Information & Ethics Committee on April 14th, 2016

[Bob Bratina, Liberal, Hamilton East—Stoney Creek, ON]

If some of the information gets out there, would that be a breach of this agreement?

[Ted Gallivan]

In the past Canada has had a treaty partner breach an agreement, and we cut off all future exchanges with that jurisdiction. I think in the global community, when a jurisdiction has that kind of serious breach, other jurisdictions respond by ceasing to exchange information until they're satisfied that government has put the necessary controls in place.

[Bob Bratina, Liberal, Hamilton East—Stoney Creek, ON]

Would the aggrieved party likely seek compensation through the courts? Would you envision that someone would sue someone because this information had gotten out? It's a hypothetical situation, but we have a lot of agreements with other countries. We have the agreement with Saudi Arabia that the government is required to follow through on, and hopefully there would not be a breach of the act. I'm just curious about what the remedies are or what the circumstances would be in case of a breach.

[Diane Lebouthillier, Liberal, Gaspésie—Les-Îles-de-la-Madeleine, QC]

I would like to emphasize that FATCA is an American act and more than 100 countries have to comply with it in terms of Americans with dual citizenship, wherever they are in the world. As far as constitutionality is concerned, all agreements have been and are vetted by the Department of Justice.

[Bob Bratina, Liberal, Hamilton East—Stoney Creek, ON]

Thank you.

I'm coming back to another issue, which is the Investment Canada Act, and an occasion that we have information and they have information, and we'll share it but they don't want to. The pressure on the government is to release information that is considered confidential, so I gather from what you're telling me that it's a serious business to breach an agreement like this, on either side.

[Ted Gallivan]

From a tax authority perspective, exchange of information is becoming increasingly important and reciprocity is increasingly important, so at the G20 level, a direction is being given, coordinated by the OECD, for jurisdictions to share information.

The most recent budget talked about country-by-country reporting for multinational corporations. You have certainly seen in the coverage of the Panama papers that the CRA has engaged its treaty network with other jurisdictions to share information. For those global networks to work, everybody has to play by the rules. As a tax administrator, I take Canada's role very seriously, as do my colleagues in other countries. It's by all of us respecting our legislation that we can make the regime work globally, because global tax concerns are what we're faced with.

To go back to the question of whether there is there a breach, the most serious consequence from a tax administration perspective would be on our ability to apply the law. The question of a lawsuit isn't a tax authority question. The tax authority question is that we would be cut off globally from sources of information, and that would be very damaging to our ability to operate.

[Bob Bratina, Liberal, Hamilton East—Stoney Creek, ON]

Thank you very much.

[The Chair, Conservative, Blaine Calkins]

Thank you very much.

We did move into the second round of five minutes, so that kind of takes care of.... I got it out of order. I should have gone over here first, but that's my fault.

That's on me, so we'll go now to Mr. Kelly.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thank you, Mr. Chair.

Under the intergovernmental agreement, have any Canadian institutions failed to comply with the IGA, the intergovernmental agreement, to date and been subject to the 30% withholding tax from FATCA? Have there have been instances where there has been failure to comply?

[Diane Lebouthillier, Liberal, Gaspésie—Les-Îles-de-la-Madeleine, QC]

No, not at the moment.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Have there been incidents reported of information that is not subject to the agreement, such as Canadian-held RRSPs, TFSAs, or whatnot, being disclosed to the IRS? Are you aware of breaches of that nature?

[Ted Gallivan]

I'm not aware of any breaches.

What I'd underscore is that Canadian financial institutions have done a lot of work to administer this in an effective manner, so what is happening is that these institutions are reaching out to the CRA for clarification before the mistake happens. They've done a tremendous amount of work to make sure this regime works. We have had a lot of calls from financial institutions making sure they don't make a mistake. The Canadian financial sector is very focused on not making an error in administering this law.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

I certainly don't doubt their eagerness to comply and the diligence and priority they would put on compliance, but given the millions of potential files and pieces of information out there, it's surprising that one could say with that degree of certainty that such mistakes and such breaches don't happen.

Institutions under Canadian law have tremendous responsibilities to protect their clients' information, and it would be surprising, with these two conflicting forces on an institution, that breaches don't occur, so I think we always have to be concerned that information isn't improperly handed over.

I don't have more questions, Mr. Chair, if you have one you want to jump in with.

[The Chair, Conservative, Blaine Calkins]

Certainly, if you don't mind, and if that's okay with our colleagues.

Other than myself, Mr. Boulerice, and Mr. Dusseault, I'm the only member of Parliament at the table who was actually here when these debates were happening in the last Parliament. I'm not going to ask political questions in my capacity as chair. I'm going to be as neutral as I can, but if you'll allow me....

