Finance Committee on Feb. 26th, 2013

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you, Mr. Chair.

Welcome to the witnesses.

I think we've heard enough from a variety of witnesses to dispute what Mr. Vaillancourt said about “let's stop these negotiations of TIEAs and let's just finance studies to find out what the tax gap was”. I want to ask Monsieur Saint-Amans to add his two cents' worth.

Do you agree with Mr. Vaillancourt when he suggests that we should just stop negotiating TIEAs, that they're full of loopholes and they don't work, so we should just finance studies to figure out the tax gap?

[Pascal Saint-Amans]

We have elaborated a model tax information exchange agreement. We are currently assessing the effectiveness of the information exchange agreement through TIEAs, through DTCs, so we very much support the initiatives consisting of negotiating for the tax information exchange agreements, using the tax information exchange agreement, because it's good to have one. It's even better to use it to post the requests. We are also supporting the countries willing to move a step further, which is to move towards automatic exchange of information for further transparency.

[Shelly Glover, Conservative, Saint Boniface, MB]

What are the challenges, Mr. Saint-Amans, in moving forward with automatic exchange of information agreements?

[Pascal Saint-Amans]

The challenges are first with the countries unwilling to move towards automatic exchange of information because some stand ready, and nowadays all stand ready to give tax information exchange agreements or tax convention. The global forum is taking care of that to make sure that if a country refuses to do so it's identified and the recommendation is made and this is brought to the knowledge of the G-20. But automatic exchange of information is not the standard. It's not the OECD standard and therefore it's under voluntary compliance.

The second aspect of automatic exchange of information is to make sure that it works properly. Here again the OECD is doing quite a lot of work to make sure that with the information you receive you can make the proper analysis of it and that it matches, because you can have two different languages and you can have two different IT systems supporting it. This is the nitty-gritty type of the work we are performing currently.

[Shelly Glover, Conservative, Saint Boniface, MB]

Okay. I appreciate the work that you do because it will help us to develop some best practices.

I want to speak with Mr. Kepes. There are two issues that you brought up today and one I like very much, which is suggestion number 5 in your handout about encouraging a whistle-blower program. I would encourage this committee to seriously look at the suggestion you've made. I think it's a good suggestion. I come from a policing background and any time we can put forward something like this I think is good.

I do take issue with the comments you've made. You clearly did indicate that you're really not sure about it anyway and you don't know the answers when you talk about prosecutions and convictions for offshore account investigations. As you likely know, on the proof required to proceed to an actual criminal investigation, a criminal conviction, the threshold is much higher. It's beyond a reasonable doubt. When we're looking at audits, it's the balance of probabilities. This government has put forward a number of policy measures to ensure that we are tackling the problem with offshores in a variety of ways.

What you didn't address, and I think ought to come out on the record, is that we have voluntary disclosure. That's tripled since 2007 as a result of the measures put forward by this government. But we've also done many audits, which again, going back to the threshold, are being done because when we refer 150 to 200 cases every year to public prosecutions; they also determine whether or not there is some reasonableness for conviction.

So you can't just measure the CRA by the number of convictions. You must take into consideration—wouldn't you agree?—the voluntary disclosures, the audits, the fact that public prosecutions decide in the end whether there is a likelihood of conviction. I've been a police officer for a long time. We know people are committing crimes. Public prosecutions sometimes says they know it, but they don't have the proof for it, so they can't proceed criminally. Would you not agree that's a better balance of looking at the success of the CRA, taking them all into consideration, not just convictions?

[Robert Kepes]

I think you're right. First of all, as I said in my submission, the voluntary disclosure program is working and I think it works relatively well. The government has improved the voluntary disclosure program and has actually tightened it up.

Our firm does one voluntary disclosure per week. I know exactly what you're talking about. I know the typical profile of people who make voluntary disclosures. You're right. The voluntary disclosure program for people who have been evading tax has been a very large success.

[Shelly Glover, Conservative, Saint Boniface, MB]

Because you've made the suggestion, the one I like, I do want to give you an opportunity to put it right on the record for those watching at home about what number 5 is.

[Robert Kepes]

Sure. Let me just address the tax evasion issue and the number of prosecutions. You are absolutely correct that it is much more difficult for the crown to mount a successful prosecution for someone who has evaded tax because of the charter rights that apply, the higher burden of proof, etc. On the other hand I was just surprised at the low number of cases dealing with tax evasion and offshore and so I--

[Shelly Glover, Conservative, Saint Boniface, MB]

You are actually wrong about that.

[Robert Kepes]

It's possible.

[Shelly Glover, Conservative, Saint Boniface, MB]

We're going to ask the CRA. I think I might be right and we'll ask the CRA to submit them because the convictions, as far as I remember for offshore accounts, I think 46 or something like that were there.... But anyway, when you compare it to other countries I'm sure it's almost double...if you look at Australia, etc.

[Robert Kepes]

I think you are doing the right thing by asking the CRA to come here and talk about that.

With respect to your other question about one of my recommendations, which is similar to the IRS whistle-blower program, I think frankly money talks. Because the information offshore is so difficult to get, I think it's great to talk about reforming the TIEA and having automatic disclosure, etc. I just don't know if that's likely to happen.

If you can implement a system whereby people can actually be rewarded for bringing in information and helping the government collect the tax or at least to identify these criminals.... It's successful in the U.S. apparently. Perhaps someone from the IRS could talk about it.

[Shelly Glover, Conservative, Saint Boniface, MB]

I think it's a good idea. It's kind of like Crime Stoppers. I like it.

