Bill C-82 (Historical)

Multilateral Instrument in Respect of Tax Conventions Act

An Act to implement a multilateral convention to implement tax treaty related measures to prevent base erosion and profit shifting

This enactment implements a multilateral instrument in respect of conventions for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.
The multilateral instrument is an international treaty developed as part of the G20 and OECD’s project to tackle base erosion and profit shifting (BEPS). The purpose of the multilateral instrument is to modify, in their application, tax conventions between two or more parties to the multilateral instrument so as to further the objectives of the tax convention. The multilateral instrument operates alongside tax conventions to modify them in their application; it does not directly modify the text of the tax conventions. The multilateral instrument will apply to a Canadian bilateral double tax convention only if both parties to the convention notify the depositary that the convention is intended to be covered by the multilateral instrument. The Secretary-General of the OECD is the depositary of the multilateral instrument. The implementation of the multilateral instrument requires the enactment of this Act.

Canada–Madagascar Tax Convention Implementation Act, 2018

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

Mr. Speaker, I may have forgotten to mention that our caucus supports Bill S-6. As I am sure I mentioned, the reason we support this bill is that Madagascar's tax rates are comparable to ours. They are reasonable tax rates compared to those in Canada. That is why it is possible to accept a bill like this one on an agreement with Madagascar.

That being said, I would put a big asterisk next to tax treaties, because over time, they can be abused. We must ensure that these countries do not become tax havens, like Barbados, with which we have a tax treaty. That is why I am warning the government. By its own admission, as evidenced by Bill C-82, taxpayers abuse tax treaties. That is precisely the government's argument in the case of Bill C-82, and that is why I am cautioning the government against tax treaty abuse. I am only reiterating what the government is saying.

As far as investments are concerned, it is all well and good to say that $1 billion has been invested and that we have 1,300 more auditors, but when the system is broken and no longer works, then it will not change anything. That is why the government has nothing to show for this investment. There have been no convictions or even charges related to offshore tax evasion. The government sent out 12 notices of assessment, and that is it. Congratulations.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Mr. Lightbound.

I wanted to respond in French, but it's very difficult for me, even though I practise as much as I can.

This is just a follow up on Bill C-82.

The big question the world faces in terms of tax avoidance measures and tax evasion....

I can turn this over to the officials as well. We did hear from Trevor McGowan in the past on Bill C-82. I'd love to get your opinion on just how big of a step this multilateral convention is, in terms of—if I could use the word—“fighting” tax avoidance strategies, in terms of monitoring and in terms of compliance for, realistically, multinational corporations and high-net-worth individuals.

[Joël Lightbound]

Thank you for your question and comments, Mr. Sorbara.

I think that it's fair to say that when we came to power in 2015, Canada's economic situation was significantly different from the situation today. The country was practically in a technical recession. Our investments, our support for small and medium-sized businesses and our tax cuts for the middle class have helped move the economy in a positive direction. I obviously share the sentiments and agree with the observations that you expressed in your question, and I echo them.

This is what makes Bill C-82 good. Together with our G20 and OECD partners, it will implement one of the recommendations and measures proposed in the base erosion and profit shifting project, or BEPS project, to prevent companies from treaty shopping, in particular through the principal purpose provision. The goal is to avoid double taxation but also double non-taxation. We must ensure that the companies pay their taxes when they need to do so. The principal purpose provision is fundamental in Bill C-82, the multilateral instrument before us today. I think that it's a step in the right direction, and it will ensure that Canadian companies pay their fair share.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Mr. Chair.

Welcome, everyone. It's great to see everybody.

I want to welcome Mr. Lightbound, the parliamentary secretary.

It's great to have you here today.

I'll focus my comments and questions on Bill C-82, this multilateral convention. I think it speaks to two things our government has put forward: tax fairness and tax simplification.

When I think about tax fairness for the residents and the entrepreneurs of my riding of Vaughan—Woodbridge, I think about the tax cut on the middle-income tax bracket that has benefited nine million Canadians. It's about a $20-billion tax cut over five years, which has helped grow our economy, strengthen the middle class and has helped those working hard to join the middle class.

I think about our small business tax cut now at 9% which, for firms earning up to $500,000 on the accounting standard, is about $7,500 per year in savings that they can invest in their businesses.

