Thank you, Mr. Chairman, ladies and gentlemen members of the committee. Special greetings to the women who are with us today.
I am very pleased to be here this morning. To begin with, I'd like to thank the committee for its kind invitation to take part in this meeting of the standing committee. As you said, Mr. Chairman, my name is Louise Champoux-Paillé. I am an economist by training, I have an MBA and I am a certified corporate administrator.
For almost 30 years now, I have been working in the financial services community: banks, insurance companies and securities dealers. From 1998 to 2004, I was President of the Bureau des services financiers du Québec, a regulatory agency which monitors personal insurance, property and casual insurance, financial planning and pool investment fund representatives.
As an administrator, I sit on several boards of directors, including the MÉDAC board, where I am responsible for coordinating shareholder proposal campaigns and carrying out studies relating to financial and trust ethics, compensation for senior executives of financial institutions, the representation of women on boards of directors and governance-related trends, both in Canada and the United States and in Europe.
Let me say just a few words about MÉDAC, the Mouvement d’éducation et de défense des actionnaires. Founded in 1995 by Yves Michaud, MÉDAC is a non-profit organization. It is chaired by Claude Béland, former Chairman of the Mouvement Desjardins, and is administered by an eight-member board of directors.
In practical terms, we carry out our mission of advocating for shareholders every year by submitting shareholder proposals to Canadian corporations, mainly dealing with sound governance. Since MÉDAC was formed, we have submitted more than 60 shareholder proposals to a dozen large corporations, making us the most active shareholder advocacy organization in Quebec and Canada. More than 50% of all the proposals submitted in Canada in the last 20 years were from MÉDAC.
Early last year, in January of 2010, we published a study on the effectiveness of shareholder proposals entitled Les propositions d’actionnaires: pilier de saine gouvernance. Our conclusion was that shareholder proposals contribute to better corporate governance, as evidenced by Board Games. Nowadays, the following features are among the best practices of large Canadian and Quebec financial institutions: a separation of powers between the chair of the board and the president and COO; disclosure of professional fees and independence of external auditors; and, something recently acquired, advisory voting on executive compensation.
Tax fairness for everyone has been one of our key lines of attack since 2002, with a particular focus on bank involvement in tax havens. We have prepared proposals on this theme on three occasions, in 2002, 2005 and 2011. We believe that our proposals are not unconnected to the fact that, since 2007, the National Bank has considerably reduced its involvement in tax havens. We are hoping the same action will be taken by the other banks, given that we have presented proposals in this area.
My opening comments will be in two parts. I will begin by presenting a brief overview of the current situation with respect to both individuals and businesses, and in the second part I will make some recommendations with a view to moving towards greater fairness with the next budget.
Let me begin, then, with an overview of the current situation.
Lord Dewar said or wrote that: “The only thing that hurts more than paying income tax is not having to pay an income tax.”
As their name suggests, tax havens are used to evade taxes or minimize them. In many places around the world, individuals and businesses can do what might be called tax minimization; however, for the vast majority of people, including most with decent incomes, the idea of tax minimization makes little sense: taxes are usually deducted from their pay, and their interaction with the tax authorities ends there.
For a lucky minority and most large corporations, however, tax minimization is a very important part of their business and personal activities.
American billionaire Leona Helmsley said during her tax evasion trial in 1989 that “Only the little people pay taxes.” At the very least, it seems that the most affluent pay the least in taxes. Far from being seen in the business world as reprehensible or morally unacceptable, growing your money under the shade of Caribbean palm trees, for example, seems to be the sensible choice of unethical business people.
Hillary Clinton herself said in a speech at the Brookings Institution, a Washington think tank, that “the rich are not paying their fair share in any nation that is facing the kind of employment issues the United States is, whether it's individual or corporate."
To really give you an idea of the problem posed by this unacceptable and aggressive international tax planning, by both corporations and individuals, here are some figures and quotations.
The 1989 report by the Auditor General in Ottawa showed that tax evasion involving international transactions was expected to grow in the following years, spurred by the growing complexity of those transactions. Thus, in 2009, Canadian foreign direct investment was more than $593 billion. Of this, $78.4 billion, or 13%, was invested in Barbados, Bermuda and the Cayman Islands.
Furthermore, the current tax rules encourage tax evasion. Those rules allow tax-privileged entities in those countries that have signed a tax treaty with Canada to bring income into Canada tax-free.
The five Canadian banks with foreign subsidiaries benefit from a tax exemption in the order of $2.5 billion, which amounts to 37% of the tax paid by these banks. Given that the average Canadian family paid $31,714 in taxes in 2009, this tax exemption is equivalent to the taxes paid by 80,000 Canadian families.
According to the Conseil des Prélèvements obligatoires français—this is data for France—multinationals pay 2.3 times less tax than small- and medium-sized businesses. Only businesses with fewer than nine employees truly pay the 30% tax rate; for the very large corporations in France, the rate drops to 8%. In our opinion, that is unfair and a distortion of competition. Perhaps it would be helpful to make a similar comparison for Canada.
A report showed that, between 1998 and 2005, a quarter of the largest companies in the United States paid no tax at all. Add to that individual tax evasion worth $250 billion in lost tax revenue worldwide every year, and the total is about $1 trillion of illegal money flows every year, according to the American think tank Global Financial Integrity. This situation could perhaps be a result of the rich having more influence over government policy than the poor or the middle class, the rich enjoying the opportunity to influence governments in order to secure certain tax privileges and benefits.
Indeed, Dominique de Villepin said this:
The problem with allowing and tolerating tax havens is obviously a political one. The world of finance is often closely connected to the world of politics. That is even more true in the current context, making this a very complicated issue for governments to tackle [...]