[Robert Kepes]

There you go.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Glover.

Ms. McLeod, please.

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

Thank you, Chair. I would also like to thank all the witnesses. I think this has been a fascinating topic. We did start the study in the last Parliament and all the parties felt it was important to continue and to come forward with some good recommendations in terms of dealing with what is an important issue.

Because the actual title is tax evasion and the use of tax havens, I recognize the issues around avoidance but I'll try to focus in on the evasion issue.

I'd like to start with Mr. Saint-Amans. In 2009, a list of countries was created, the good and the bad list. Can you tell me if you've been looking at this list every year? How is the list of the bad changing? Is there some good progress in terms of the list of the bad?

[Pascal Saint-Amans]

The list in 2009 was designed to disappear quickly. If a list is to be successful it needs to disappear. Let me explain why.

In 2000, the OECD listed tax havens, meaning the jurisdictions that corresponded to the four criteria I referred to earlier. In 2002, the OECD did the list of unincorporated tax havens, meaning those that had not committed to implementing the standard.

In 2008, when the Liechtenstein scandal, which started all this renewal of the work on tax havens, occurred, we were in a situation where all the jurisdictions had committed but nothing happened in practice. So the way we designed the list for 2009 was to identify those that had not committed, and this was bad, and then those that had committed but had done nothing. Then we had an arbitrary threshold of 12 tax information exchange agreements, which was arbitrary, but that was something that had been agreed to by everybody and therefore we could use.

What happened was that in the days following the G-20 summit on April 2, 2009, those that were in the so-called black list immediately committed to implement the standards, and those in the grey list, which had committed but had fewer than 12 agreements, starting negotiating agreements. If you want to have information exchange, you need to have agreements.

This was very successful. Switzerland said it would take 10 years to get to 12. They did it in six months.That's why this list disappeared. But what we immediately did was to establish the global forum with new criteria.

The new criteria were that if you want to comply with the standard, you need to have the legislation in place, meaning you need to have agreement, not with 12 countries, but with all the countries asking for information from you. So if you have 30 agreements and you have Canada asking for an agreement with you and you say no, you are non-compliant.

It's good to have agreements but it's better to be in a position to implement them. To implement them you need to have the information available. So we are checking that the information on ownership, on accounting, on bank information, is available. If you have the agreement but you don't have access to the information when you're the tax administration, then there is a failure. So the global forum has set up a peer review mechanism in two phases.

Phase one checks whether all these elements are in place, and if they are not, the countries do not move to phase two, which I will come to in a minute. So it's not a list, but we identify those that are failing to exchange information by law. But if you have the law in place it doesn't mean you are doing it well.

We are going to check—and that's what we are doing today in Malaysia—whether you do it in practice. We check with all the partners of the reviewed country as to whether they are happy with the information exchange in practice. At the end of phase two—that's phase two, the checking practice—there will be an overall rating per country from compliant, largely compliant, partially compliant, to non-compliant.

You see that if it's not a list, it will give the ultimate test on whether a country does the job or not.

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

It sounds like, from a global perspective, we are getting much more comprehensive in our analysis and we'll have a much better focus.

I would ask for a quick answer to my next question because I don't think I have a whole lot of time and I have one other question to ask.

One of our previous witnesses suggested that this automatic exchange should be very simple in nature and then the TIEAs should kick in, so really the automatic exchange would be just focus on whether the person has an account in this country, and then using the TIEAs. Is that how you envision an automatic exchange? I don't know if you can answer that quickly or not.

[Pascal Saint-Amans]

No, I couldn't. But very quickly, they are complementary. I think exchange on request is one thing, but you can also do automatic and you can do automatic on bank information, you can do automatic on salaries, on pensions, on many other items of income.

[The Chair, Conservative, James Rajotte]

We're bumping up against time.

Do you want to put the question on record, Mrs. McLeod?

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

I would like to put on record that we do a request to the CRA because I asked for a briefing and was very pleasantly surprised not only with our conviction rate, but how we compared to other countries in terms of tax evasion, offshore bank accounts, and conviction rates.

So could we ask the CRA to submit to the committee.

[The Chair, Conservative, James Rajotte]

Okay, we could certainly ask on behalf of the committee. Is there anything further you wanted to put on record?

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

I'll just leave it there. If they could just submit that information I think it would be very helpful.

[The Chair, Conservative, James Rajotte]

I will absolutely do that on behalf of the committee.

Mr. Rankin, I understand you have a one-minute question, and then the chair will wrap up here.

[Murray Rankin, NDP, Victoria, BC]

Thank you for your indulgence, Chair.

This is a question for Mr. Kepes concerning enforcement.

In one of your earlier interventions you mirrored what one of our earlier witnesses said, referring to a CRA study in October 2010 that revealed “tax practitioners believe the CRA is not doing enough to catch or prosecute tax evaders”. I think you reflected that perspective. But you very usefully put a number of enforcement ideas in your brief, and like Ms. Glover, I'm very attracted to your idea of the whistle-blower, for example, as one idea.

But I want to ask you two others quickly. First, is there any scope, as there is in other areas of regulatory law, for administrative monetary penalties—in environmental law, that's virtually all they use now, for example—in order to avoid what you've talked about in terms of the charter, and criminal law, and all of those difficulties?

Second, would you go along with what Senator Levin in the States has suggested, which is that there be strong penalties on “tax shelter promoters and those who aid and abet tax evasion by increasing the maximum fine to 150% of any ill-gotten gains?” How would you feel about that as another enforcement idea?