Finance Committee on March 3rd, 2011

[Paul Szabo, Liberal, Mississauga South, ON]

Okay.

And finally, Mr. Jarislowsky, what do you say on corporate taxation?

[Stephen Jarislowsky]

I think that is totally in the realm of politics. The other day I met the Premier of Quebec at the club and I asked him “Jean, when are you going to stop buying votes?” And he said in very honest answer, “When I'm no longer in politics.”

I sincerely believe that 42% of Quebeckers don't pay any income tax for political reasons. I sincerely believe that the structure of the education amount of money that is required per student is totally politically based, etc. And I think what the people in Parliament have to do is to differentiate some of these items from politics, these political favouritisms.

I can also give you another one--the amalgamation of the islands of Montreal by the Quebec government. Thank God I'm in the Westmount room today and we escaped. I was on that committee and we were told that was going to bring lower taxes. What has it done? It has done the opposite. The costs have gone up by 30%. Again, it was an attempt to buy the votes of the unions, and that was all there was to it.

[The Chair, Conservative, James Rajotte]

Thank you.

[Stephen Jarislowsky]

I think the politicians have to be very careful not to mix politics with what is correct, fair, honest, and equitable.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Szabo.

We'll now go ensuite à Monsieur Paillé, s'il vous plaît, pour sept minutes.

[Daniel Paillé, Bloc, Hochelaga, QC]

Thank you, Mr. Chairman. I would just like to begin by stating that I am neither a direct or indirect relation of Mrs. Champoux-Paillé, even if her arguments are worthy of her second family name. I also convey my greetings to Mr. Jarislowsky, who described the situation in Quebec.

Mrs. Champoux-Paillé was saying that there is no easy way out, except the one we accept, and since you have spent pretty much your whole life in Quebec, you are probably in a place where you have been delivered from evil. The fact that there has been unionization or that the government is using its political weight is a whole other debate. Things really are not so bad on the Island of Montreal.

To begin with, I would like to try to summarize two points. All three of you have shown the difference between attempting to avoid paying too much tax and tax evasion. We may all avoid a brush with police, but escaping from prison is another matter. The common thread between your three positions is that you believe that any form of tax evasion is illegal and that those who ultimately do not pay their fair share, and try by every possible means not to pay taxes, should be prosecuted. All three of you made particular mention of the connection with individuals.

I understand there may be ways of avoiding paying tax if you're the chief financial officer of a company. Everyone knows that the CFO of a private company focuses, not on maximizing profits, but on minimizing taxes. It's not the same for the CFO of a publicly owned corporation, which has to maximize earnings per share.

You say we should avoid a situation where people are paying as little tax as possible. We are part of a globally competitive system where the ability to secure capital is very important. So, there have to be rules.

My question is about individuals and businesses. Do you think the Canada Revenue Agency has the necessary resources to combat tax evasion? Is criminal prosecution not enough?

Do you not think the Canada Revenue Agency is amateurish in its approach to people who are trying to avoid paying tax, in the sense that it wipes the slate clean and forgives people who try to do that? What do you think Mrs. Champoux-Paillé?

[Louise Champoux-Paillé]

I have followed all the testimony before this committee. I discovered that Canada Revenue Agency officials themselves stated that they do not have all the necessary resources. When I did some research to try and find information in support of that, I often had to refer to other countries in order to be able to raise these questions with you.

First of all, I do not think the Agency has access to the necessary information.

Second, thought must be given to ways of toughening up the regulations so that people who engage in tax evasion receive the appropriate punishment.

[Daniel Paillé, Bloc, Hochelaga, QC]

Mr. Jarislowsky, I have a question and I'd like to take advantage of your experience. You said you are not an expert. I find your humility touching.

When people fill out forms at Jarislowsky Fraser Limited to open up an account, they have to provide a great deal of information. As a way of combatting tax evasion, does a firm such as your own do anything more than just have people fill out the traditional forms to open an account that are requested by the regulatory authorities? Do you try to find out whether your clients are evading tax? Please enlighten me, Mr. Jarislowsky.

