Finance Committee on Feb. 5th, 2013

[The Chair, Conservative, James Rajotte]

You have 45 seconds.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair.

[The Chair, Conservative, James Rajotte]

Mr. Caron, go ahead.

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

Thank you, Mr. Chair.

Most of my questions will be for Mr. McAuley.

My colleague, Ms. Nash, asked a question about quantifying and assessing the impact of tax evasion and abusive or aggressive planning. You said that you did not know of any such assessments being carried out, in Canada or anywhere else. Is that right?

I have the report of Great Britain's auditor general published in November 2012. In that report, the following is stated:

Part of H[er] M[ajesty's] Revenue & Customs' (HMRC's) vision is to close the tax gap, the difference between the tax that is collected and the tax that should be collected. HMRC estimated the tax gap in 2010-11 to be £32 billion, of which £5 billion was due to avoidance.

If Great Britain can assess and quantify, why can't Canada?

[Terrance McAuley]

I will ask Mr. Montroy to answer.

[Richard Montroy, Deputy Assistant Commissioner, Compliance Programs Branch, Canada Revenue Agency]

Good morning.

Thank you for the question.

As Mr. Ernewein explained earlier, Canada's approach regarding the OECD does not include any specific calculations of the tax gap. You are correct in saying that Great Britain and the United States have tried to calculate that gap, but there is still no specific calculation on the international level to determine the exact difference between the contributed taxes and the total tax base.

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

It is possible to assess that tax discrepancy for Canada without having the exact figures. We could at least have an assessment and some idea of what that amount may be.

[Richard Montroy]

Canada's approach is similar to those used in other countries. An estimate is worth what it's worth and, instead of making estimates, as Mr. McAuley explained earlier, we identify and address cases of tax evasion and international tax issues.

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

Still, the British study was conducted by the auditor general. He spent a great deal of time on that assessment in collaboration with the country's revenue agency. Would it be useful to quantify that in order to eventually assess the amounts that could be recovered by dealing with the issue appropriately?

[Richard Montroy]

Thank you very much for the question.

Should the government estimate the tax gap? That is a matter of tax policy. I don't want to pass the baton to my colleague, but this is, after all, something the government should decide on. It is up to the government to determine whether an estimate is worthwhile and useful.

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

Thank you very much.

Again, my comments are for the Canada Revenue Agency representatives.

Over the past few meetings, Brigitte Alepin, a well-known tax expert who deals with tax evasion and tax heavens, said before this committee that the efforts to resolve this issue focus too much on individuals and not enough on corporations, and especially multinationals. Is that the case in the current context? Would you agree with her?

[Richard Montroy]

We audit both individuals and companies. If I understand the question, you are asking me whether more focus is being placed on one category than the other. The answer is no. What's important to us is to identify cases of tax evasion, regardless of who is committing the violation.

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

I have one last question. Please be brief, as I have only 45 seconds left.

You are surely familiar with Disclosure of Tax Avoidance Schemes, or DOTAS, a program used in Great Britain. That program uses informers to help the department identify more quickly those involved in aggressive or abusive tax planning, and even anticipate their actions. Do you think that program is a success? Can that program's principles be adapted to Canada to anticipate planners' actions, instead of always being a step behind?

[Richard Montroy]

If I have understood your question, you are talking about voluntary disclosure.

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

I am talking about the British program.

[Richard Montroy]

I am not in a position to discuss Great Britain's system. However, I would tell you that the Canadian voluntary disclosure program has been very successful thanks to all the work we have done internationally—be it when it comes to information exchanges or our tax agreements with various countries. Fewer and fewer places allow people to hide their money. That is why many people disclose voluntarily.

[The Chair, Conservative, James Rajotte]

Merci.

Mr. Adler, please, for five minutes.

[Mark Adler, Conservative, York Centre, ON]

Thank you, Chair, and I want to thank all the witnesses for being here this morning.

Just before I begin my line of questioning, I understand, Mr. Ernewein, you had some additional information on the tax gap.

[Brian Ernewein]

If I may, I would just correct a misperception that appears to have arisen when the previous honourable member raised a question. I think he was attributing the comment to my colleague, Mr. McAuley, but it was actually I who said that there wasn't any international calculation of the international tax gap. There are attempts to calculate the tax gap domestically, and indeed in the U.K. they do have an estimate of this. My numbers are $42 billion, or about 8% of the theoretical tax base. But on the international tax gap, there isn't, to our knowledge, or at least to the best of my personal knowledge, any calculation of that amount.

Thank you.

[Mark Adler, Conservative, York Centre, ON]

Thank you.

I'd like to begin by first asking Mr. Terrance McAuley about the voluntary disclosure. How successful a program has that been?

[Terrance McAuley]

We are finding that the voluntary disclosure program is very successful. As we start to close down the capacity for taxpayers to work offshore and we start to tighten, among taxpayers who have not complied with their obligations, we're finding as we promote this program the numbers are going up exponentially.

Just to give you an example, to look at the disclosures received in 2007-08, there were just over 9,000, and last year, in 2011-12, over 15,000 disclosures came in, totalling approximately $310 million in additional taxation. If you look at that from an international perspective, in 2007 we had just over 1,500 disclosures internationally, and in the past fiscal period they've gone to over 4,000.

So our effort in terms of attempting to bring taxpayers back into the compliant world is really starting to pay off.

[Mark Adler, Conservative, York Centre, ON]

Thank you.

I'd also like to know, following along the available tools that government has to enforce various aspects of public policy, going from voluntary and moving down the scale, is there a correlation between the level of taxation and the rate of tax evasion? For example, in a country that taxes more, would there be higher levels of tax evaders than in a country that taxes less?

[Terrance McAuley]

I'm not aware of any research on that, but as the tax rate goes down for corporations, for example, within Canada one could suspect that there would be less energy that would have to go into moving assets offshore. But again, I don't have any particular information on that.

[Mark Adler, Conservative, York Centre, ON]

This is to any of you. How does Canada compare with other jurisdictions? Where are we at in this? We all met at the G-20 and we all made commitments in Washington, Pittsburgh, London, and Toronto to combat tax evasion. Where does Canada fit in, say, with the other G-20 countries in terms of the level of tax evasion?

[Terrance McAuley]

I'm not aware of any recognizable standard that compares one country to another. One of the challenges we face is that each country will define how it identifies its results independently, so there's no standard upon which we can make sure, to use the phrase, “apples to apples” are being measured.

In terms of looking at some of the softer areas, we have a very good track record in terms of identifying the treaties that are in existence, the TIEAs that are coming on board. We are very active partners in working with other tax jurisdictions to identify what they're doing, and to make sure, to the extent that's necessary, we bring those practices back to Canada.

Anecdotally I would say we're doing fine.