Finance Committee on Feb. 1st, 2011

[The Chair, Conservative, James Rajotte]

You have 30 seconds.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

You talked about moving from bilateral to multilateral. Have we made good progress there?

[Jeffrey Owens]

Yes, we have. When you move from the bilateral to the multilateral, it's always more difficult, but at the end of the day, if we want to confront global taxpayers, whether individuals or large multinational corporations, the ideal way of doing it is by multilateral conventions, so we're supplementing these bilateral agreements with multilateral conventions. These multilateral conventions initially are between the OECD countries, but we want to take these out; we want to have other G-20 countries that are not OECD countries come in and we want developing countries to join us as well.

It's not going to be easy; it does take time, and there are issues of confidentiality. Canada, for instance, will not give information to a country unless they know that the country can protect the confidentiality of the information. However, I'm confident that the future very much lies in extending this multilateral agreement to as many countries as possible.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Pacetti, please.

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

Thank you, Mr. Chair.

Thank you to the witnesses for coming forward. These are interesting topics. I have a couple of questions, but I'm not sure if I'm going to get past the first one.

It's not necessarily confusion, but I'm still trying to get my head around the legitimacy or the real reason to transact with offshore banks, especially if you are Canadian. What I'm seeing here is that there is a criminal element and then there is a legitimate element, one in which there is a business case for it.

I'm not sure I understand the business case. Where do we draw the line? When is it okay to transact with an offshore bank or a tax haven country? The question is to the three panellists.

I believe you brought it up, Ms. Alepin, or you sort of answered it by saying that it is a global problem and that companies abroad must have room to negotiate or come to an agreement. If we head towards a global agreement, will there still be room for tax havens?

[Brigitte Alepin]

In my opinion, if industrialized countries or all countries multilaterally agree on the approach to deal with tax havens, the problem of unfair competition triggered by tax havens could be eliminated almost instantaneously. The problem is that we are at a crossroads right now.

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

We are where?

[Brigitte Alepin]

We are at a crossroads. Each country has lost its autonomy in taxation when it comes to taxing multinationals. But in fact, countries are not ready to let go of their financial autonomy, which could be the result of any global discussion on taxing tax havens. So we are at a kind of impasse; we know something has to be done at international level, but we are not yet quite ready to do it. What the OECD is doing is very good. Information is being exchanged and that is a good start. It can be improved, in my opinion, and, for the reasons I mentioned earlier, the system must be improved. Basically, having countries agree to tackle this global problem is a first step.

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

Thank you.

Mr. Owens, do you have any comments?

[Jeffrey Owens]

Perhaps I could come in there, because I talked a lot about the exchange of information work that we do. In fact we do much more work on improving compliance more generally. We look at how countries can do joint audits, how they can put in good risk management systems, how they can deal with the problem--

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

Sorry, Mr. Owens, but I understand the compliance aspects and all that. I'm asking you if there is really a place for tax havens.

[Jeffrey Owens]

My answer would be yes.

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

Do legitimate multinationals need to do business with tax havens?

[Jeffrey Owens]

The simple answer is that there is not a place for tax havens as tax havens; there is a place for them in offering neutral environments in which multinationals can operate.

In other words, if a multinational is using a tax haven to evade or avoid taxes that are legally due, that's unacceptable.

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

But why else would they use a tax haven?

[Jeffrey Owens]

Sometimes what you're talking about is having a regulatory and financial environment that facilitates transactions that you could not do onshore. Take captive insurance companies as an example. Why do captive insurance companies go offshore from the United States? It's because they couldn't do their business onshore.

So there are some legitimate reasons for multinationals to use them. There are also legitimate reasons that individuals may use them. If you're living in a Latin American country where you fear being kidnapped or where it's politically very unstable, you may want to have your money offshore.

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

Thank you.

[The Chair, Conservative, James Rajotte]

You have 30 seconds.

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

Okay.

I have one quick question for you, Mr. Owens. The investment in tax collection provides, you said, a quick return. Does it provide a long-term return, or is it a one-time effect? Do you increase your collectors and get a whole bunch of money, and then it sort of stagnates, or...? Do you have any statistics for that?

[Jeffrey Owens]

We don't have any statistics, but I think once you bring money that's been outside of the tax system into the tax net, it's very hard for that money to escape again. You would know how much a Canadian resident would own in terms of capital in a place like Switzerland, so it would be very hard for him to come around in year two and say, “Sorry, I don't have that.” I think you'll find there's both a short-term gain and a long-term gain.

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

The question would be whether it would be easier just to charge something like a 10% or 15% penalty to have people bring back their money. I know that some of the countries in Europe have done that rather than hire a whole collection team.

[Jeffrey Owens]

I don't think it's an either-or situation. I think you need to back up with better compliance and better audit, and with disclosure regimes that encourage people to come forward.

I personally don't like amnesties. Voluntary disclosure regimes are not amnesties because you pay your tax and you pay your interest. You may have some flexibility, but you have to make sure these are targeted and that they are in fact time-limited in order to encourage people to come forward quickly in terms of declaring their offshore wealth.

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

Thank you.

Thank you, Mr. Chairman.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll now go to Ms. Block, please.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you very much, Mr. Chair.

Thank you to our witnesses for being here today and to Mr. Owens for joining us.

I appreciated all of your opening remarks. What's obvious to me is that this is a very complex issue.

Mr. Owens, you mentioned in your opening remarks that there are a number of drivers in addressing this issue. Then you highlighted that the main one would be a non-tolerance of non-compliance. You also stated that it's one thing to have agreements in place, but what we want to see is action on the ground.

Could you expand on what you mean by “action on the ground” or summarize what you think some of that action should be?