Finance Committee on March 5th, 2013

[Gabe Hayos]

I certainly have no problem with some undertaking that they make all reasonable efforts to bring forward legislation. You would hope that annually is the minimum, but, frankly, there may be times when you would introduce something even more frequently because of the circumstances. So an undertaking to do it would be.... I just don't think it should be a legislated sunset clause.

[The Chair, Conservative, James Rajotte]

Mr. Chapman, what are your brief comments on that?

[Larry F. Chapman]

I agree that annually would be good. It may not always be possible to do it annually, but certainly I would say there's no reason why we couldn't see it every two years. I think annually would be a good target.

[The Chair, Conservative, James Rajotte]

Thank you.

Ms. Plant, do you want to comment on that? No, okay.

Thank you, Mr. McCallum.

Go ahead, Ms. McLeod, please.

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

Thank you, Chair.

I hate to do this, but I guess we always have to do a correction to the correction in terms of some general comments. I do have to note that it was, I believe, John Manley and Sheila Copps in 2003 who actually introduced that particular issue around the film tax credits. Then the Senate in Bill C-10, of course, did not choose to remove a portion that was a concern. They actually chose to block the advancement of the legislation. Again, I apologize, but I think it is important to have full and accurate information on the record in terms of some of the history, because history is always important.

I really appreciate hearing the comments about having a regular update to the legislation. I believe that everyone here agrees that regular.... I take note of your comments regarding the sunset, and I also take note of your comments regarding the comfort letters. You may or may not be aware that currently our committee—not in this particular initiative—is looking at tax evasion and the use of offshore tax havens. I know there are some significant pieces in this legislation that are actually tackling that.

I guess I would ask Mr. Chapman, of course, and perhaps Mr. Hayos to maybe flag how they're actually working well together in moving forward on that important issue.

[Larry F. Chapman]

Gabe and I have talked about this a little bit in terms of the need for clarity around whether we're talking about tax avoidance or tax evasion. Tax havens are used for all kinds of purposes. Some of them are less than desirable for the tax system and fall into the evasion camp. Others would probably fall into avoidance, and some might well be absolute legitimate uses.

We have a robust set of rules right now around the way foreign income is taxed. There are taxing rules and there's also a robust set of disclosure rules. I encourage Parliament and the Department of Finance to always be looking at those rules and to consider whether they serve the purpose of the country.

You heard Mr. Porter earlier today say that the OECD is looking at the whole area of profit shifting and base erosion. Those are current things. I'm not sure that we need more rules.

I'll make this observation. In all of my time practising, I think I only ran into one instance where I saw somebody who I thought was a tax evader and I immediately didn't do anything with him. But every time I have repairs done to my house, somebody comes to the house and offers to do it for cash and they won't charge me GST or HST.

I think the focus on tax havens is important, and base erosion and profit shifting, but my personal view is that I wonder if sometimes we shouldn't be looking inside the country as much as we look outside.

[Gabe Hayos]

I would just make a few comments. First, as far as Bill C-48 is concerned, as you heard from the Department of Finance, it's primarily trying to ensure that it captures essentially the integrity of the current system. I don't think it's necessarily dealing with more broadly based things.

I would like to clarify this issue of the term “tax havens”. I think it doesn't really serve a good purpose. First, I think you all appreciate that tax is one of the costs of doing business, and if countries can keep their tax rates low, it's a means of attracting real business. But what is important is that countries have open and transparent tax systems.

The Department of Finance has introduced rules that try to ensure that they give special recognition to countries that have open and transparent systems. As Larry said, you can't have people who are real tax evaders hiding income. On the other hand, if there are businesses that conduct real activities and they go to lower taxing jurisdictions, that's just one of the competitive advantages that country has. That's why we've been such a strong proponent of Canada keeping their corporate tax rates low and competitive, because it ensures both that companies stay here and other companies come here. I think that's the important point.

As Larry said, we have general anti-avoidance rules and transfer pricing rules. As you've heard, there are disclosure rules for aggressive tax planning that are introduced in Bill C-48. All this ensures that the large majority of taxpayers try to comply with the rules.

