Finance Committee on May 17th, 2007

[Mike Wallace, Conservative, Burlington, ON]

Then in your 2002.... Sorry, were you the auditor in 2002?

[Sheila Fraser]

In 2002, yes.

[Mike Wallace, Conservative, Burlington, ON]

In your report in 2002 you reviewed what had happened from the 1997 report. Is that correct?

[Sheila Fraser]

That's right. I think in the 2002 report we would have mentioned the Mintz report and that there had been very little follow-up on it. Since then, again, it's the same situation.

[Mike Wallace, Conservative, Burlington, ON]

The finance minister has announced an advisory panel to look at some of these issues. From your perspective, what would you expect that panel to do?

[Sheila Fraser]

We would certainly hope they would use the Mintz report as a starting point. I think there was general agreement at the time that it was a very good and very serious review, with a number of recommendations, so that certainly is a starting point, and that they conduct some of the same sort of analysis that was done then to see if there are new threats to the tax base in Canada, if the situation has changed or not, and then come forward with the same kinds of recommendations.

Then, of course, it's the actions taken after that, and if legislative change is required, that it proceed.

[The Chair, Conservative, Brian Pallister]

Thank you.

We continue now with Mr. Brison. Welcome to the committee, Scott. Five minutes to you.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you very much, Mr. Chairman.

Thank you very much for being here today, Ms. Fraser.

I have questions, first of all, on the distinction--and I think there's a lot of confusion--between tax haven and double-dipping. According to Ernst & Young, many people, including the Minister of Finance, are confusing the whole issue of tax havens versus double-dipping. Double-dipping is typically not related to.... Usually, with double-dipping it's a higher tax regime and with tax havens it's a lower tax regime.

Would you agree that the measures taken to address double-dipping, for instance, are very different from those to address tax havens?

[Sheila Fraser]

Yes, I would agree they are different issues. Double-dipping is essentially getting a deduction against taxable income for an expense, getting that twice in two different jurisdictions, whereas the tax haven is a jurisdiction that has a much lower tax rate than Canada, say, so there is an incentive to move income into that jurisdiction in order that it be taxed at a lower tax rate.

[Scott Brison, Liberal, Kings—Hants, NS]

With double-dipping, you mentioned the two tax jurisdictions. Eliminating the capacity for Canadian companies to use double-dipping will not increase Canadian tax revenues. Is that correct?

[Sheila Fraser]

My understanding is that the interest—

[Scott Brison, Liberal, Kings—Hants, NS]

On double-dipping.

[Sheila Fraser]

My understanding is that the interest deduction would not be allowed in Canada, which would in fact increase Canadian tax revenues.

[Scott Brison, Liberal, Kings—Hants, NS]

On double-dipping, they choose one or the other. In all likelihood, they would choose—

[Sheila Fraser]

Where the highest—

[Scott Brison, Liberal, Kings—Hants, NS]

Yes.

[Sheila Fraser]

I'm sorry. My understanding of the announcement from the minister was that the deduction would not be allowed in Canada if it was taken somewhere else.

[Scott Brison, Liberal, Kings—Hants, NS]

If it was taken somewhere else. But it could lead to the elimination of double-dipping. I just want to go back to this. Have you done any analysis of the impact on Canada's treasury, on our fisc, of the elimination of double-dipping?

[Sheila Fraser]

No.

[Scott Brison, Liberal, Kings—Hants, NS]

Would you, as Auditor General, recommend that a government, before it actually implemented such a measure, ought to conduct that type of analysis?

[Sheila Fraser]

I would have expected the Department of Finance to have done that analysis, yes.

[Scott Brison, Liberal, Kings—Hants, NS]

To have done that before making that change.

[Sheila Fraser]

Yes.

[Scott Brison, Liberal, Kings—Hants, NS]

Ernst & Young, KPMG, and Deloitte & Touche are saying this will actually increase tax revenues in other countries but not in Canada. It will not have an impact on increasing our tax revenues.

[Sheila Fraser]

I guess their presumption is that the corporations, then, wouldn't take the deduction in the other country.