Finance Committee on Feb. 5th, 2013

[Scott Brison, Liberal, Kings—Hants, NS]

I want to go back to the original question in terms of the $30 million targeted toward aggressive international tax planning back in Budget 2005 and the outstanding return on that. If in Budget 2013 an additional amount were allocated toward this same unit targeting aggressive tax planning, where would that money be invested? If you were provided with additional investment, where would you put the additional investment, understanding the challenges you face on an ongoing basis?

[Terrance McAuley]

If money were to come to the agency, Mr. Chair, it would be applied in the manner in which it is given to us. For example, we often refer to that as fenced funding, and we would apply it to whatever part of the organization has been asked to augment the work in that area.

[The Chair, Conservative, James Rajotte]

You have 30 seconds, Mr. Brison.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

We shall go to Ms. McLeod, please.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you, Mr. Chair.

First I want to follow up in terms of the chair's question, because it seems as if it would be an easy task to say we've identified this much money and how much we have collected from this amount. I understand Australia thought that was something worth looking into. Could you talk about their experience in terms of trying to set up systems to do that? Are you familiar with what happened there in terms of trying to answer what seemingly should be a relatively simple question?

[Terrance McAuley]

Mr. Chair, I can only speak anecdotally. My understanding, completely unsubstantiated by documentation, is that Australia spent somewhere in the neighbourhood of $850 million attempting to align their systems.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

It seems in this day of computer systems that it should be a much easier task than that. Would there be value to knowing that number?

[Terrance McAuley]

Not being an IT expert, I feel uncomfortable responding. It's really an IT question.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you.

My next question is to Mr. Ernewein.

We've talked about tax treaties and TIEAs. As you look at the map now of the world, what kind of coverage do we actually have? How are we determining priorities for new TIEAs? Are there any areas that you think are a high priority? Where are we at with that whole process of continuing to negotiate?

[Brian Ernewein]

Just to recap the stats, without taking time to list individual country names, we have 90 treaties in force, all of which have an exchange of information provision, and almost all of which are at the current OECD standard and practice. We have 16 more TIEAs in place. We have listed on our treaty website, for those who wish to refer to it, other countries or jurisdictions with which we're currently engaged in TIEA negotiations. Counting Liechtenstein and the others—there are 14 others—that would make 30 the total of TIEAs that either have been signed or we're working to get signed. It is those, Lichtenstein plus the other 13, that we already have on our list that represent our priorities. Those priorities reflect the information we get from our colleagues at CRA, the work that's being done at the OECD to identify the countries that are most of concern. We're probably interested in getting TIEAs with the world, so we have exchange of information with the world, but effectively it is the countries that are already under negotiation for tax information exchange agreements that represent our current priorities.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

After those current TIEAs are finalized, you'll set a new priority list? How does this work?

[Brian Ernewein]

Yes, that's right. Assuming we have all the ones under negotiation signed, sealed, and delivered, so to speak, we wouldn't down tools. I think we'd be looking at others as well. There hasn't been a prioritization exercise set in that respect, but I think we'd take that on.

The other aspect I might identify—if I'm not cutting too much into your time, and it relates to other questions being raised about what more can be done—is that the current TIEA model and the current exchange of information model is on an information on request basis. That is, Canada believes that it may have reason to expect that there's information relating to a particular taxpayer in another jurisdiction. It makes a specific request to that other jurisdiction. That's the base model.

What the G-20 and the OECD have been talking about is whether or not that could actually advance to an automatic exchange of information procedure. We have that in place with some of our countries. The best example is the United States, where a lot of the information that we collect on our own forms, when it relates to an American resident, is automatically provided to the U.S. And the same goes for the U.S. in relation to income items that come to Canadians; the information they collect comes to us automatically.

As I say, the G-20 and the OECD have been suggesting that's the next step and we should move to the automatic exchange of information. I do make the make the point that this is tough to conceive of for countries that don't have tax systems, in terms of how actually they will exchange information that they're not collecting in the first place. But the principle of it, the idea of it, is worth consideration, and certainly we're engaged in that analysis too.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Ms. McLeod.