I think of the nearly 13,000 small businesses in the city of Vaughan that employ over 200,000 workers who will benefit from the small business tax cut, or if they're too large, they'll stay at the corporate income tax rate, which is competitive worldwide. But they'll also benefit from our accelerated investment instrument that we introduced in the fall economic statement, which now, in terms of tax fairness, and also tax competitiveness, means that we now have a lower marginal effective tax rate on new investment than the United States, by 4%. What does this mean for Canadians and the residents of my riding of Vaughan—Woodbridge? It means that over 850,000 new jobs have been created in Canada since October 2015, the majority full time, the majority private sector, which is near and dear to my heart after 23 years in the private sector.

I think we're on the right path. For background, I sat on the Accounting Standards Board User Advisory Council for a number of years. I used accounting statements for many years as an analyst both on Bay Street and Wall Street, but as a kid I worked at McDonald's and grew up taking the bus as many others did. I look at Bill C-82 and I say our government continues to be on the right track in adopting base erosion and profit shifting and this multilateral convention.

I could continue speaking about the number of great things our government has done, but now I'll ask my first question.

I hear some chirping from the Conservatives, which I guess I'm used to sometimes.

I will ask my first question in reference to when the implementation date is of Bill C-82. Second, how does this instrument prevent treaty abuse?

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

Mr. Speaker, I am pleased to rise in the House to speak to Bill S-6, following two of my colleagues who have already spoken on this subject.

At first glance, this bill may seem a bit dull. I will therefore try to be as interesting as possible to ensure that Canadians tuning in know how important these issues are and that there are risks associated with establishing tax treaties with other countries. That is what is at stake here. A new tax treaty is being proposed to us. As we already have 93 of them, this would be our 94th tax treaty. That is not a small number. Consequently, we should not take this new treaty lightly, since it will be one of a series of treaties we have with many countries that have significant tax implications.

All Canadians feel concerned about tax issues because they all file a tax return each year to pay their dues and get all the credits to which they are entitled. They all know that taxation is an extremely important issue related to fairness and justice.

I have said this before, but in our country, we are fortunate to have a tax system that allows the federal, provincial and municipal governments to deliver services to the public. In some provinces, there are even school boards with a tax system. The ultimate goal of taxation is to ensure that the government can operate, but the government's primary focus is to serve the public and provide the best possible services to Canadians. They deserve value for their money, as they say in the business world.

When we buy a product or service, we want value for our money. The same goes for taxation. When we pay taxes to different levels of government, we hope to get our money's worth and get good services. The problem is that some Canadians feel like other taxpayers like them, usually the rich, are getting out of paying taxes by hiding their money either in Canada or offshore.

Some cases involve domestic tax evasion. For example, there are people who work under the table and hide their cash under a rug or in a mattress. We have all heard of that before. In other cases, people hide their money in tax havens. In both cases, the principle is the same, namely to avoid paying their fair share of taxes to the system that helps provide services to all Canadians.

As I have said in other debates on taxation, most Canadians receive more in services than they contribute in taxes. That much is clear when we add up all the services they receive. This means that we have a fair system, but it needs to be even more progressive so that the least well off can still receive the best services.

No one wants to live in a country or a society where a person's wealth determines the services they receive from the government. It is therefore important to make sure that the wealthy contribute their fair share, especially multinationals and Canadian banks, which post record earnings in the billions of dollars every year, and which make use of many tax havens. This is fundamental to preserving Canadians' trust in our tax system.

This is perhaps a brief preamble to the debate we are having on tax treaties, which avoid double taxation.

I will use an example that many Canadians will recognize. Consider a Canadian company that has a U.S. subsidiary or does business there. If that company pays taxes there, where rates are similar or even higher than ours, it will not be taxed a second time when its profits are repatriated to Canada. That is the basic premise of tax treaties, and it is a matter of fairness. If the taxpayer pays taxes in another country, that money should not be taxed a second time when it is brought home. The main purpose of a tax treaty is to avoid taxing the same income twice.

Having said that, this makes sense in the case of countries like the United States, which has tax rates that are comparable to and even higher than ours depending on the state. However, in the case of other countries with which we have tax treaties, we must ask ourselves what the real purpose of the treaty is. Take for instance Barbados, with which we have a tax treaty. Barbados is a small country. For reasons that are still unclear to me, even though I have asked many questions about it, this country ranks third, and sometimes even second, in terms of countries where Canada makes direct investments abroad. This information comes from Statistics Canada. Barbados, of all the countries in the world, ranks third in terms of Canadian investment. After the United States and the United Kingdom, Barbados often ranks third or fourth in terms of our foreign direct investments. We have to ask ourselves why.

