Evidence of meeting #61 for Finance in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was companies.
A recording is available from Parliament.
9:50 a.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
Doesn't the capital gains tax tend to lock up capital and prevent people from selling a stock they've held on to for a long time and then investing in other vehicles?
9:50 a.m.
Chairman and Director, Jarislowsky Fraser Limited
It depends on the stock. If you buy Bell Telephone or the Royal Bank, you can keep it for a long, long time. If you buy a mining venture and don't get out in time, you lose most of your money again. There are cyclical stocks. There are all kinds of stocks.
The same applies with respect to pricing. If real estate gets vastly overpriced in Canada, which in many jurisdictions, especially in the west, it is, I think at that time you might want to take a capital gain, because sooner or later it goes back to the bench line.
9:50 a.m.
Conservative
9:55 a.m.
Associate Professor, University of Toronto, As an Individual
We know there's a significant prosperity gap between Canada and the U.S. There are lots of reasons for that, one of which has to do with innovation and R and D. Even though the Canadian government is one of the most generous in the developed world when it comes to subsidizing R and D, Canadians don't do as much as we would like. This is directly relevant here.
There are two points I want to make. The C.D. Howe Institute has a paper that looks at the tax effects, the implications, of doing innovation. At the Rotman School, we have the best MBA students in Canada. They come up with these great ideas and they want to do this new venture or that innovation. But because the capital gains tax is where it's at, they may be discouraged from doing this innovation within Canada. They may be encouraged to do other things, because the innovation and the profits and the capital gains that come with it are taxed at such a high rate.
Secondly—
9:55 a.m.
Associate Professor, University of Toronto, As an Individual
I'm sorry.
We've had many speakers come to the Rotman School and talk about how anyone who wants to have a new venture that would likely experience a significant capital gain should move to an offshore jurisdiction and set up a structure there. Do the activity in Canada, but have all of the revenue, capital gains, booked in the offshore jurisdiction to escape Canadian taxes. This is the temptation issue that I think is very important.
9:55 a.m.
Bloc
Robert Carrier Bloc Alfred-Pellan, QC
Thank you, Mr. Chairman.
Ladies and gentlemen, welcome to our committee. Thank you for being here this morning and sharing your expertise on tax evasion, a subject we consider to be very important.
Mrs. Champoux-Paillé, I would like to begin with you. You have provided figures that are quite impressive. You estimate that the five Canadian banks with foreign subsidiaries are benefitting from tax exemptions in the order of $2.5 billion as a result of their investments in tax havens. What role would you say the OECD plays with respect to these investments?
The official explanation provided by advocates of tax havens is that they are essential for business competitiveness and that if we disallow this practice, it will place our own companies at a disadvantage. However, the OECD did a study on countries considered to be tax havens and established a grey list of countries with which there is very little information exchanged, something that leads not only to tax avoidance, but actually to tax evasion.
What is your view with respect to the countries that are on the grey list? Do you not think a responsible government that treats taxpayers fairly should at least impose major restrictions to prevent companies from investing in the countries identified by the OECD?
9:55 a.m.
Member of the board of directors, Mouvement d’éducation et de défense des actionnaires
I have seen the OECD list that relates to information disclosure. However, there are other factors to be considered in determining which countries are tax havens, in particular a tax rate that is much lower in relative terms.
If you look carefully, you will see that other organizations have also ranked tax havens, and the OECD may be the organization that is least demanding in that regard. In my study, I give the names of other organizations that also identify tax havens, and the OECD is one of the least demanding.
9:55 a.m.
Bloc
Robert Carrier Bloc Alfred-Pellan, QC
I'd like to put the same question to Mr. Jarislowsky.
I'm sure you have some expertise in this area since you must be asked about this by many of your clients, who may be tempted to invest in tax havens.
In terms of the grey lists of countries where it is possible to hide income, do you think that our government should be coming down harder on these investors?
9:55 a.m.
Chairman and Director, Jarislowsky Fraser Limited
What I said before is that I do not believe in tax evasion. I will not deal with any client who comes to me with a proposition like that, and I do not want to know anything about any money in that category.
I feel that these people should be prosecuted and that the tax department should make sure that any Canadian resident or citizen who has not gone abroad and given up their residency requirements should be in that position.
10 a.m.
