite trick. What is that? They sell a patent to an offshore subsidiary. Then they charge themselves licensing fees for the use of the same patent. That is a good trick.

Other countries have closed that loophole. We do not seem to care.

I have introduced Bill C-621, which would address the economic substance and require that there actually be economic substance before those paper transactions are allowed, costing the Canadian treasury billions of dollars because the government simply does not want to take the time to go after corporate friends on Bay Street.

Bill C-621 would do what Dr. Robert McMechan wrote about in his book Economic Substance and Tax Avoidance: An International Perspective. Dr. McMechan, who really helped in drafting Bill C-621, pointed out in his doctoral thesis at Osgoode Law School, having been a practitioner with the Department of Justice and doing tax litigation for many years, that the government could close this loophole if the courts could get back on track with looking at the economic substance of transactions rather than whether or not they appear to be okay on paper. That is something like going after the general anti-avoidance rules vis-à-vis corporate tax avoidance.

That is what my very short bill, Bill C-621, would do. It would basically put Canada on track, as Dr. McMechan points out, as regards our other allies whose courts seem to have stuck to economic substance. Ours, I am afraid, have gone off the rails.

There is a lot of money we are not going after. A few years ago the Conservatives, faced with 106 Canadians with secret bank accounts totalling over $100 million in Liechtenstein, did nothing. How many have been charged? How many have they gone after? Apparently they have gone after none.

Compare our woeful record of doing little to go after tax evaders with Australia's Project Wickenby or the action going on in the United States, France, and the United Kingdom to go after tax avoiders. Canadians should be ashamed of their government's performance.

Back in September, somebody from inside the department wrote us and said the minister announced that the elimination of a host of senior tax office positions at the local level, including in the international and aggressive tax planning programs. Seventy individuals, with over 1,000 years of cumulative specialized expertise in going after these intricate, complicated corporate transactions, were gone. Fifty people in CRA alone lost their jobs. That is the priority of the Conservatives in going after what could have been an enormous source of revenue. That is missing in this budget.

I have talked about what we like in this budget and what is absolutely missing. In terms of things that ought not to be in a budget but that need to be done is more action on youth unemployment and on homelessness. Homelessness is a crisis in my community of Victoria. I attended a lecture by Dr. Gaetz of York University, who pointed out that homelessness costs the Canadian economy $7 billion per year if we take into account social services, health care, corrections, and interaction with law enforcement. That is an enormous number. If investments were made to deal with that, the return on the investment—language the Conservatives would apparently like—would be enormous. For example, for the hardest to house, for every $10 we invest in Housing First initiatives to address homelessness, $22 would be achieved through offset costs.

There is a crisis in affordable housing. We are not using the income tax system to incent the creation of affordable, low-cost rental housing in communities. We have lots of condos, but we do not have housing for those people who are living hand to mouth in our communities and who are themselves just a few steps away from being homeless.

In conclusion, it is politics 011 that a budget reflects the priorities of a government. The government's priorities do not deal with the crises of unemployment and homelessness, nor fairness and equity, nor does it provide income for Canadians by actually going after money in tax havens in a more aggressive way, as so many of our allies have done.