Yes.
Evidence of meeting #56 for Finance in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was oecd.
A recording is available from Parliament.
Evidence of meeting #56 for Finance in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was oecd.
A recording is available from Parliament.
9:40 a.m.
As an Individual
Because that goes right to the fundamentals of what each government sees as best for its people and keeping its country in balance. For example, you take a country like Denmark--very high personal tax rates, but not high corporate tax rates, so it does get a considerable amount of foreign investment.
The other side of that coin is the Danish minister came to me and said their tax rates were the same as the United States. I had the sheet in front of me that showed they were only second to Sweden. I asked how he established that. He said if you live in the United States and you're a middle-income earner who wants to send your kids to university, you have to pay for it; you want to have health care, you pay for it. He said you add up all of that and in Denmark we pay for it, so at the end of the day the amount of disposable income left over for other purposes is the same; and he had a chart to show this. I thought that was very interesting, but I pointed out to him that the American did have a choice.
That's why I say you can't have uniform tax rates. Every country will have its own particular approach.
9:40 a.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Just in terms of your experience and with technology, I asked the panel this week, are the ever-changing technologies helping government or are they helping the rule-breaker?
9:45 a.m.
As an Individual
I don't know. I certainly think it's making government more efficient. Here in Canada you can file your tax returns online. I think it's made a huge difference in terms of cost.
9:45 a.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
I have another quick question in terms of voluntary disclosure. You mentioned that it would be quicker if we allowed tax evaders to declare their income, but was there ever any analysis made in the past to determine if it's a worthwhile exercise? There are some countries in Europe that have charged a flat rate, whether that be 10%, 15%, 20%, or 25%, and they have gotten good results, but it's been, as you said, a temporary spike in revenues for the government.
9:45 a.m.
As an Individual
I don't have the answer to that question either. I think we could all hope that this period we're going through is a transitional period to a point where the amount of funds in these tax havens will be virtually eliminated.
The Italians did it, I think, first. Italians were invited to repatriate capital, with a very favourable tax rate, from Switzerland, which they did, and it worked. Now, how many didn't and still have it there? Who knows? That's the point. I don't think we really know, but if you take a picture in time, we're a lot better off today than we were 20 years ago.
9:45 a.m.
Conservative
9:45 a.m.
Conservative
Shelly Glover Conservative Saint Boniface, MB
Thank you, Mr. Chair.
I do want to welcome you and state that it is an honour to meet you. We truly appreciate everything you've done in your various roles.
Today, in particular, you've made some comments that have really made us think about what we're doing in investigating the tax haven issue. One of the comments you made was about whistleblowers. I'd like to share with you a few of the things that CRA has done to work on this issue and then get your comment about whistleblowers and about the voluntary disclosure program.
If you would allow me, one of the things that Canada has done extensive work on is these tax treaties that have been mentioned before, and of course it was our Minister of Finance who announced in 2007, during the budget, that these treaties would now have revisions that must include the new OECD standard for exchange of information, which is important and reiterates some of the comments you have made.
Another thing the CRA has done is that they now have centres of expertise across Canada with senior audit professionals and specialists in international tax and tax avoidance. Last year, as Ms. McLeod mentioned, the CRA was able to uncover over $1 billion in unpaid federal tax from Canadian taxpayers involved in aggressive international transactions.
The last thing, which you also touched upon, was that the voluntary disclosure program leads to disclosures. The CRA received almost 3,000 international voluntary disclosures last year, and it steadily increased over the past five years.
Going back to the whistleblowing and the voluntary disclosure program, can you tell me what your opinion is of the voluntary disclosure program? Can you just clarify how that works?
9:45 a.m.
As an Individual
I can only give you my opinion. The OECD would know. I don't know that every country is dealing with it in exactly the same manner, but I'm told there's an effort at that committee, at the OECD, the committee on fiscal affairs, to establish approaches they all agree upon.
I think the whistleblower is important for psychological reasons, even though the governments in question.... The Swiss authorities are trying to prosecute because he broke bank secrecy rules in Switzerland. I think many people who might have funds in these offshore jurisdictions, who have always thought they were safe and that bank secrecy would protect them, woke up one morning to find that they might be subject to exposure through a whistleblower. This is in Switzerland, in this case, which is a place of high repute, very high banking standards and so on. This is only my opinion, but I think the fallout from that has probably been very positive in pushing people to make voluntary disclosures, because they say, “If I don't make a voluntary disclosure, maybe a whistleblower will nail me. Maybe I'm on that list. Maybe the authorities already know about me.” That is the kind of thing that I think has been important.