[Stephen Jarislowsky]

If I ask “Are you evading taxes?”, some might say “I have an account abroad.” I will say, “I will not manage that, and I suggest to you that you give it up because if you get caught, it isn't worth your while.” I cannot very well say to him that I'm going to report it to the tax authorities. We have very few of those people because we don't like those people. We don't deal with those people.

We do have accounts of Canadians--and I would like to underline this--who have given up their Canadian residency and live abroad now, having paid their capital gains taxes, and who would be here, probably, still paying Canadian taxes except for the fact that they find that the burden of taxation is high and the winters are very long.

[Daniel Paillé, Bloc, Hochelaga, QC]

Mr. Hejazi, you call tax havens “offshore financial centres”. Don't you think you should distinguish between a tax haven, where people go to benefit from double interest deductions and a very low tax rate on dividends, and an international financial centre, that people use because of capital cost competition?

[Dr. Walid Hejazi]

The reason I chose to use the term “offshore financial centres” is that I believe that in many of the public discussions we have, all of the activities that take place in offshore financial centres are painted with the same brush: tax evasion. If a large corporation operating in the global economy uses these offshore financial centres to minimize their taxes, it's not illegitimate if they're doing it within the law. The reason I use the term “offshore financial centres” is that I'm trying to educate the public and educate the people who read my research that there is a distinction between using these jurisdictions for legitimate and illegitimate purposes. If you look at the big banks, I would find it very hard to believe that any of them would violate Canada's tax laws. I just can't accept that.

Those organizations are using these structures within a legal context. I use the term “offshore financial centres” because I want people to start thinking about them for their legitimate purposes and not only for their illegitimate purposes.

I hope I answered your question.

[The Chair, Conservative, James Rajotte]

Thank you.

Merci, Monsieur Paillé.

We'll go to Ms. McLeod, please.

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

Thank you, Mr. Chair.

I'd like to thank the witnesses. Certainly we're seeing a real diversity of viewpoints today.

First of all, in response to Mr. Paillé's comments with regard to the resources needed to go after the offshore accounts, I find it somewhat ironic that when we do estimates and look at the small marginal increases for supporting increased investigations and increased manpower, we are criticized for that. Then at the next meeting, we don't have enough resources.

Perhaps when we're looking at our budget for Canada Revenue Agency, we need to also look at what our outcomes are. When we bring in significant additional money by putting in some modest resources, perhaps we shouldn't be looking at them in isolation.

In terms of what Canada has been doing since 2006, we've increased the number of workers by 44% in this area. And an additional $30 million has been allocated to going after this issue, with some success. We've had a lot of money come back to Canada. I'm not sure that people are fully aware of the actions we've taken in moving this forward.

I'd like to make a few comments. If we look at the issue of evasion, it sounds as if we have everyone agreeing on the evasion issue. We and many other jurisdictions believe that the first step should be a voluntary disclosure program. It's been somewhat successful. People pay their penalties.

I'd like a comment from each of the witnesses. It sounded as if Mr. Jarislowsky thought we should be prosecuting to the full extent of the law.

Could you each give me a thought with regard to voluntary disclosure versus going in with the big, full force of the law and all the costs associated with that?

Perhaps I can start with Mr. Jarislowsky.

[Stephen Jarislowsky]

To answer your question, I do believe the revenue service, both in Quebec and in Canada, is sufficiently fully staffed. Where I don't believe we're getting full value is that I do not believe these people are trained especially in these areas.

Every year both governments look at my tax return and ask for additional money. It's never that they've found something that gives me money back. Each time I have spent an enormous amount of time justifying that what I have declared was right. In one case, they said I had received paintings from my holding company as remuneration. It took me a year and a half in the courts to negate this and get a fully clean slate again.