The answer seems simple to me. We have an agreement with Barbados to prevent double taxation, and Barbados has a tax rate ranging from 0.5% to 2.5% for foreign companies. We need look no further to understand this. This is not new, but from 1982. It was one of the first international tax treaties we signed.

When we ask questions about this agreement with Barbados, we hear snippets about why, historically, we have this very close relationship with Barbados. It is hard to find it anywhere in writing, but Barbados being Canadian companies' gateway to the rest of the world actually seems to be part of Canada's tax policy. If a Canadian company wants to do business abroad, Barbados is the gateway to those countries with its low tax rates ranging from 0.5% to 2.5% for foreign corporations. A Canadian company that establishes a subsidiary in Barbados will do business with countries from around the world, and since their revenues are reported in Barbados, that is where they are taxed. Instead of being based in Canada, the company uses Barbados as the gateway to the entire world. The government will not admit it but, unofficially, during many discussions, I heard that this tax policy dates back to 1982, and that Canada adopted it because that is what every other country was doing. We are being told that we have to do this because everyone else is. If everyone is doing it, why should Canada be put at a disadvantage by not doing it? That is what we are hearing.

It is extremely important now, more than ever, to have a real discussion and to work together on tax havens, even though the current and former governments have never taken real action on this. More than ever, we need to put an end to these dishonest practices by many taxpayers, especially companies and multinationals, which use shell companies in tax havens all around the world.

Barbados is the preferred tax haven for Canadians. Other countries will have another. We need to put an end to this practice for good. All industrialized countries that are missing out on taxes and whose tax base is incorrect as a result of these practices need to get what they are entitled to. They are owed the taxes that these multinationals generate on their billions of dollars in profits every year. These billions made all over the world are hidden away in bank accounts, in tax havens, to avoid fair and equitable taxation that would be used to provide public services.

The worst is that these companies are often the first to make use of these public services. They are the first to use the infrastructure that our industrialized countries have built. Their employees are the first to use roads, public transit and public services like education and health care. It can therefore be argued that they are taking advantage of Canada. They are taking advantage of Canada's system and of its generosity, and they are then hiding their money abroad, without contributing to our system in return.

What we keep hearing from governments, especially Conservative ones, is that there is not enough money. Fortunately, not all of them are sending that message, but around the world, more and more of them are saying that the money has run out and that governments no longer have the means to provide services to Canadians. Governments are drowning in debt, they cannot balance their budgets, and they have to cut services, yet billions of dollars are being hidden abroad, where they are not contributing to society as they should. We want to see more services, better services, services that benefit everyone, including people in Canada, of course.

That is the crux of the matter. That is why it is important to consider this issue carefully. Far from being a boring bill, Bill S-6 is exciting. The tax convention with Madagascar may enable continued abuse of a convention. I am not alone in saying that tax agreements are being abused. Bill C-82 is being debated at this very moment two floors down in a committee room.

As finance departments officials themselves have admitted, taxpayers can and do abuse tax treaties. That is why Bill C-82 was tabled. It is clear, it has been said in so many words, which is fortunate. I think this was the first time I heard anyone admit it out loud. Earlier I was saying that we often hear things through the grapevine that are never said out loud into a microphone. However, it was said loud and clear that tax treaties do get abused, which is why Bill C-82 had to be tabled and now has to be passed.

My question for the parliamentary secretary, who did not seem to know the answer, was related to that. I actually know the answer to my own question. Bill S-6 follows the old tax treaty model, which, by the government's own admission, produced tax treaties that get abused.

Today we are debating a bill on a tax treaty with Madagascar. In this case, it seems all right. As I said earlier, we do not want double taxation. Madagascar has reasonable tax rates that are comparable to those in Canada. That is fine, but we do not want tax treaties to be abused.

However, Bill C-82 demonstrates that tax treaty abuse is already happening. Also, Bill S-6 seeks to adopt a treaty just like the ones that the Liberals themselves admit are open to abuse. That makes no sense.