I don't know how all the countries are dealing with it. On the last one I read, the one about HSBC, there were something like 7,000 French names on that list, and I don't know how the French authorities are dealing with it, but I do know, from the reports, that very few of those names have actually disclosed their holdings or this income to the French authorities.
Some people are anti-whistleblowing. Some are in favour of it. If you ask my opinion, I think it's had that effect in this instance.
9:50 a.m.
Conservative
Shelly Glover Conservative Saint Boniface, MB
Very good. Thank you.
I appreciate that. I read the article on the same incident and found it very interesting how it progressed and how the whistleblower was dealt with at the end. I appreciate your comments on that.
You've indicated that over the last five years there's been remarkable progress. Can you tell me what you feel is Canada's most significant action during those five years?
9:50 a.m.
As an Individual
Well, I don't look at Canada as being the problem. I think Canada has been part of the solution by being active on the dossier internationally.
This supports Mr. Brison's point that Minister Flaherty has said these rules are now going to be incorporated in all these agreements. Maybe that flows out of his discussions at the G-20, which is a good thing.
That would be positive, but I think Canada has continued to play a very significant role at the OECD and in other fora. That's basically the best thing Canada can do.
Canada is not the problem.
in this area.
9:50 a.m.
Conservative
The Chair Conservative James Rajotte
Thank you.
Thank you, Ms. Glover.
We'll go to Mr. Szabo again, please.
9:50 a.m.
Liberal
Paul Szabo Liberal Mississauga South, ON
Thank you.
I'm reading here about the UBS situation and Igor Olenicoff. In 2006 tax investigators found that he had 11,000 houses and a large collection of high-grade offices, but they gave him less than 30 seconds to make his mind up about whether or not he'd become a whistleblower and let the cards come down.
It strikes me as a case where it's in front of your face, and a lot of people are involved, and a lot of people know, yet it took literally years to make even the progress they have made.
I wonder why it is that within our culture, where it's in the best public interest to reasonably address the tax evasion issue, we cannot see what's in front of our face. I'm wondering whether or not the jurisdictions.... For instance the Canada Revenue Agency has estimates on the underground economy and other things, but we very rarely see any progress in terms of breaking down some of these. We cannot be isolated and immune from participating in this stuff.
The example of UBS is an extraordinary one, but there are a lot of people who are culpable and complicit in what's going on, and that includes people within banks, within law firms, within accounting firms, within consulting firms. Yet there seems to be acquiescence on the part of government and on the part of OECD not to be aggressive. It seems this is why we haven't dealt with the problem.
What's wrong with my hypothesis?
9:50 a.m.
As an Individual
I don't know what's wrong with your hypothesis.
Basically, what you're saying, I think, is that there are a lot of tax fraudsters out there, and there's a lot of assistance from professionals and banks and so on. That takes us back to the issue of evasion and avoidance to some degree. In my experience as a practitioner, I did not see a lot of evasion. In fact, I think lawyers, accountants, and others in large, respectable firms will be the first to tell their clients that they'd better make a voluntary disclosure, for example. I've seen a lot of that, recently, that the client has confessed to having these assets offshore.
I don't know if they bear discussion here, but I think we have to recognize that there are many countries in the world—especially eastern Europe, Russia, and so on—that, when the Iron Curtain dropped, had no tradition of paying taxes on a voluntary basis. I've spoken to the Russian tax authorities. Here, we grow up with a culture that if you have income, the onus is on you to declare it. The onus is not on the government to discover it. If they discover you haven't declared it, then you have a problem. But basically, our system operates on the basis that we around this table declare what our income is. There was no tradition of that in the old Soviet Union or in the eastern European countries under communist rule. Those people had a totally different attitude towards it. Then all of a sudden it was “what is this business of taxation?”
In fact the Russian authorities told me they didn't even know who the taxpayers could be. It's an extraordinary situation. We have to rebuild from that base.
Of course that lends itself to probably an enormous amount of tax evasion in those countries. Much of that money might have found its way into jurisdictions like Switzerland, Cypress, and elsewhere.
Canada's in a bit of a different situation. Sure, there are bound to be levels of tax evasion and an underground economy. We all do estimates on that. But by and large, I think our system functions pretty well.
9:55 a.m.