Madam Minister, in my recollection, the change came about with the change in the U.S. government's administration and with their legislative compliance with their legislation that we came into an agreement with. We've had a long-standing tax treaty with the United States government, but it was about four or five years ago that they started to actively enforce their tax policy, whereas earlier they didn't actively enforce their tax policy.

The tax policy is that the United States of America taxes citizenship and not residency, which is a difference between Canadian tax policy and the United States tax policy. Would you agree with my assessment?

In coming to compliance, the Canadian government of the day had to enter into an agreement, as you've aptly pointed out, in order to protect Canadians; otherwise, the banking institutions or financial institutions in Canada would be directly dealing with the U.S. government. There would be no government intervention to provide that bottleneck for the purposes of protecting Canadians' information, had the Canada Revenue Agency not stepped in.

While you and I may disagree on whether or not the process was done in a way that it should have been done, we both agree at this table that the result that was needed was actually accomplished because the current government seems to be okay with the legislation and the changes that were made by the previous government.

I'm not here to debate that with you, but during the debates in the House of Commons in the past Parliament, I remember that one of the arguments put forward was that Canada fared very well in its agreement to come into compliance with the American change in policy compared to how other countries did in their negotiations with the United States.

I would just like some clarification from you, Madam Minister. Do you think that still holds true?

[Diane Lebouthillier, Liberal, Gaspésie—Les-Îles-de-la-Madeleine, QC]

As I mentioned a little earlier, Canada had to come to an agreement on FATCA. We had to sign an agreement with the United States. The problem was the process in the House. There should have been open and transparent discussions with all parliamentarians.

[The Chair, Conservative, Blaine Calkins]

If you don't have an opinion on this, that's fine. I'm asking for your opinion, or I can have a technical opinion if you're comfortable with your staff answering the question. I'm looking for some clarification.

Did Canada fare very well in updating its tax agreement? You said, Madam Minister, that there were over a hundred other countries that had to come into compliance.

Did Canada fare relatively well compared to those other countries, when it comes to our protection of privacy and the nature of the agreement?

[Ted Gallivan]

The answer is yes, in terms of limiting the scope.

For example, excluding TFSAs, RESPs, and the smaller financial institutions that may not have the capacity was important.

I can assure the committee that senior-level intervention, one level below the commissioner, was necessary to wrest these compromises from the Americans. At more junior levels, they weren't as willing to compromise.

I do feel Canada got an agreement that works for Canada.

[The Chair, Conservative, Blaine Calkins]

Thank you very much. I appreciate that answer.

We can go now to Mr. Lightbound for a few minutes. We've got the minister for about 10 more minutes, and then Mr. Dusseault, and that will finish off our rounds of questions.

[Joël Lightbound, Liberal, Louis-Hébert, QC]

Thank you, Mr. Chair, my question is somewhat along the same lines as the one that Mr. Calkins asked.

In some countries, banks transmit the information directly to the IRS. What kind of filter does the Canada Revenue Agency have before it sends the information it receives from the banks to the Americans? When a bank decides to transfer information to the Americans, does it go through automatically? Is information sometimes withheld? If so, to what level and to what extent?

[Diane Lebouthillier, Liberal, Gaspésie—Les-Îles-de-la-Madeleine, QC]

I will ask Mr. Gallivan to answer your question.

[Ted Gallivan]

We have established a formula, a kind of filter that determines what we accept. If it does not conform to the data in the filter, we do not accept it. It has to comply with that definition. We make sure of the identity of the financial institutions. We confirm that such and such a financial institution is indeed sending us a request. We want to know the identity of the institution, but we do not check the social insurance number of any people or any business numbers. The information goes to the United States as is. Our work consists in protecting the envelope without looking at what is inside and asking questions about all the details.

[Joël Lightbound, Liberal, Louis-Hébert, QC]

Is there not a risk that a Canadian citizen, for example a citizen with no links to the United States and who is not subject to these factors, may end up in the filter?

[Ted Gallivan]

We believe that all the controls are in place. That is why we worked with the Office of the Privacy Commissioner of Canada. It is why we have also established a process of feedback with the banks.

It is hard to say that it cannot possibly happen. However, as the minister explained, the agency has done a great deal of work and established measures to make sure that it is not going to happen and, if it did, that it could rectify the situation immediately. That is why the agency became involved in the process.

[Joël Lightbound, Liberal, Louis-Hébert, QC]

The agency still has some manoeuvring room. We know that the agreement was signed previously, under the previous government. Now, the agency could tighten its criteria if it thought that there could be gaps in the future or if there were ever any failures.

I see that you do not seem to want to express an opinion on that, so I have another question for you.

At the time, the banks mentioned that it was essential that we have this agreement with the Americans because they were imposing this withholding tax of 30% on the banks. Do we know what that 30% withholding tax, which the Americans threatened to impose on transactions, represents for Canada?

[Diane Lebouthillier, Liberal, Gaspésie—Les-Îles-de-la-Madeleine, QC]

No. We do not have those figures at the moment.