M. Caron, s'il vous plaît.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Mr. Chair, I will share my time with Mr. Rankin.

I have another quick question for the representatives of the Canada Revenue Agency.

In particular, I am interested in transfer costs. Open borders and our trade agreements have facilitated our transfers. I think that transfer costs really became part of the problem when the North American Free Trade Agreement was signed. That had previously not necessarily been the case. Regarding transfer costs, the problem is that agreements place very little focus on that issue.

That brings me to an even bigger issue. I'm talking about the fact that we negotiate free trade or trade agreements with various countries while placing very little importance on taxation problems between the countries. I am thinking of the agreement signed with Panama. That led to a number of issues my colleague Mr. Côté raised.

So free trade agreements are negotiated, and very little emphasis is placed on taxation. Afterwards, we try to use a convention or a tax information exchange agreement to catch up.

For instance, we signed a trade agreement with Panama. We are currently negotiating a tax information exchange agreement. Isn't that the reverse of the order we should follow in terms of procedures and methods? I'm asking you the question now because it seems that we are always catching up, while we should be addressing the issue during trade negotiations. My question is for Mr. McAuley and Mr. Ernewein.

[Brian Ernewein]

I can make an attempt at the question.

The short answer is to confirm the premise of your question, which is that we don't connect at the hip, if you will, the trade agreements and tax treaties. There's a separate analysis that goes on. There's sort of a government-level decision as to whether or not there will be engagement government to government between Canada and another country. Once that political decision is taken, we look independently at the question of whether the economic story—trade levels, investments levels, cross-border integration, employment, sales of goods, and the like—justifies having a tax agreement.

I imagine that our colleagues in the Foreign Affairs office apply much the same analysis in determining whether there's a trade agreement that's warranted, but we do work a bit independently on that score. I think that's sensible, in the sense that if the level of tax interaction and the issues with double taxation are such that it's important to help with that for a Canadian investor, for example, then we pursue that, whether or not a separate decision or a different decision is taken in relation to a trade agreement.

With the specific mention of trade agreements and tax information exchange agreements, again, we would pursue those without necessary reference to the trade agreements. But we do understand the point.

In relation to Panama, let's speak about the point of having a free trade agreement without necessarily having a tax information exchange agreement. Indeed, as you've already mentioned, we are pursuing a tax information exchange agreement with Panama as well. They were identified as a country of concern in terms of the bank secrecy laws, and we're seeking to ensure, as are other countries, that they sign a TIEA with us.

[The Chair, Conservative, James Rajotte]

Mr. Rankin, you have one minute and a half.

[Murray Rankin, NDP, Victoria, BC]

I will ask one follow-up question to Mr. McAuley.

You talked about the 20% of the new moneys that were devoted to research, and we talked about transfer pricing in response to Mr. Van Kesteren and Mr. Caron. I want to ask whether you've also looked at intellectual property licensing abuses. I'm advised that licensing fees, as between parents and subsidiaries in tax havens, constitute enormous abuse and loss of revenue to Canadians.

Is that part of the research agenda, if you agree with the premise of that?

[Terrance McAuley]

That is a question that's being looked at internationally. The OECD is very active in looking at that question.

[Murray Rankin, NDP, Victoria, BC]

But there's no action in Canada? No specific—

[Terrance McAuley]

We do have members who sit on the working party that discusses that. We participate in that.

[The Chair, Conservative, James Rajotte]

You have about 30 seconds. There will be time for another round as well, so we can come back to it.

Thank you.

Mr. Hoback, please.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair.

It's interesting. We have one party that wants to study things and the other party would like to fund everything. But when it comes to voting, one sits on their hands and the other one votes against any type of legislation that would actually help you do your job. I want to make that point very clear. They can spin whatever they want, but it's only been one party that's actually given you the tools to go out and process and have some results.

Mr. McAuley—

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

A point of order.

[The Chair, Conservative, James Rajotte]

On a point of order, Ms. Nash.