[Larry F. Chapman]

Those who are willing comply.

[The Chair, Conservative, James Rajotte]

Thank you.

You're just out of time, Ms. McLeod.

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

So it's fair to say you would encourage passage. There are no surprises. You would encourage quick passage.

Thank you.

[The Chair, Conservative, James Rajotte]

We'll take that as a wrap-up. Thank you.

Ms. Nash, please.

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

Thank you, Mr. Chair.

Welcome to all the expert witnesses here today. We really appreciate your taking the time to come before our committee.

For people watching this discussion at home, we are debating a 1,000-page technical tax bill that basically would enact changes that the government has already proposed and that essentially are being used right now but have not been passed into law. Am I correct in that?

[Gabe Hayos]

As you heard from the previous panel, which included Finance, yes, some people do and some people don't. In fact, this has been one of the issues, that it creates uncertainty. In fact, in some cases there are business transactions that don't get done because of the uncertainty. I would tell you that there's no consistent approach to this. Some have used the existing rules and some have relied on the proposed rules.

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

Right. This has been going on, I guess, for more than a decade. For about 12 years now we haven't had these technical changes.

[Gabe Hayos]

Yes. You've heard the suggestion that this may lead somebody to do aggressive tax planning, and that's for sure, but I would say that in my personal experience, more often than not it's not about more aggressive tax planning; it's about people who often can't do transactions because of uncertainty. That's even worse, because they're often good transactions.

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

Mr. Chapman, you said it creates kind of a no man's land where people really don't know. There's this grey zone.

Can one of you succinctly describe the purpose of comfort letters and what that means? Does it have the force of law, and how are comfort letters used?

[Larry F. Chapman]

To answer your last question first, a comfort letter does not have the force of law. You people have the force of law, and until you enact it, they are only comfort. That's why they're aptly named.

The thing that's very good about the system we have, Ms. Nash, is that over history it's been shown that when the Department of Finance issues a comfort letter and they can explain it to Parliament, Parliament almost always enacts it. I don't know that I can think of one instance where they haven't.

The purpose of the letter really is to provide comfort for an organization to know that the law will be changed, and that if they do something or if they've done something, they won't be on the wrong side of the tax law.

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

Now we just heard that it does create uncertainty. I think, Ms. Plant, you said that there could be a cost to this. Could there have been or could there be in the future an impact on GDP through failure to enact these technical tax changes?

Mr. Hayos, you said that perhaps there are businesses, investments, or deals that don't go through because there is lack of clarity. In other words, is it a negative for our economy that we don't have timely passage of these technical tax amendments?

[Gabe Hayos]

Absolutely. I'm not sure how you can measure the actual impact, but there's just no doubt about it.

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

We have three experts here who can advise us, both from the taxation aspect and from the government operations aspect, from the Auditor General's office. We've heard some of you say that it's difficult to set a hard deadline of annual updates. Someone suggested a sunset clause. We heard concerns about that.

What could we do, or what could this committee recommend, that would create a better framework for the government to act in a timely way, rather than letting more than a decade go by for these technical tax changes? Is there some kind of change this committee could recommend?

[The Chair, Conservative, James Rajotte]

Mr. Hayos.

[Gabe Hayos]

Well, first the committee would have to recommend to Parliament that when technical legislation is brought forward, it is actually given serious consideration and attention. And perhaps this committee could also, from time to time, if they haven't heard from Finance, actually ask Finance what the status of it is.

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

I have just one last quick question, perhaps for the Auditor General. Do you think the government's plan to reduce CRA staff by 3,000 people could have an impact on the speedy updating of these technical tax changes? We heard the Minister of State talk earlier about limited capacity, and that's one of the reasons he points to for not making these changes for more than a decade.

[Vicki Plant]

I'm not sure I can speak specifically to the impact that would have. Certainly I would expect that like any other agency or department that's facing cuts, they would try to do the cuts in the areas that would have the least impact on the actual operations.

[The Chair, Conservative, James Rajotte]

Just very briefly; we're over time.