Chairman and Director, Jarislowsky Fraser Limited
We strictly discourage our clients from going to tax havens, because we have seen lives wrecked many times. We have seen people who have done this, on legal advice from supposedly good lawyers, and been caught. Actually two of them committed suicide. I do not believe that price justifies making a little more money.
10 a.m.
Bloc
10 a.m.
Associate Professor, University of Toronto, As an Individual
If you have enough money that you want to set up a structure to avoid paying income taxes, I think you have enough money. It's just not worth it.
Any initiative by the Canadian government or the OECD to crack down on that kind of activity should be done in a way to minimize the impact on the legitimate use of these offshore centres.
Thank you.
10 a.m.
Conservative
March 3rd, 2011 / 10 a.m.
Conservative
Shelly Glover Conservative Saint Boniface, MB
Thank you, Mr. Chairman, and allow me to thank our witnesses. My first question is for Mrs. Champoux-Paillé.
I read your recommendations last night and was particularly interested in the third one. I also heard our other two witnesses today say that they fully agree with your proposals to impose stiffer penalties and go after people who engage in tax evasion. Your recommendation also includes advisors. Yet we heard from a number of advisors here in the committee who told us the exact opposite—that we should really consider imposing fewer penalties, which would encourage people who evade taxes to voluntarily submit their financial statements, and so on. I was very surprised by that.
Mrs. Champoux-Paillé, what do you think of those advisors who told us here that cutting back on the penalties would mean that fewer people actually commit these kinds of crimes?
10 a.m.
Member of the board of directors, Mouvement d’éducation et de défense des actionnaires
We think it is absolutely critical that the penalties be stiffer. That is the only way to put an end to the practices of these advisors who encourage their clients not to pay the income tax they owe.
So, I would just like to repeat our recommendation in that regard.
10 a.m.
Conservative
Shelly Glover Conservative Saint Boniface, MB
Thank you very much.
The other witnesses who are with us today seem to share that opinion. One of your proposals, your recommendation no. 1, begins as follows: “Pressure the banks to close down their subsidiaries and branches in tax havens [...]”
I'll switch to English for the other two witnesses.
Given the recommendation that Madame Champoux-Paillé has made, I would like to hear from Mr. Hejazi. What do you think would happen to our Canadian companies if we banned our banks from practising in tax-haven-identified areas? If we actually changed the tax rules in Canada to ban any foreign tax practices, what would happen to Canadian companies that operate globally?
10 a.m.
Associate Professor, University of Toronto, As an Individual
Limiting the ability of Canadian companies to use these offshore jurisdictions for legitimate purposes would negatively impact the competitiveness of the Canadian economy, and the banks in particular. One thing I should note is that about 40% of Canadian investment abroad is actually in finance, and the banks are sort of leading in that area. Many of the Canadian companies operating in the global economy work with the Canadian banks. They need to be together, because the Canadian banks have worked with these companies for many years.
Limiting or preventing the ability of Canadian banks to operate in those jurisdictions would have a dramatic, negative impact on the Canadian economy. I also believe that many other companies—not the banks, obviously—would cease to be Canadian. They would decide to move their head offices to other jurisdictions that allowed them to use these international financial structures.
The point has to be stressed that simply because there are tax advantages associated with using offshore jurisdictions, it does not mean it's negative for the Canadian economy. There are many--
10:05 a.m.
Conservative
Shelly Glover Conservative Saint Boniface, MB
I appreciate that, Mr. Hejazi.
If I could, I will move on to Mr. Jarislowsky because I only have a bit of time.
Mr. Jarislowsky, could you answer the same question?
10:05 a.m.
Chairman and Director, Jarislowsky Fraser Limited
I totally agree; I don't believe you want to do that. What you want to make sure is that the Canadian banks are operating in a legitimate manner and that they do not do this to hide criminal activity.
To come back on the previous item, I do believe very strongly that many tax advisers have made a lot of money advising on things that basically were not legal. Then they got big fees from people, after it was discovered they weren't legal, to undo them. I do firmly believe that people have to be legal in that area.
10:05 a.m.
Conservative
Shelly Glover Conservative Saint Boniface, MB
Mr. Jarislowsky, you are a man after my own heart. You're a very frank man, and I very much appreciate that.
I tend to agree with you, which is why when the advisors come here and make these comments about reducing penalties and reducing the enforcement, it gets my goat—it really does.