I was asked by the revenue department to give them a lecture some years ago on what should be done in order to train people better in the revenue department and not just to hire accountants, people off the street, and give them a whole bunch of dossiers to get money from. In other words, if you want to pursue this area, you have to have extremely well-trained people, who are not just going in there to get money, but to get the facts that could lead to prosecution. That is absolutely essential.

I don't think there is a lack of people in the revenue department. I think there are probably too many, but not well trained.

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

Perhaps to narrow in on the specific issue, it's people who are deemed to be evading taxes in tax havens and the use of voluntary disclosure programs as sort of a first step. Maybe we could turn to Mr. Hejazi.

[Stephen Jarislowsky]

Just as a personal statement, I believe that an amnesty would be a good way to go. This is a personal view. If you're going to punish to the greatest extent of the law, then given that someone has broken the law, what's the point of the person voluntarily disclosing it if the person knows he or she is going to be found out? The person has broken the law, so the person may as well continue to try to evade, and as you increase your enforcement, the person is just going to dig in deeper or go to another jurisdiction or something.

In my personal view, I actually believe that some kind of amnesty would be a good way to start to bring people back into the fold and not make it so onerous on them, that given that they have broken the law, they can never recover.

If I may quickly add one more comment about Revenue Canada, I don't know the distribution of careers within the organization, but my guess would be that there are probably too many accountants and lawyers going after enforcement and not enough economists trying to create incentives so that, as my colleague in Montreal put it, people are not tempted to do this in the first place.

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

I don't know if I have time to keep going.

[The Chair, Conservative, James Rajotte]

You have one minute.

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

Rather than going to the third answer on that particular one, Mr. Hejazi, you had indicated you would elaborate further. I was quite surprised in terms of your statistics regarding Canada doing business abroad versus people abroad doing business in Canada. Certainly, the corporate tax structure has changed quite dramatically over time. That must be trending things in a bit of a different way, although I suspect there are always going to be those global opportunities.

[Dr. Walid Hejazi]

In Canada, corporate taxes are certainly moving in the right direction. It's really important to note that because corporations and capital are mobile in this new global economy, we must be competitive, and the government has moved in the right direction on the corporate side. I would add that with a fair playing field, with taxes sort of equal across the major economies of the world, Canadian companies will continue to have to operate in foreign markets to get access. Even if corporate taxes were equal, you would have to have a presence in foreign markets in order to do business there. That's why I compliment Canadian companies for doing so well in the global economy.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Rafferty for a seven-minute round.

[John Rafferty, NDP, Thunder Bay—Rainy River, ON]

Thank you very much, Chair. I'm happy to be here today.

Thank you all three for being with us.

I'd like to begin with a question to Mr. Hejazi. We're talking about businesses here, but it's my impression, speaking to a lot of Canadians, that when we talk about tax havens they almost exclusively think of individuals as opposed to companies. They don't think of companies in terms of tax havens as being top-of-mind for themselves, but they see the unfairness of individuals benefiting on that individual level.

So I wonder, just for clarification, Mr. Hejazi, if there's a large corporation and there's a chairman, a chairperson, or some other executives who derive income from their overseas operations but are resident in Canada, do they pay taxes on that total amount of income they are getting?

[Dr. Walid Hejazi]

That should be a question directed to someone at Revenue Canada. But my understanding is, as a Canadian resident, any income I generate, whether it's in Canada or globally, as an individual I pay tax on that income. If I do not, my understanding is I'm evading taxes. Is that the answer to your question?

[John Rafferty, NDP, Thunder Bay—Rainy River, ON]

Yes, thank you very much.

Canadians are also under the impression, I think, that it's very prevalent in Canada, the use of tax havens by the wealthiest individuals in Canada. I wonder if, Ms. Champoux-Paillé, you'd have a comment on how prevalent it is, in fact.

[Louise Champoux-Paillé]

That is in fact a perception. What is important to us is that the entire system be re-thought so that everyone is paying the appropriate amount of tax to the government.