Finance Committee on Feb. 5th, 2013

[Peggy Nash, NDP, Parkdale—High Park, ON]

Would Mr. Hoback like to clarify what he's talking about?

[Randy Hoback, Conservative, Prince Albert, SK]

Sure, I'd be glad to do that.

[Peggy Nash, NDP, Parkdale—High Park, ON]

As I recall, and I will remind this committee—

[The Chair, Conservative, James Rajotte]

This is a point of debate.

[Peggy Nash, NDP, Parkdale—High Park, ON]

—it was the NDP that pressed for the issue of tax havens to be completed.

[The Chair, Conservative, James Rajotte]

This is a point of debate.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Oh, excuse me, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Ms. Nash, as an experienced parliamentarian, I think you know that's a point of debate.

Mr. Hoback, you have three and a half minutes left.

[Randy Hoback, Conservative, Prince Albert, SK]

Again, she can look at the voting record of the NDP on the budget in 2010, when this legislation came forward, and she'll see how it resulted.

I'd like to go to the transfer pricing. In the manufacturing sector, I think this could be a huge issue, in many different ways. Let's look at a manufacturer that's multinational and may be based, let's say, out of Italy. It does its cashflow or its transactions out of Switzerland. Manufacturers all around the world would be Japan, U.S., Canada, and Brazil. It does what they call market bearing pricing. The pricing they use, for example, in Brazil, for gadget A, would be $10, where in the U.S. it would only be $5. It's not necessarily based on the cost of manufacturing, but it's based on what the market will bear, or the analysis they do with competition to see what the market would pay for that product.

How do you take all those considerations into play when you start evaluating whether they're actually using this type of system for tax evasion, or is it just the way the market fluctuates for these types of manufacturers?

[Terrance McAuley]

Mr. Chair, the short answer is that as part of our exercise of reviewing the audits of those multinationals, we are bringing on board economists, in-house, to assist us with that question.

[Randy Hoback, Conservative, Prince Albert, SK]

It must be a problem, because a lot of manufacturing is not cost plus at this point. They're using all sorts of other tools to look at their net return, based on the country they're doing business in. It's not necessarily that they're involved in tax evasion or avoidance; it's just the way they go around marketing their product. How do you prevent overreaching effects that would impact the manufacturing or even the commodity sector that would create a liability for these companies that shouldn't necessarily be there?

[Richard Montroy]

I would say that Canada, like other countries, participates with the OECD in Working Party No. 6, which is transfer pricing, and we look at that area; we look at all the different areas. At the CRA, we train our auditors to ensure that we look at all aspects of the problem. We are very lucky that the chair of Working Party No. 6 at the OECD is a Canadian. He works for us. We're very plugged in to all the various facets of the intricacies of transfer pricing.

[Randy Hoback, Conservative, Prince Albert, SK]

Yes, it must be an interesting situation to deal with. I feel for you, because it's going to be tough to figure out how to move through that. As Mr. Cormier said, everything is moving now at a fast pace around the world. Cash moves in a matter of minutes. I know with my daughter and my sons, sometimes we e-mail money now. It's interesting how that cash moves back and forth.

What other pieces of legislation or assistance do you need in the international community to better track not only what's going on in existing technology but with the new technology, when we start paying for our laptops with our cellphone and things like that? Are you doing anything in the future that you can enlighten us on?

[Terrance McAuley]

Perhaps I can start, and then I'll refer the question to Mr. Ernewein.

With respect to the tools we need, we have a very long-standing practice within the agency of identifying any gap that we might have in terms of information that is not available that could be available to us. When we identify one of those issues, such as a tool that's not working any longer—the courts have changed something in terms of how we operate our tax administration—or, alternatively, through our connections with the international community, we identify an emerging tool. We engage regularly with our policy department within the agency and the Department of Finance to work those new tools into legislation.

[The Chair, Conservative, James Rajotte]

You have 30 seconds.

[Randy Hoback, Conservative, Prince Albert, SK]

As new technologies evolve, and you're working with the other countries in the OECD, are you able to standardize regulations so that you have consistent rules from country to country as we move forward?

[The Chair, Conservative, James Rajotte]

Just briefly on that. Mr. Ernewein, did you want to comment on his previous question?

We'll start with Mr. McAuley.

[Terrance McAuley]

Standardization is very difficult. As a result, it's great to think about that, but it's turning out to be quite difficult to identify, and the OECD obviously comments on that periodically.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Hoback.

M. Côté, s'il vous plaît.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Thank you very much.

I will share my floor time with my colleague Murray.

Mr. McAuley, in 2010, the former minister of National Revenue, Jean-Pierre Blackburn, stated that Canadians had invested $146 billion in tax havens. He also said that, in 2003, that amount was $88 billion.

You clearly no longer produce such estimates. Why is that? Do you nevertheless have some relatively reliable estimates?

[Richard Montroy]

Thank you, Mr. Chair.

Investing in countries—be it tax havens or other countries—is not illegal. I don't have those figures on hand today, but I know that Statistics Canada estimates foreign investment for a certain number of countries. At the Canada Revenue Agency, we make no calculations on investment. That's not really part of our mandate.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Okay. So that comes more under Statistics Canada's mandate?

[Richard Montroy]

Yes.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Very well. Thank you.

I will yield the floor to my colleague Murray.

[Murray Rankin, NDP, Victoria, BC]

This is for Mr. McAuley, I think.

Concerns have been expressed that the International Financial Reporting Standards, the IFRS, which were implemented in 2011, were a significant step toward deregulation, yet they opened the door to some of the serious abuses by corporations that we've heard about: transfer pricing abuses, IP licensing abuses, and the like. Do you share those concerns, and, if so, what can we do to guard against any such abuses?