They should have taken the time to negotiate the treaty using the new model developed by the OECD to come out with a better agreement. I am not saying it would have been perfect—and I will be saying that in committee—but at least it would have been a step in the right direction. They acknowledge that tax treaty abuse is a possibility, and they are making an effort to close these loopholes in the treaties to keep that from happening. However, by the government's own admission, taxpayers could abuse this treaty.

That is why I wanted to say in my speech today that the government has a responsibility to make a clear commitment to ensure that these conventions cannot be abused over time. As I was saying earlier, a convention with Madagascar is a good idea because its tax rate is similar to Canada's.

However, this does not meant that five years down the road, Madagascar will not become a tax haven or will not change its tax laws to lower the tax rate of foreign companies operating on its territory. We need to ensure that there is a monitoring and control mechanism. We need to monitor the 94 conventions that are in place to ensure that they do not become tax conventions that can be abused. That is extremely important. Unfortunately, the government did not commit to monitor the conventions and ensure that they do not become gateways to tax evasion and aggressive tax avoidance for Canadian companies. As everyone knows, tax evasion is reprehensible and illegal.

The government talks a lot about tax evasion and says it is doing great things to address it, but the Liberals do not have any results to show Canadians.

The Conservatives got zero results in that regard, and they had no intention of doing anything to address tax evasion. For the benefit of Conservatives who may be listening, I repeat, a former minister of national revenue even admitted that tax evasion was not a priority. I did not address that in my speech, but I did mention it in a question I asked my Conservative colleague, although that member made no reference to the issue. Jean-Pierre Blackburn admitted that tax evasion was not a priority.

This government promised to do more to combat tax evasion, but it has no results to show for it either, even though concrete results are all that matter. It is all well and good for the government to say that it is doing what is necessary, it has invested $1 billion and it hired 1,300 auditors, but if there is nothing to prove that the plan is effective, then clearly it is not working. This government does not have the motivation or any real intention of getting to the heart of the problem. The government is actually only scratching the surface.

Since the Liberals took power, there have been three tax and financial scandals: the Bahama leaks, the Paradise papers and the Panama papers. In all three cases, it was determined that many Canadians were involved in these scandals. Today, three years later, no taxpayers have been convicted of tax evasion. Worse still, no charges have been laid against even one taxpayer involved in these financial and tax scandals. This clearly shows that the system is not working and that it is flawed.

Even if they invested $1 billion and hired 1,300 auditors—as the Minister of National Revenue says every day—if the system is flawed, nothing will change. Taxpayers will still be able to shirk their responsibilities. That is the crux of the matter, but the government refuses to see it.

The tax system needs to be reformed as a whole. It is not enough to close a few loopholes here and there. The first version of the tax code was 15 pages long. Today, the code is 1,800 pages long. This is proof that the system is flawed.

Canada's chartered accountants are calling for a comprehensive reform of the tax system. That is what is at issue today, and that is what the government needs to address. Otherwise, investing $1 billion and hiring 1,300 auditors will not change anything. The government must review the Canadian tax code from top to bottom, to simplify it and ensure that everyone pays their fair share. It is often easier to comply with something simple.

I hope that the government will also study this issue. The NDP is committed to reviewing the entire tax code in order to close all loopholes and have a simple tax code.

Canadians expect to receive quality services commensurate with the money they invest in the system.

[Joël Lightbound, Parliamentary Secretary to the Minister of Finance]

Thank you, Mr. Chair.

I want to thank the committee members for having me here today.

This is my first presentation of this nature before a parliamentary committee. Please bear with me.

I want to thank you, Mr. Chair, for allowing me to speak about Bill C-82. This bill will be an important new tool in the government's arsenal to combat aggressive international tax avoidance. When some Canadians choose not to pay their fair share of taxes, all of us are short-changed. It means less money for important social programs such as the Canada child benefit. It means less money for vital infrastructure such as roads, railways, ports and airports, which help us move people and goods to where they need to go safely and on time. It means less money to protect our communities and less money for health care.

Our government believes that all Canadians deserve to share in the fruits of a strong and vibrant economy. That is why our government takes seriously its responsibility to ensure that Canada's tax system is fair and efficient. Tax fairness is a cornerstone of our plan to grow a stronger middle class and create economic growth. In each of our government's last three budgets we've introduced measures to enhance the integrity of Canada's tax system and give Canadians greater confidence that the system is fair for everyone.

