Good morning, my name is Gilles Larin, and I am a professor at the University of Sherbrooke and Research Chair on Public Finance and Taxation. That chair was created in 2003.
I will be making my presentation in French, because my paper was written in French. According to what Mr. Pagé told me, the English translation is available and you should have it now. Since I only have 10 minutes, I will try to be brief.
My comments this morning will deal mainly with what are known as TIEAs, or Tax Information Exchange Agreements. My argument is that where administration of the Income Tax Act is concerned, the details are as important as the principles. In English, you might say: the devil is in the details. That is why I am proposing to discuss the content of the agreements recently signed by the Government of Canada on tax information exchange. We have looked particularly closely at the agreement signed on October 23, 2010 by Canada and Switzerland; however, I also consider in my paper a variety of tax information exchange agreements signed recently by Canada.
My goal is to determine to what extent these agreements are consistent with the international standard, and which is the OECD standard, which I will explain in a few moments. The international standard is in keeping with similar documents signed by some of our trading partners. The overall objective is to determine the effectiveness of such agreements. At the end of my brief, I make six or seven recommendations to the committee that I would like you to pass on to the Department of Finance and CRA, because those two departments—and particularly the Finance Department—are responsible for negotiating tax treaties and protocols.
Why exchange tax information? Because this is a critical tool for creating fairness in the Canadian tax system. This is explained in an excerpt from an OECD document that I will not read now, but which can be found in the middle of page 1. It really isn't that complicated; it's the principle of free flowing information, because the taxes that are not paid by those who should be paying them will be paid by people who should not have to pay them.
What distinguishes a tax treaty from a tax information exchange agreement? To save time, I will designate them by the acronym, TIEAs.
A tax treaty is an agreement between two signatory countries on the shared right to collect taxes. One of the results is avoidance of double taxation—in other words, that the same income is not taxed twice by both countries that have signed a bilateral tax treaty. Tax treaties are based on one of two models: the OECD model which, in practice, governs relations between developed countries, or the United Nations model, which is different and governs relations between developed countries and emerging countries, or between emerging countries. I initially used the dating back to the 1950s expression “developing countries”, but it is no longer in fashion. Now we talk about emerging countries, so I will make that substitution.
An agreement is used to formalize arrangements for information exchange between two countries that have not signed a tax treaty. A TIEA is necessary when, because of the economic relationship between the two countries, the range of provisions found in a tax treaty is not advisable or appropriate, even though information exchange is desired.
Thus, TIEAs are used to formalize information exchange arrangements between developed countries or emerging countries, and tax haven countries. I will have some amusing comments to make a little later regarding TIEAs between tax haven countries.