Finance Committee on March 3rd, 2011

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Glover.

We'll go now to Mr. Pacetti, please.

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

Thank you, Mr. Chair.

Thank you to the witnesses for coming forward today.

I think we're getting to some of the answers, but the problem is we're mixing a whole bunch of things together. I think there are two aspects. There are mainly individuals who are using offshore accounts to evade taxes and then we have companies that are not necessarily using them for evading taxes. I want to make sure I understand that correctly.

When companies are saying they use it for legitimate purposes—and this question is directly to you, Mr. Hejazi—is there a legitimate need to have offshore accounts? We can use the banks as an example. If the Canadian banks are operating in the U.S. or in China, does the money have to necessarily be funnelled through Barbados?

[Dr. Walid Hejazi]

Yes. The reason this is important is that when you have a Canadian company operating in a country like China, you have banks and other companies from other OECD-developed countries also operating in China. These other companies have access to financial structures that are similar to Barbados, as you say, and other offshore jurisdictions.

What happens is the company that uses these offshore jurisdictions has a lower tax rate, a lower cost of capital, and that Canadian company is therefore able to compete in a jurisdiction like China. If a Canadian company were not allowed that structure, it would be disadvantaged relative to a British, French, or German bank or company that had access to the same structure.

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

Then in your opinion that would be a legitimate reason.

At what point would it become an illegitimate reason, or when would it become evading taxes?

[Dr. Walid Hejazi]

The hypothetical is that income earned in Canada is somehow transferred to an affiliate in an offshore jurisdiction, or intellectual property, or R and D, or patents, and that kind of thing. It would become evading taxes when people use these creative structures to move these assets or this income out of the Canadian environment into an offshore jurisdiction to avoid taxes that are legal within the Canadian context. That's an example, and it's hypothetical.

I don't know of any specific examples where that's happened, but that's an example of where these offshore jurisdictions are used to shelter income or assets that should be taxable in Canada.

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

Thank you.

Mrs. Champoux-Paillé, do you have a comment on that? Do you think Canadian multinational corporations should have some means of transferring their revenues to tax havens—in other words, to countries where they pay lower taxes, in order to be more competitive?

[Louise Champoux-Paillé]

As far as we are concerned, such strategies should be abolished.

I would like to come back to the question asked earlier. The National Bank has considerably reduced its involvement in tax havens, and yet, as I'm sure you will agree, it continues to make money. It's simply a matter of sound governance.

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

All right. I do not necessarily want to defend the National Bank, but it can hardly be said that it is a multinational with a strong presence around the world.

[Louise Champoux-Paillé]

Yes.

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

Compared to the success of the five or six other banks.

[Louise Champoux-Paillé]

The National Bank is of the same caliber as the others.

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

No, but in terms of competitiveness, the National Bank does not have as extensive a presence as the other banks. That's one of the reasons. I am not passing judgment here. Do you see that as a competitive advantage?

[Louise Champoux-Paillé]

It's not an acceptable advantage.

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

Mr. Jarislowsky, in my opinion, if we divide the fact that individuals use tax havens to evade taxes and corporations will go with the assumption that it's a necessity, you're still opposed to the idea of providing amnesty--not amnesty, because I don't like to use that word, but giving individuals an opportunity to repatriate all their income at a certain amount, whether it be 20%, 30%, 40%, or even 50%. You would still be opposed to that?

[The Chair, Conservative, James Rajotte]

Just a brief response, sir.

[Stephen Jarislowsky]

There have been many cases where you have had amnesty after amnesty. I believe that in the case of any individual, if you're going to give amnesty at a lower rate, something should still be payable. They shouldn't get away with it 100%.

Secondly, I believe if that amnesty is misused a second time, then you throw the book at them.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Hiebert, please.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Thank you.

Thank you all for being here.

It's a very interesting discussion.

If I were to summarize what I've been hearing from Dr. Hejazi and Mr. Jarislowsky, it's that there are legitimate ways for corporations to use these offshore centres to minimize tax and to be more competitive and therefore to be persuaded to stay in Canada. But there are no, or perhaps limited, ways for individuals to use these offshore centres to minimize tax, and that should be prevented through enforcement or transparency negotiated with these relevant jurisdictions, at the same time acknowledging that most individuals will not leave the country for the purpose of avoiding tax, as a corporation might.

Would that fairly summarize what you've had to say?

[Stephen Jarislowsky]

If it's addressed to me, I would say yes and no. But for very wealthy individuals, the answer would probably be no because to the extent they want to get this benefit, they would leave and pay off their capital gains at this time or give their money to a charitable foundation or whatever. So I don't fully subscribe to what you're saying.

It is too easy in Canada to become a non-resident and to move your money out.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Dr. Hejazi.

[Dr. Walid Hejazi]

Yes, many people decide to declare themselves non-resident and then the income they earn in a global economy becomes non-taxable. As a Canadian, if someone decides to do that and then moves to an offshore jurisdiction, they're not breaking any law and it's legitimate. But there's an additional complication whereby many wealthy individuals in Canada can set up a corporation, so then there's a blurring between corporation/individuals, and then there are individuals who set up, for example, a private bank in an offshore jurisdiction and use that to manage assets they have in those jurisdictions. So as a first cut, I agree with that dichotomy you have, but there is some blurring of it.

Thank you.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

The sense I'm getting is that we want Canada to be a safe place for Canadian corporations to invest because we want them to stay here and we don't want them to leave in this internationally competitive environment, but we're less concerned about individuals. If so-and-so decides to set up an offshore trust or a private bank or simply move to a warmer jurisdiction with nicer winters, that's the price we're prepared to pay. But we don't want that to happen to corporations. Would that be a fair assessment?

[Dr. Walid Hejazi]

I would say yes. With all of the loss in jobs and the movement of production facilities out of Canada, the last thing we want to do is make it more expensive for companies to locate within the Canadian environment. So I agree with you, yes.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

How much lower would our taxes need to get?

[Stephen Jarislowsky]

In this country in the last 30 years we have lost half our manufacturing already, mainly as the result of the rise of the Canadian dollar. And it is very difficult today to attract manufacturing investment when you don't know where currency is going to be. So I would say we should do everything we can to keep what we have left in this country.