Thanks to these investments, the Canada Revenue Agency is armed with better tools and approaches, which are leading to better results. These tools help the CRA collect valuable information and allow its agents to work smarter and more effectively to ensure all Canadians follow the rules.

For example, Canada continues to be a member of the expanded Joint International Taskforce on Shared Intelligence and Collaboration. This network of 38 countries works closely and actively with other tax administrations to coordinate tax compliance activities across the spectrum of international tax risks. This expertise has allowed the CRA to participate and lead JITSIC expert working groups, including in the development of a strategy to identify and stop promoters of abusive tax schemes.

Canada has also taken steps to coordinate its criminal investigation by joining Australia, the Netherlands, the United Kingdom and the United States in the joint chiefs of global tax enforcement—the J5 group. The J5 will share criminal investigation strategies, intelligence and conduct joint operations in the fight against those who commit, promote and enable international tax crimes, money laundering and cybercrimes.

The CRA has also been automatically accessing all international electronic funds transfers of more than $10,000 entering or leaving the country. As of March 31, 2018, teams have analyzed more than 187,000 of these transactions, amounting to more than $177 billion related to eight jurisdictions or financial institutions of concern. Reviewing these transfers helps identify transactions for which taxes should potentially have been paid and better assess the risk of individuals and businesses.

Through these efforts, Canada is taking concrete measures to secure tax fairness for Canadians. Our government will continue to work to maintain and improve our enforcement of tax compliance so that we can have a society that works not only for a select few, but for all Canadians.

Mr. Chair, we're also taking important measures to counter third parties that promote the tax avoidance scheme. In the last fiscal year, administrative penalties amounting to almost $48 million were imposed on the third parties. As a result of the implementation of the common reporting standard, we're also gaining easier access to information on Canadians' overseas bank accounts. This new system will make it possible for Canada and over 100 other countries to exchange financial account information. This information will help us identify instances where Canadians hide money in offshore accounts to avoid paying taxes.

We've also expanded our specialist audit teams who focus on high net worth taxpayers. These teams are comprised of approximately 250 auditors responsible for scrutinizing high income earners and more than 800 high net worth individuals and their associated corporate structures.

In addition, in December 2017, the Minister of Finance and his provincial and territorial counterparts committed to ensuring that Canadian authorities know the beneficial owners of corporations in Canada and better align the ownership and corporate requirements of the different administrations.

As a result of this agreement, through the most recent budget implementation bill, we amended the Canada Business Corporations Act to require federally incorporated corporations to maintain a register of individuals with significant control over the corporation.

Budget 2018 also proposed enhanced income tax reporting requirements for certain trusts to improve the availability of beneficial ownership information. This type of information will help Canadian authorities take measures to counter international tax avoidance or criminal activity, such as tax evasion and money laundering.

The bill that we're discussing today builds on our government's previous measures.

Bill C-82 would allow Canada to better counter a practice known as base erosion and profit shifting, or BEPS. BEPS refers to tax avoidance strategies in which businesses and wealthy individuals use gaps and mismatches in tax rules to avoid tax or to shift profits to low tax or no tax jurisdictions. These strategies make it possible for businesses and wealthy individuals to avoid paying their fair and full share of taxes. This means less money to fund essential services that people depend on.

We've worked hard to counter this loss of tax revenue. In particular, I want to highlight our work with our international partners on this front. The OECD and G20 member countries collaborated to identify a number of instances in which the terms of current tax treaties are vulnerable to potential abuse. These organizations then developed measures that countries could incorporate into their tax treaties to address these vulnerabilities.

The fact that it would take an extraordinary amount of time to renegotiate existing tax treaties required a new approach. That new approach is the multilateral convention contained in this bill, otherwise known as the multilateral instrument, or MLI. This instrument is the product of a global initiative involving the work of more than 100 countries and jurisdictions, including Canada. The purpose of the multilateral instrument is to allow participating jurisdictions to adopt the OECD and G20 measures to combat BEPS without having to separately renegotiate each of their tax treaties. By implementing the MLI, the government would be taking steps to protect the integrity of our tax system and to guard against the abuse of our tax treaties.

Moreover, the implementation of the MLI would demonstrate Canada's willingness, in collaboration with our treaty partners, to take coordinated action to combat international tax avoidance.

