Thank you for the kind invitation. Again, I'm sorry I couldn't be there today. I'm in Austin, Texas, this semester, visiting the University of Texas. I'm not at my home base of Queen's University. I hope the winter is going well in my hometown of Ottawa. I don't miss it, but anyhow, good luck. I know that it's a very tough winter this year.
I thought I would start by briefly outlining the distinction between tax evasion and tax avoidance, recap some of the background in Canada to try to gauge the extent of the problem, and then speak briefly about why it's a very difficult problem to fix.
Richard Murphy just touched on this. Of course, tax evasion in Canada is a criminal offence. It normally constitutes the purposeful withholding of information from the government concerning income or asset streams.
On the other hand, international tax avoidance is legal in the sense that it's non-criminal. Companies try to lower their global tax liabilities while complying with all laws, both Canadian law and the law abroad.
In my last testimony before this committee—the committee's hearings have been going on some time, and I congratulate you for your ongoing efforts—I mentioned some of the efforts here in Canada to gauge the extent of the problem. We have the Auditor General's reports from 2001 and 2002, wherein she reviewed a number of different aggressive offshore tax planning structures, along with revenue estimates of hundreds of millions of dollars of losses in annual revenues to Canada as a result of these tax avoidance strategies.
In terms of tax evasion, we have had a variety of scandals in recent years. A bank in Liechtenstein revealed through stolen data that a number of Canadian clients had anonymous accounts there. There was, of course, the UBS Swiss Bank scandal, when the U.S. Senate investigation revealed that UBS maintained a “Canada Desk” and would fly folks from Switzerland to Toronto to advise high-net-worth individuals on tax evasion strategies.
We have ongoing increased efforts by the CRA to increase audits: the so-called unnamed persons litigation. There's been an uptick in that activity. There's been an increase in revenues accessed through these audits of $3.7 billion since 2006, and also an increase in the voluntary disclosures by Canadians. In 2009, for instance, there were 3,000 disclosures and a recovery of $138 million.
The bottom line, as both speakers indicated, is that we really don't know in terms of tax evasion how much revenue is being lost.
The U.S. Senate investigation suggested that Americans may be evading $40 billion to $70 billion per year. If we take one-tenth of that, because of course we have one-tenth the population, I think we get to a figure similar to the one Mr. Howlett mentioned, which is somewhere between $5 billion to $7 billion.
But again, the reality is that nobody has a clue because, as Mr. Murphy mentioned, all of this occurs in secret—the evasion activities, at least. Folks, of course, don't want to disclose their identities or their holdings offshore when they're stealing money and committing criminal offences.
Turning to the international tax avoidance problem, the committee is likely aware that the OECD and G-20 released a report this week that called for enhanced international cooperation surrounding this issue. It's a very difficult issue to fix. Why? Well, sometimes I characterize Canada's international tax policy as being schizophrenic in nature.
On the one hand, we encourage firms to go abroad and to save tax moneys. We have a whole bunch of special rules that give breaks to our multinationals; we want them to go global. Tax academics find it a highly suspect policy goal to subsidize these wealthy multinationals. In any event, that's what our tax laws do. On the other hand, we want to have fair taxation between domestic firms and foreign firms. We have certain rules to encourage fairness there. But we have these two competing rules: we want to collect revenues from these multinationals, but we also want to give them tax breaks.
I'd like to leave the committee with one suggested reform in this area. It's something that I recommended to the Advisory Panel on Canada's System of International Taxation in my report for the Department of Finance and that panel back in 2008, which is to require our resident corporations to file with their tax return a schedule disclosing their consolidated worldwide revenue and income before taxes, as reported in the firm's financial statements. The schedule will additionally disclose a proportion of domestic and foreign-source revenues and income.
Here's the problem. The CRA gets a tax return by a Canadian multinational. It will disclose the Canadian taxes payable, but it won't disclose any information about the various foreign activities. In Canada, firms are not permitted to file consolidated worldwide income tax returns. This is not my idea. It's a reform proposal that you hear a lot about from the tax and accounting community, and I think it would be a good idea for Canada. It would give the CRA a lot more ammunition to go after these aggressive international tax planning strategies.
Thank you.