Thank you, sir.
I should start by saying that I've been practising as a corporate and international tax lawyer for more than 25 years, and I've been teaching corporate and international tax at the law school level for most of that time. So I've spent a fair bit of time learning and studying and practising in this particular area.
I thought I would start briefly by just touching on the two topics, in the sense of looking at the convocation notice I received. It seems that what we're dealing with here are tax havens and tax avoidance.
I wanted to start by first asking myself, “What is a tax haven?” I think it's a very useful point for us to spend a couple of minutes dealing with. We usually think of “tax haven” in the sense of a low-tax country, so we usually think of it in terms of geography. That's true, but it only goes so far. In the modern world, not only do we think of tax havens as particular low-tax jurisdictions; we also can think of high-taxing jurisdictions as being tax havens, in the sense that certain features of their tax systems can be used in such a way as to generate tax advantages.
So when we talk about tax havens, it's very difficult in the modern context to actually fix upon what jurisdictions we are talking about. By certain standards, Canada is a tax haven.
When we look at all the different tax features in the form of tax preferences that are part of our tax system, we have very important low-tax features, and these low-tax features have been put into our income tax legislation purposefully. They are not accidental or unintended features of our tax system. We have such things as international banking centre rules; we have very generous R and D rules; we have accelerated tax depreciation rules; we have all sorts of regional incentives that are built into our tax system. All of these tax preferences, in particular contexts, go to make Canada into something like a synthetic tax haven.
Just as that's the way our system operates, we have to look at the 200 other jurisdictions in the world that we're interacting with in the same context. That means, I think, that any effort to formulate the rules and function of tax havens is going to require a very important definitional exercise, which is the question of what we are talking about.
The second topic is the tax avoidance topic. I think it's important that we understand also that we have a very highly regulated system of taxation in Canada. We have numerous rules, many of which are layered one on top of the other, to deal with the issue of how to tax income earned in low-tax jurisdictions outside Canada. We have the so-called foreign affiliate rules, which are basically rules that govern multinational Canadian business. We have the foreign investment entity rules, which effectively deal with individual investors who are going offshore. We have transfer-pricing rules. We have foreign reporting rules with very significant penalties, which require taxpayers to report on an ongoing basis what it is they're doing offshore. It's important to remember that all Canadian taxpayers, including Canadian multinationals, are subject to this panoply of very complicated rules.
As was pointed out by Mr. Adams, I think, in his testimony here on Tuesday, we now have 86 bilateral tax treaties. We have numerous multinational tax audit initiatives. We're doing lots in this area.
When we turn to the budget, I think it's important that we keep in focus that the last time we looked at these issues, we had a 14-year process, starting in 1962 and ending in 1976, before we changed what was then the old tax system. I would join Nick's point that we certainly shouldn't be contemplating the type of significant changes that are included in the 2007 budget without taking a serious and hard look at those ideas and considering what we should be doing.