Finance Committee on June 17th, 2013

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Well.... Does anybody object to saying that multilateral automatic information exchange and beneficial ownership disclosure should be priorities?

[The Chair, Conservative, James Rajotte]

Okay. That's a better way to do it. Does anyone object to that?

[H. David Rosenbloom]

I do.

[The Chair, Conservative, James Rajotte]

Mr. Rosenbloom, do you want to briefly explain why?

[H. David Rosenbloom]

Yes. The United States has automatic information exchange with many countries. In fact, that's the rule in the United States. I don't know that it is.... Automatic information exchange, as far as I understand, basically involves your turning over the information you collect to the other country on an automatic basis. It's fairly easy for a taxpayer who wants to avoid being identified to invest through some blocker entity between the taxpayer and the account. It's relative child's play to get around automatic information exchange.

I don't believe, in our experience, that it has done anything. Look at what we're going through right now. We're trying to identify offshore accounts. We've passed this Foreign Account Tax Compliance Act, which is a subject that nobody has mentioned here but is very important to this discussion. That's going to do a lot more than automatic information exchange ever did, and we've had automatic information exchange for 40 years. It's not an answer, as far as I'm concerned.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Hsu.

Ms. Glover, you have the next round, please.

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you, Mr. Chair.

I want to thank the witnesses for coming.

If you would indulge me, Mr. Chair, I know that Mr. Cockfield made some comments about the Department of Finance, potentially having rushed through certain aspects of the Hong Kong and Luxembourg situations.

I see that the general director from the tax policy branch of the Department of Finance is in the room, and I would ask if I could invite him forward. I would like the Department of Finance to have an opportunity to answer that statement made by Mr. Cockfield.

[The Chair, Conservative, James Rajotte]

I was told that the Finance officials wanted to appear separately, but if they want to appear together, that's fine with me.

[Shelly Glover, Conservative, Saint Boniface, MB]

Perhaps Mr. Brian Ernewein could step forward.

While he's stepping forward, perhaps I'll direct a question to Mr. Rosenbloom.

Ms. Alepin discussed how these conventions actually legalize some kind of preferential tax treatment for corporations. I don't see that at all. Do you see anywhere in these suggestions for moving forward with these separate countries how it is specifically saying that we are legalizing preferential tax treatment for corporations, sir?

[H. David Rosenbloom]

I do not see that. The treaties are designed to avoid double taxation. They're basically focused on foreigners investing in Canada as opposed to Canadian companies investing abroad.

I do know enough about Canadian taxation to know that you have a greater degree of connection between your treaty program and your domestic law. I believe, if you have treaties in place, you allow subsidiaries of Canadian corporations to repatriate funds free of tax.

That's lacking in our system. In our system, the treaties are completely separate. From a U.S. perspective, a treaty basically does not help a U.S. multinational avoid anything. What's helping them is our domestic law.

[Shelly Glover, Conservative, Saint Boniface, MB]

And ours is better, as you indicated before.

Mr. Ernewein, I want to ask you to perhaps comment. Mr. Cockfield talked about automatic and spontaneous requirements, and how it appears as though Finance maybe rushed through these agreements and left those out.

I want to give you an opportunity to respond on whether or not Finance was rushing through anything, or whether this was in fact as a result of some restrictions placed upon us in the negotiation process. I understand that Hong Kong has said they will absolutely not engage in that kind of behaviour.

I do want to give you that opportunity, sir.

[Brian Ernewein, General Director, Tax Policy Branch, Department of Finance]

Thanks, first of all, to the committee for indulging me in appearing here.

The answer to the question is, no, I don't believe we were rushed on these matters. As Alain Castonguay explained, the operative standard for exchange of information is on request. Most of our tax treaties do provide the ability for automatic exchange of information if the two countries decide to do that. But as a matter of international treaty policy for us and other countries, for the most part what's insisted upon is the bottom line—in Canada's case, since 2007, that information exchange on request be the minimum provided.

It can go beyond that. Indeed, we heard earlier today that there's discussion of this issue internationally. There's discussion of this issue at the G-8 as well as to whether or not to move more rapidly or comprehensively to automatic exchange of information.

If that should happen, then Canada would join that policy. We would seek to get that in our treaties, and perhaps with some changes in our domestic law as well.

