Good morning, ladies and gentlemen.
I will make my remarks in French, but of course I will be able to answer any questions in English that may be raised from the floor.
I would like to speak to you about tax havens, which are, in my view, a subcategory of offshore financial centres.
An offshore financial centre has been defined, both by the OECD and the International Monetary Fund, as a jurisdiction in which there are a high number of financial institutions. Most of the transactions are initiated abroad. Most of the institutions are controlled by non-residents. Assets and liabilities are totally out of proportion to the domestic economy. There is low or nil taxation, a very simplified financial legislation, and of course banking secrecy.
This last criterion corresponds to what is normally referred to as a tax haven. I would be repeating Mr. Brown's intervention earlier if I said that all CFOs are not necessarily tax havens, as he correctly indicated. Switzerland and the Cayman Islands have very much more rigorous manifestations of control over establishments in the area.
What is particularly interesting, though, is the importance that direct investment by Canadians offshore has taken over the last few years. If I look at the statistics for 2006--the last year for which they are available--which have just been published, direct investments by Canadians abroad exceed the opposite, which is direct investments by foreign residents into Canada, by about 15%. What is even more striking is that in terms of ranking of countries of destination for our foreign investment, Barbados occupies the third rank after the United States and the U.K. Bermuda is not far behind, and Hungary is ranked number eight.
It's very surprising that this growth has taken place, and certainly there's something very strange in doing business in such a way that taxation is a primary consideration. Whereas in the past taxation was on the back burner in terms of policy-making in business, taxation has become the key player in planning the business.
What can we do? Because I'm limited to a short period of time, I could present a few points, noting, for instance, as a first point, that some operations in offshore financial centres are totally legitimate. Hotel construction and complexes are probably much more easily financed because the banking laws are less constraining than are the Canadian laws.
One of the principal characteristics we need—and I add this to this information—is much better sharing of information between the Canadian government and the countries of these offshore financial centres in which our direct investment is located. There have been signatures of agreement so far by almost all offshore financial centres. The problem is applying the agreements correctly. This is what we have to work on.
We also have to review our tax treaties with other countries so as to remove the distortion that has been created over the years. The original intention of tax treaties was to avoid double taxation when a subsidiary in a foreign country paid tax in that country and then repatriated the profits to Canada. They wouldn't want to pay tax twice on the same amount of money. But the rules have been reversed over the years, and it has become very often a situation of double no-taxation, which may sound strange, but it is taking place anyway.
Finally, more specifically, we need to make sure the public understands that there is a strong distinction between evasion and avoidance.