Finance Committee on April 14th, 2008

[John McCallum, Liberal, Markham—Unionville, ON]

Maybe I'll move on, because I'm running out of time. I have one last question about corporate tax cuts.

[The Chair, Conservative, Rob Merrifield]

It will have to be brief.

[John McCallum, Liberal, Markham—Unionville, ON]

Well, a quick answer.

[Michael Conway]

Our brief indicated we did not advocate a drop in the GST. That is clear.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you.

On corporate income tax, I might point out to Mr. Conway that we advocated lower corporate tax before the government did it, so that's one of the areas in which we do agree. But I might also point out to Professor Brooks that we've also committed to a very aggressive so-called 30-50 plan that will reduce poverty by 30% over five years and child poverty by 50% over five years.

I'll start with Mr. Heady. I've never been a supply sider or a Laffer curve type who thinks tax cuts pay for themselves, but on the corporate tax side, they might to some extent when you take account of location, not only of activity but of reported income. So my question to you is this: does the OECD have an answer on the question as to what extent corporate tax cuts will generate additional revenue so as to be partially self-financing?

[Christopher Heady]

We think that lower corporate taxes do increase investment and so would increase profits, and we also think that countries with lower corporate tax rates would be more attractive places for multinational groups to locate their profits. But we don't have any evidence to suggest that those changes would completely finance the tax cut. We would expect that a cut in the corporate tax rate would normally involve a reduction in revenue.

What has happened in a lot of OECD countries is that they have accompanied cuts in the rate by broadening the base, removing various sorts of special exceptions and perhaps reducing the generosity of depreciation allowances, and that's how they've managed to maintain revenues while cutting corporate rates.

[John McCallum, Liberal, Markham—Unionville, ON]

Is there time for others to answer?

[The Chair, Conservative, Rob Merrifield]

Actually, there is not. The time is gone.

Monsieur Crête, you have seven minutes.

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

Thank you, Mr. Chair.

My first question is for Mr. Heady.

I would like your opinion on something that does not appear in your charts: tax havens. We know that many countries have revenue collection issues. Some aspects of this are murky. For example, nobody knows how much tax revenue is being lost because of tax havens. These days, we are all wondering who the winners and losers really are.

Can you provide data, statistics or references for us to use?

[Christopher Heady]

I don't have any data. One of the problems with tax havens is that they're typically rather secretive and it's very difficult to get the data. There have been a number of estimates, but they vary widely as to the amount of tax that is avoided by the use of tax havens. But even that doesn't tell us who benefits and who loses from that. So while we do believe there are serious problems, I'm afraid I can't provide an answer to your question.

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

All the same, states are desperately seeking tax sources. Mr. Heady, you said that you do not have any data on the subject. I believe an international group of seven countries is conducting analyses on these issues. I thought the OECD was participating in the discussion.

Right now in Canada, there is no way of knowing what portion of interest income—from businesses or individuals—comes from tax havens, because our tax returns do not distinguish between these two notions.

Messrs. Heady, Conway or Brooks, don't you find it a little risky to release a study on taxation without knowing the import of this phenomenon?

[Michael Conway]

We are calling for a reduction in corporate taxes. As Mr. Heady pointed out, we believe it stimulates direct foreign investment into the country, and it's good to stimulate the economy. We used the Ireland example, where they significantly reduced taxes and had very strong growth in the economy.

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

Do you realize that the government can keep cutting taxes until other countries do the same thing?

However, if the government wants society to accept the taxation rate, then don't people need to feel that it's fair, that nobody is evading or avoiding taxation, two ideas that do not mean the same thing? Don't you think it's important for us to have the legal means to get this information ?

It can be very hard to make recommendations if the impact of those recommendations is not assessed. We're talking about billions and billions of dollars here.

[Barry Gorman, Chair, Tax Committee, Financial Executives International Canada]

I'd like to pick up on two points you made in that last presentation. You started off talking about tax havens. A tax haven, by definition, is a jurisdiction where taxes are lower than somewhere else. At the latter part of your presentation you equated tax haven with tax evasion. That is categorically incorrect.

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

I said there were two ways—tax avoidance and tax evasion—which are two different phenomena. I did not say that tax havens were one or the other.

In terms of existing legal and official measures, isn't Canada missing out on very significant amounts of income, such as in Barbados, if it doesn't know the economic repercussions of that situation?

[Michael Conway]

From a corporate perspective, we want to stimulate investment in the country. The market is international, and it is competitive.

You are right in saying that many countries are cutting their rates, but if we do not cut ours in response, we will not be competitive, and there will be no investment in Canada.

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

I understand that the U.S. model is quite different. Regardless of where on earth the interest income comes from, it is taxed the same way. I do not really know the details of this issue, and I was wondering if you have any additional information for us about this.

[Barry Gorman]

I don't have any additional information. However, if we're talking about tax havens generally--and by the way, a number of jurisdictions in Canada are classified as tax havens for international investors--the issue is not whether it's tax evasion, tax avoidance, or whatever. The issue is whether the corporation or individual is complying with the law of the land, as it's written today.

If the law of the land today says I can invest in some country, I would be prudent to do that. Therefore, to go back to your original question, if you're concerned about tax havens, by all means try to do a study on the impact of tax havens, but be careful of the terms you use for tax havens.

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

The book on tax havens says that there are currently three reasons for multilateral action. It is important for countries to work together. A committee of seven countries is studying this issue.

I would just like you to tell me if you know the extent of this phenomenon. Do you know if Canada is currently losing a lot of income? Even the Canada Revenue Agency cannot provide those numbers.

[Barry Gorman]

Of course, the magnitude of the issue is something we can't discover.

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

Mr. Speaker, a point of order. I would like to know which book Mr. Crête is referring to.

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

It is a book about tax havens by Christian Chavagneux and Ronen Palan. It explores the subject in detail and is part of a very well-known collection.

[An hon. member]

When was it published?

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

The book was published in 2006 by Éditions La Découverte in Paris.

[The Chair, Conservative, Rob Merrifield]

Thank you very much. Our time has gone, but we'll have a very quick answer.