Liberal
Paul Szabo Liberal Mississauga South, ON
So Canada's good old boys.... But the fact remains that with the challenges we face and the demands for resources for health care, pensions, and helping those in most need we continue to fall short, but we're not prepared to go after what we know intuitively must be an extraordinary amount of money. I'm concerned that what you've basically said now is that we're self-assessing as individuals--it's the honour system, as it were--and Canada Revenue Agency is just there to check off what we're prepared to declare but not prepared to invest in investigation. Why is that?
9:55 a.m.
As an Individual
They do. They put you subject to audit occasionally; you'll find companies that are subject to audit. But I think those questions are best addressed to the CRA. I'm sure they would be likely to disagree with you. They probably would say no, they follow pretty closely these issues. I don't know what they're doing.... I presume the committee would like to hear from them about the Canadians on the list, for example, that came out of HSBC. What actions have they taken? Initially I read that they weren't doing anything, but I don't think that's the case. I can't imagine that being the case in any of the countries. Those would be good questions to put to them.
February 3rd, 2011 / 9:55 a.m.
Conservative
Kelly Block Conservative Saskatoon—Rosetown—Biggar, SK
Thank you very much, Mr. Chair.
I would like to welcome you, Mr. Johnston, to our committee this morning.
I have really appreciated the testimony you've given, and I do want to thank Mr. Paillé for recommending this study to our committee. I think it's been a very interesting study for us to pursue as it is a very important issue and one that I believe our government takes quite seriously, as demonstrated by the leadership of Minister Flaherty and the leadership he has shown in getting G-20 members to crack down on tax havens.
My colleagues mentioned that Canada has an extensive network of tax treaties, one of the largest in the world, with 87 treaties in force. It was also mentioned that currently there are 11 signed TIEA agreements, with 14 under negotiation. I just want to follow up on a couple of comments made by my colleagues across the way. These are the comments by Mr. Szabo, when he talked about if you have a tax treaty does it follow that you would have a TIEA in place, and then the comments Ms. Hughes made in regard to free trade agreements and whether we should be signing free trade agreements.
I'm wondering if you would comment on the relationship, if any, there is between a free trade agreement, a tax treaty, and what might fall into a TIEA.
10 a.m.
As an Individual
That's a fairly searching question. I can imagine some relationships between trade and tax treaties because of the double taxation mechanisms that exist and also the very important issue that we didn't talk about, transfer pricing. Transfer pricing is another critical contribution of the OECD to basically the revenues of various countries, because if you're a manufacturer.... As you know, for any major manufacturer today the finished product is probably sourced with materials from any number of countries. So the corporation in business obviously has a motive to maximize the profit in that transaction realized in the country of lowest tax. That's why the transfer pricing mechanisms are so critical today, and because most international trade is intra-corporation, as well. So when you put those two things together, you do see a relationship between, for example, the treatment under taxation treaties, double taxation conventions, the use of transfer pricing mechanisms and trade.
I think that Ms. Hughes' question was a bit different. It was should we have a trade agreement with a country with whom we have fundamental disagreements on human rights or the drug trade or whatever else? That's a question that has bedeviled us for years in Canada, whether it's China or Cuba or whatever. One of the questions I always asked myself when I was in politics is will it make a difference if we don't? In other words, are we better to have it, or if we just say we're not going to deal with you, is that going to change their domestic politics? That is something you have to reflect upon. I know there have been two points of view expressed on that within our various parties in Canada. I think it's a cross-party issue. I don't think you could say that this is something that any party has a firm view on. But it's a very interesting and tough question to answer.
On the other, I agree. I think there is a relationship that one can draw to the extent that if you have a trading agreement it means you've got trade both ways, hopefully, and therefore you have to ensure that each country receives its fair share of the tax dollars that should be generated by the profits from that trade.
10 a.m.
Conservative
10 a.m.
Conservative
Kelly Block Conservative Saskatoon—Rosetown—Biggar, SK
At the beginning you talked about bank secrecy. You stated that what we need is transparency. I'm wondering if you could comment quickly on, in your opinion, how effective the tax information exchange agreements are in increasing tax transparency and decreasing bank secrecy in tax havens and offshore financial centres.
10 a.m.
As an Individual
For that, you're going to have to wait for the review process. There's a review process under way. We all know that you can sign any number of agreements. The real issue is compliance. Are the countries living up to obligations they undertake?
This is going to be done through audits, and those audits will probably draw upon contributions from NGOs and others that are watching what's going on in these various countries. So I think it's difficult to say. The groundwork is there, but you all know that an agreement of any kind, legislation of any kind, is really meaningless until you see how well it's being applied.