Finance Committee on May 17th, 2007

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Did you specifically look into finances and revenues or did you carry out a more in-depth assessment of international tax matters?

[Sheila Fraser]

No, the audit focused on quality management throughout the department, as well as on cost-recovery measures and so forth. We did not target any particular division.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you.

[The Chair, Conservative, Brian Pallister]

Thank you very much.

Ms. Wasylycia-Leis, you have the floor.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Thank you, Mr. Chairperson.

My question is on a related but separate issue. The minister stated on Monday that any savings from double-dipping would go directly against reductions in corporate tax. Is that a normal standard practice within government? Is that acceptable accounting practice?

[Sheila Fraser]

It's really a question of policy, and we cannot comment on policy.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

On another policy matter, could you comment at all on the wisdom of our moving to a worldwide income tax system, in terms of Canadian corporations? Would that at all ease the difficulties of collecting tax and dealing with tax havens?

[Sheila Fraser]

Again, that is a question of policy.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

On the issue of tax havens, do we have a limit in this country? Does the Canada Revenue Agency have a limit in terms of time and when they can investigate? The IRS does in the States; they have a three-year limit.

[Sheila Fraser]

I think it's four years from the date of an assessment of a return, but if there is a suspicion of fraud, they can go back much further than that.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

I'm referring now to an article that appeared recently from the United States:

...the Government Accountability Office found that IRS agents are so hobbled by “dilatory tactics” by offshore taxpayers and other problems that it takes almost two and a half years to complete a typical audit.

Therefore, they could never meet the deadline. Do we have any such similar problems here in Canada?

[Sheila Fraser]

What usually happens is that when the Canada Revenue Agency goes in to do an audit, they will ask the entity being audited to sign a waiver on the limit, so that they are not then bound by that four-year rule.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

My last question has to do with the Barbados tax haven situation.

A number of years ago the former government was actually able to shut down a significant number of so-called tax havens—I think there were 11, if I'm not mistaken—but left Barbados and a few others. There's a debate that goes on about whether or not we need to renegotiate the tax treaty with Barbados, or do what governments have done in the past. Is there a downside to simply shutting down, if the government were to have the will to shut down Barbados as a tax haven?

[Sheila Fraser]

We really can't respond to that. Again, it is really a question of policy. There would be much broader implications, and we haven't looked at anything like that.

[The Chair, Conservative, Brian Pallister]

Thank you very much.

Mr. Pacetti, you have the floor.

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

If I can pick up where I left off and ask your advice, should the committee recommend that Finance do an analysis or give us an analysis of that exempted surplus--the money that's being repatriated to Canada for which we're giving a dividend tax credit? It doesn't make sense that there's no number out there.

[Sheila Fraser]

The government should be able to give you the amount of revenue coming back into Canada because they should be able to get that from the database at the Canada Revenue Agency. That's where we were able to get it.

Information on the dividends flowing out may not be as easy to get. I'm not sure they would be able to get that, but certainly the first number they should be able to provide.

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

They're taxing dividends coming from private corporations and public corporations at different rates, so I don't see why we couldn't do it for companies that receive dividends through tax havens or an agreement with Barbados. I don't see what the difference would be.

I have two quick questions, and one is on double-dipping. I understand CRA had a problem where they lost a case before the tax court. I'm not sure if it was the appeal division or what it was. But my understanding is that if you're deducting the same expense twice, it's not legal. It shouldn't be allowed.

I don't think anything the government does in the next little while about trying to deny double-dipping is going to change. It's a matter of trying to enforce it or actually catch the double-dippers. So I don't see how it's going to be any different one year, five years, or ten years from now, because it's not legal to deduct interest twice. Am I correct in saying that?

[Sheila Fraser]

The issue is that it's deducted by two different entities; the Canadian company isn't deducting it twice. It's set up--as was presented earlier by the chair--through a corporate structure so you get the same deduction twice.

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

But if CRA is able to prove that the deduction is coming twice, it's not legal and shouldn't be allowed anyway. That's the difficulty in proving there's a double-dip there.

[Sheila Fraser]

I think it's a little more complex than that.

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

Absolutely.

[Sheila Fraser]

It's not that it's illegal; it's the way it's structured in order to get that deduction twice.

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

So how can legislation be drafted to avoid double-dipping?

[Sheila Fraser]

You'll have to ask Finance.