Thank you.
Good morning, ladies and gentlemen. Thank you for the confidence and respect you are showing me today.
Since several of you do not know me, I will try to introduce myself as briefly as possible. I am a chartered accountant; I have a masters in taxation from the University of Sherbrooke and a masters in public administration from Harvard. I have written several influential works on various topics related to tax policy, including tax havens. I am responsible for the tax column in the prestigious CA Magazine. I am the author of a best seller, Ces riches qui ne paient pas d'impôts. My next book will be in bookstores on February 17, 2011, and is entitled La crise fiscale qui vient.
On January 5, 2010, Jean-Pierre Blackburn, who was then Minister of National Revenue, stated that Canadians had in 2009 invested a total of $146 billion in tax havens. This is a considerable increase compared to the $88 billion invested in 2003. In light of the growing popularity of tax havens and the difficulty of tracking the taxpayers involved in this sort of fraud, it is important to ask ourselves whether the measures taken by Canada domestically, and jointly with other countries, are sufficiently effective to counter this tendency.
Domestically, Stephen Harper's government seems ambivalent about tax havens. On the one hand, Jim Flaherty, Minister of Finance, stated in the 2007 budget that his government was going to crack down on those who avoid paying corporate income tax by intensifying the fight against the use of offshore tax havens. On the other hand, in the 2010-2011 budget, he made things easier for Canadian taxpayers who want to get around the taxation of profits from the sale of shares of Canadian corporations.
When a resident of a country with whom Canada has not signed a tax treaty sells the shares of a Canadian company, section 116 of the Income Tax Act provides that the Canadian purchaser must retain 25% of the proceeds of the sale to non-residents and remit it to the Canadian government as tax withheld at source.
The federal 2010-2011 budget eliminates this obligation for most industrial sectors. Thus, it makes it easy for Canadian taxpayers to legally avoid Canadian income tax on the sale of Canadian shares by having them held by an intermediary residing in a tax haven.
Internationally, agreements concluded by Canada with other G20 countries, which were explained by the Canada Revenue Agency before this committee at the December 13 hearing, and by Mr. Owens previously, have in fact diminished the level of protection afforded tax fraud and tax evasion in tax havens. However, the problem will probably remain, and to go further additional measures must be considered.
In the context of my presentation, I want to submit two such additional measures, and highlight two problems that remain and must be dealt with.
Under the current information exchange system, countries that wish to receive information from another country must make a request and provide the name of a taxpayer, an address, a time frame, and the name of the bank where the taxpayer is a client. This information seems easy to obtain, but in reality it is quite difficult for tax authorities to line up Canadian taxpayers with the names and addresses that they use in tax havens. The reason for that is quite simple: an individual who is setting up a tax evasion scheme in a tax haven will not often use his own name. He will, rather, use front companies and fake offices that provide an address.
Ms. Lucie Bergevin, Director General of the Canada Revenue Agency International and Large Business Directorate, who testified before this committee on December 13, 2010, referred to the difficulty I am also drawing to your attention. She justified the lengthy process to verify information received from informers in Liechtenstein or in Switzerland by explaining, and I quote: “The information we get is also not complete. Often we don't have the social insurance number or the address, and so we need to match this with our system, and that can take a long time.”
To get around these problems, rather than banking on an exchange of information at the request of tax authorities in the countries concerned, as is the case currently, countries should consider the possibility of an automatic information exchange that could be done in various ways.
For example, once a taxpayer opens an account with a financial institution in a tax haven, the financial institution should automatically alert the authorities in the country of origin, or risk heavy monetary penalties. Or G20 countries could make sure that a file listing all properties and bank accounts of all companies, trusts or foundations, be set up in tax havens and be accessible to tax and legal authorities.
I would like to draw your attention to a second problem. Right now, the G20 proposals are focusing mainly on individuals, even though multinationals in tax havens are more of a concern. To tackle the problem of multinationals, Canada, in cooperation with the other countries, could consider two types of solutions.
First, we can reform the tax rules applicable to multinationals and establish a centralized tax system or a single worldwide tax burden. A centralized tax system for multinationals would be fairer, simpler and more effective, and would almost instantly eliminate the unfair competition of tax havens. However, realistically, for political reasons, this solution seems difficult to apply in the short term, and it would not eliminate the problem of banking and legal havens.
So, reporting, or the communication of information by country, seems to be the most effective solution. It involves asking all multinationals to present the following information, country by country: their activities in that country, the amount of their assets, the number of employees, the relationships between related persons, their before-tax profits and the amount of their taxes paid in that country.
The generally accepted accounting principles are a very powerful tool in that regard because they can be used to establish identical rules for all international businesses.
Furthermore, on June 5, 2010, in Busan, the members of the G20 finance meeting stated: "We expressed the importance we place in achieving a single set of high quality, global accounting standards and urged the International Accounting Standards Board and the Financial Accounting Standards Board to redouble their efforts to that end."
To conclude, I'll say that the information exchange system is a major effort to define and, in fact, resolve the problems. But it is important to check how this system will be implemented, in practice, and especially to provide for heavy sanctions on organizations that do not meet their commitments.
I would be happy to answer your questions.