Mr. Chair, I'll finish by stating that the Canadian economy is well positioned for future growth. Canadians have every reason to be confident in their ability to compete. However, it's always possible to do more. The government remains committed to investing in the middle class and in the things that matter the most to the middle class. These things include good, well-paid jobs; strong communities; environmental protection; and better opportunities for future generations.

One of the first things we did was to ask the wealthiest 1% to pay a little more so we could cut taxes for the middle class.

We're implementing our plan to make all communities stronger and more resilient, in particular through our significant investments in infrastructure across the country. We've approved more than 30,000 infrastructure projects since 2016 as part of the investing in Canada plan. Most of the projects are under way and are currently creating good jobs for the middle class.

We've also introduced the Canada child benefit, which is giving nine out of 10 Canadian families more money to provide for their children. To ensure that the Canada child benefit keeps pace with the cost of living and continues to deliver effective support to those who need it, our government indexed the Canada child benefit as of July 2018, a full two years ahead of schedule.

A typical middle-class family of four is receiving, on average, about $2,000 more each year as a result of the middle-class tax cuts and the Canada child benefit when you compare that to 2015.

When we add the impact of measures such as the Canada child benefit, the new and more generous Canada workers benefit implemented by our government, and our increased support for seniors, we're on track to help lift approximately 650,000 Canadians out of poverty. I think that all Canadians can be very proud of this result. These concrete and significant measures have improved the lives of Canadians and the economy across the country.

We know that our plan is working. As a result of the hard work of Canadians, over 800,000 jobs have been created since 2015. The unemployment rate is currently the lowest in over 40 years, and we have one of the fastest-growing economies in the G7.

We're committed to building an economy that works for everyone, where every person has a real and fair chance at success. To continue on that trajectory of growth, Canada's economic health needs everyone to pay their fair share of taxes. The legislation before us gets Canada closer to meeting that goal. I encourage all members of the committee to support it accordingly.

As this work today includes a focus on the Treasury Board Secretariat's supplementary and interim estimates for the Department of Finance, I would be happy to take any questions, with the department officials, that the members might have about these or the government's plans to improve tax fairness.

Thank you very much for your attention.

[The Chair, Liberal, Wayne Easter]

We'll call the meeting to order.

Today, we're doing two issues, pursuant to the order of reference of Monday, October 15: Bill C-82, which is an act to implement a multilateral convention to implement tax treaty related measures to prevent base erosion and profit sharing.

We're also going to deal with the interim estimates under the Department of Finance. We have with us the Parliamentary Secretary, Joël Lightbound; Mr. Rochon, Deputy Minister; Mr. Ernewein, Assistant Deputy Minister, Tax Legislation; Ms. Bess, Chief Financial Officer; and Ms. Smith, Senior Director, Tax Treaties.

Mr. Parliamentary Secretary, the floor is yours.

[Jim Eglinski, Conservative, Yellowhead, AB]

Mr. Speaker, we can come up with all the regulations we want as an individual country. Parts of Bill S-6 and Bill C-82 are about that. However, he talked about the importance of working with other governments from other countries.

Could he perhaps exemplify what he meant when he said that it was important that we work with other countries?

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

Mr. Speaker, I thank my colleague for endeavouring to give the House a straight answer. I believe that this is a fundamental issue related to today's debate.

The other question that I would like to ask is whether the government is prepared to continuously monitor tax conventions.

I will come back to the debate on Bill C-82. The one thing the government and its officials have admitted is that tax treaty abuse does occur. Bill C-82 is before us so we can renew and improve tax conventions.

The question I have for my colleague concerns the conventions in general. I would like to know if the government is engaging in any monitoring or some sort of control of conventions to ensure that, over time, countries with which Canada has double taxation conventions do not become tax havens. Naturally, we hope they are not, but we need to ensure that, over time, they do not become countries with low rates of taxation.

Is the government carefully and continually checking that those countries that Canada has agreements with do not become tax havens and that taxpayers cannot abuse these conventions?

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

Mr. Speaker, I thank my colleague for her speech. I am always happy to debate with her.

I would like to come back to Bill S-6, which is before us today.

Bill C-82, which is currently being examined by the Standing Committee on Finance, would renew all tax conventions, if the two countries come to an agreement that, according to the government, is renewed and improved.