[Shelly Glover, Conservative, Saint Boniface, MB]

We already do move in that direction, because we have dozens of agreements that are automatic agreements. As Mr. Rosenbloom aptly pointed out, with the United States they have automatic exchange as well.

There are some challenges. We heard in our tax study previously that there are some countries, in fact, who do not collect some of the information we're looking to exchange with them, which presents a very difficult position when you're looking for automatic.

Is that not a challenge we face?

[Brian Ernewein]

I think it is. I believe when I was here last time I made the point that automatic exchange of information is something that Canada supports in principle, but in practice it's quite difficult to do—for example, with a jurisdiction that does not have a tax system and thus does not collect any information to exchange with us.

There are ways around it, as David Rosenbloom has mentioned. The U.S. FATCA essentially takes away the tax authority by imposing the obligation to collect and provide information, imposing that on the financial intermediary itself. That's a big deal, and quite a big change to the system, but that would be a possible way of trying to deal with that. It's a question of whether or not that's the system we want to have.

[Shelly Glover, Conservative, Saint Boniface, MB]

Very good.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Glover.

Mr. Caron, you have the floor.

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

I am going to take advantage of the fact that you are here with us to ask you a question.

My colleague asked Mr. Castonguay how often tax information exchange agreements have been used to obtain information. Does that happen often?

Since it seems that we had a technical problem, I can repeat the question if you wish.

How often have tax information exchange agreements been used to obtain information? Mr. Castonguay and Mr. Cook did not really know.

Does that happen often? Do you know?

[Brian Ernewein]

No, I don't know the answer to this question. The Canada Revenue Agency has that information. We could forward the information to you.

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

I will ask the Canada Revenue Agency to provide it to us then.

Mr. Cockfield, are you able to answer the question?

[Prof. Arthur Cockfield]

My understanding is that it's too soon to say. The whole notion of TIEAs was only introduced in the 2007 federal budget. They've only been ratified in the last two years. Informal discussions suggest there have not yet been effective information flows. I'm not privy to the real answer, so I don't know.

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

Thank you.

My next question is for Mr. Rosenbloom.

You mentioned that the purpose of the information agreement was to prevent double taxation. My concern is that the government could say that it did its part in fighting against tax evasion and tax avoidance. But that is not the case at all. That is a whole separate issue. In addition, the current bill and the ratification of tax conventions do nothing to address the issue of tax havens.

Could you confirm that?

[H. David Rosenbloom]

I don't think I would endorse nothing at all. The exchange-of-information provision is useful. It has a limited utility. It's basically designed to produce information in specific cases. If a tax administration has a particular taxpayer and the information is in the treaty partner's jurisdiction, a request can be made and you can get the information. It's useful. It's not useless. But it is neither an answer to mass evasion at the individual level nor in any way an answer to the use of tax havens. They're just different subjects, as far as I'm concerned.

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

Thank you.

I will turn to Mr. Cockfield again.

You heard me quoting The Economist, which said the following about companies:

“A confusing thicket of bilateral tax treaties lets them play off national rules against each other.”

I think all the comments we have heard, particularly in the study on tax havens, have clearly shown that efforts should really be directed towards multilateral treaties to ensure that all the countries can work on having the same rules, perhaps even with the assistance of an international organization. To do so, we could perhaps follow the WTO model to some extent.

Do you think we should spend less time negotiating all the bilateral agreements and more time reaching an international consensus that would allow those countries to start with a level playing field?

I will also let Ms. Alepin answer quickly.

[Prof. Arthur Cockfield]

I agree that multilateral action and greater cooperation at the international level would certainly be helpful.

In the research community there have been ongoing discussions for the last two decades about how to pull this off. Currently, Canada has signed the OECD Convention on Mutual Administrative Assistance. The last time I checked, six months ago, we had yet to ratify it. Strangely it's been almost a decade or at least eight years since we signed that. That also might be a step in the right direction.

I'm a little cynical as to whether we'll see this international cooperation. I believe the OECD is moving in the correct direction. It's not truly a world tax organization. It represents the interests of the OECD member states, but it has ongoing efforts of outreach to non-OECD member states. Again, from a theoretical research perspective, we can absolutely fix this problem. But—boy—it's a complicated one and I'm not sure there's the political desire to do so. There are a lot of wealthy people, for instance, who wouldn't want total transparency within the global system.

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

Ms. Alepin, do you have something to add to that?