We have before us a new tax convention with Madagascar. I have a very specific question about this bill. I would like to know whether the convention with Madagascar uses the same renewed and improved text that is set out in Bill C-82 and whether the government is trying to incorporate it and renew it with all of the other partners with whom we have tax conventions.

Are we in the process of passing a bill that contains the old version or the new version of the conventions?

[The Chair, Liberal, Wayne Easter]

I reluctantly have to interrupt, as we are at the end of our meeting time.

We will pick up where we left off when we come to committee business again. You will have the floor to start.

The notice has gone out for the meeting on Thursday on Bill C-82 and the supplementary estimates.

With that, the meeting is adjourned.

[Peter Fragiskatos]

With a complex matter like this, I think we have to proceed in a way where we are addressing things in an incremental approach because addressing the problem with one fell swoop is bound to create all sorts of uncertainties and questions. I don't think you can do it that way.

Can I go back to Mr. Marley?

Bill C-82 is a bill that all parties supported at second reading, which is very encouraging.

What's good about this? What's good about the MLI? I that know you pointed to some concerns that you have with it, but, if I remember from your earlier testimony, you said that you're generally supportive of this bill.

Why are you generally supportive? What's good here?

[Patrick Marley]

I'll just be very quick. I think your question is largely addressing our broader domestic international tax system and not the tax treaty network, which is what this addresses. I think your question is more aimed at our FAPI regime and our domestic anti-deferral regime. I just don't think it touches on Bill C-82.

[Patrick Marley]

Okay.

I'd start by saying that the Canadian tax system cannot be abused by just shifting profits, passive income, into Barbados or any country. That isn't affected at all by this multilateral instrument or Bill C-82. It's our detailed foreign accrual property income, or FAPI, rules.

We have a detailed anti-deferral system that has been developed and enhanced over several decades. It's aimed at taxing in Canada on a current basis any passive profits or income with sufficient connections to Canada, immediately in Canada, whether it's in a tax treaty country such as Barbados, a tax information exchange agreement country such as the Cayman Islands, or a country in which we have no treaty whatsoever. I don't find abusive in any way the fact that some countries impose low rates of tax.

A good example would be that if you want to open a hotel in Barbados, you might pay a low rate of tax in Barbados, but that allows you to compete with other hotels in Barbados, and that's a very appropriate result. Our FAPI regime is for stopping investment activities in foreign countries, and that's what our other anti-deferral rules are for. That has nothing to do with the tax treaty process.

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

Thank you, Mr. Chair.

I'm pleased to be back at the Standing Committee on Finance and to discuss my favourite topic.

So far, the interesting thing about the debate on Bill C-82 is that the government is confirming, and admitting, that tax treaties are useful to people who want to abuse the Canadian tax system. It said openly, on Tuesday, and this is also found in its documents, that tax treaties can be abused. This is indeed the case, and I have two quotes in English to prove it.

The first quote is from a lawyer with the Rogerson Law Group, located on Bay Street, in Toronto. The lawyer explained how to take advantage of the tax treaty with Barbados. His article is entitled

“Taking Advantage of The Double Tax Treaty with Barbados”.

At the end of the article, in describing how to take advantage of this, he says:

The net result of the above is as follows. A Canadian resident corporation establishes a foreign affiliate in Barbados in the form of an IBC. The IBC makes $100 profit. Barbadian tax on the profit is levied at 2.5% leaving $97.50 to be remitted by the Barbadian foreign affiliate to its parent company in Canada. The parent company receives the dividend completely free of Canadian taxation.

An IBC is an international business corporation.

It's clear. The fact is, it's so clear that you don't even have to read between the lines. It's legal to do that.

Another proof of this is from what's called “Barbados Offshore Advisor”. An adviser based in Barbados says:

The foreign office must have “mind and management” on the island to qualify for attractive tax incentives. By providing an out-of-the-box solution with a full team at your disposal, service providers eliminate the human resource hassles and expensive start-up costs involved when opening an overseas office. Our team is responsive to your company's needs, providing rapid turnaround and dedicated management.

At this time, the most well-known and abused treaty is the treaty with Barbados. Do the witnesses also believe that tax treaties, such as the treaty with Barbados that has been in effect since 1980, are being abused, and that, as a result, Canadian taxpayers have lost billions of dollars in tax revenue?