Finance Committee on Nov. 21st, 2012

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

I would like a recorded vote, please.

[The Chair, Conservative, James Rajotte]

We will have a recorded vote.

(Amendment negatived: nays 6; yeas 5 [See Minutes of Proceedings])

I'll now move to NDP-1.

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

I would like a recorded vote, please.

[The Chair, Conservative, James Rajotte]

We will have a recorded vote.

(Amendment negatived: nays 6; yeas 5 [See Minutes of Proceedings])

I'll move now to LIB-27.

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

I would like a recorded vote, please.

[The Chair, Conservative, James Rajotte]

We will have a recorded vote.

(Amendment negatived: nays 6; yeas 5 [See Minutes of Proceedings])

Next is NDP-2.

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

I would like a recorded vote, please.

[The Chair, Conservative, James Rajotte]

It's a recorded vote.

(Amendment negatived: nays 6; yeas 5 [See Minutes of Proceedings])

We will go to LIB-28.

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

May we have recorded votes, please?

[The Chair, Conservative, James Rajotte]

We will have a recorded vote.

(Amendment negatived: nays 6; yeas 5 [See Minutes of Proceedings])

Next is NDP-3.

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

I would like a recorded vote, please.

[The Chair, Conservative, James Rajotte]

We will have a recorded vote.

(Amendment negatived: nays 6; yeas 5 [See Minutes of Proceedings])

Shall clause 9 carry? Do you want a recorded vote?

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

I would like a recorded vote, please.

(Clause 9 agreed to: yeas 6; nays 5 [See Minutes of Proceedings])

(On clause 10)

[The Chair, Conservative, James Rajotte]

I will therefore move to clause 10. In clause 10 I have one amendment. I have LIB-29.

I will have Mr. Brison speak to LIB-29.

[Scott Brison, Liberal, Kings—Hants, NS]

Yes, thank you very much, Mr. Chair. We brought in Mr. Lamoureux so that you would appreciate me a little more at this committee.

[Some hon. members]

Oh, oh!

[Scott Brison, Liberal, Kings—Hants, NS]

We just sort of.... I have never felt so welcomed by the Conservatives. It's good to be back.

Thank you, Mr. Hsu, Mr. Lamoureux, and Mr. McCallum.

On clause 10, dealing with transfer pricing, secondary adjustments, and tax avoidance to partnerships, here are some explanatory notes as background.

Paragraph 53(2)(c) of the act provides for deductions to the adjusted cost base of the taxpayer's partnership interest. Proposed item 53(2)(c)(viii) is introduced consequential on the introduction of the provisions relating to transfer pricing secondary adjustments found in subsections 247(2) to 247(5). These subsections apply only to corporations, and as a result, proposed item 53(2)(c)(xiii) is only relevant for corporate partners.

On this issue, I'd like to read from an article entitled “Transfer Pricing—The Basics from a Canadian Perspective”, by Jamal Hejazi.

He says that transfer pricing investigates the price that multinational firms charge a related party for goods, services and intangibles, and that

Related party transactions account for a significant part of global trade with approximately 80% of international trade between related parties and the remaining 20% of international trade between unrelated, multinational companies.

According to this article, transfer pricing encompasses the investigation of the price associated with intercompany or intracompany transactions. While the typical example in transfer pricing textbooks involves the sale of manufactured goods to a related distributor, it also includes the price that one related party charges another for the provision of services or the use of intangible property. Transfer pricing attempts to determine the appropriate intercompany price between related parties by asking the following question: if the related parties to the transaction were at arm's length, what would they pay for the goods, services, or intangibles?

According to International Taxation in Canada, second edition, from which I will now read, with some paraphrasing, transfer pricing is generally viewed as the most difficult and fundamental problem in international taxation. It affects transactions between members of multinational corporate groups that dominate cross-border trade and investment. It concerns the heart of international taxation and the allocation of the international income tax base among countries, and it presents tax planning opportunities and tax compliance headaches for multinational corporations. For these reasons, transfer pricing has become an important issue for taxpayers and tax authorities, as it can play a major role in reallocating corporate profits from relatively high-tax countries to relatively low-tax countries, or in some cases, almost nil tax countries.

At a technical level, transfer pricing refers to the situation where multinational firms with related parties in more than one country transfer goods, services, or capital among these parties, so these transfer prices are the prices typically set for these transactions and related parties, including both separate legal entities like corporations and unincorporated related parties within the same legal entity. For example, in some cases, you may have a branch or a permanent establishment.

The transfer price received or charged for goods, services, or financing will be included in the income of the supplier, and the corresponding cost or payment will be deducted from the profits of the related parties. The price is thus crucial to the allocation of the profit and from the transaction to the parties. Tax regimes recognize that distortions of the reported income of related corporations may occur or, perhaps just as accurately, doubt that those distortions would not occur, because their activities are integrated in one manner or another as the result of common control and its functional manifestations.

In effect, Mr. Chair, these multinationals or global businesses tend to operate as singular businesses in economic and even financial respects, even though the compartmentalization of their activities and entities dictates that the law and financial accounting treat them as separate—

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Brison. We appreciate that.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you.

[The Chair, Conservative, James Rajotte]

Okay, I will call the vote.

[Scott Brison, Liberal, Kings—Hants, NS]

I would like a recorded vote, please.

[The Chair, Conservative, James Rajotte]

It is a recorded vote on Liberal amendment 29.

(Amendment negatived: nays 10; yeas 1 [See Minutes of Proceedings])

(Clause 10 agreed to on division)

Colleagues, I am going to suspend for five minutes for a health break.

[The Chair, Conservative, James Rajotte]

I call this meeting back to order. I encourage all colleagues to take their seats, please.

We finished with clause 10.

(On clause 11)

We are therefore on clause 11. I do not have any amendments on clause 11. Is there anyone who wishes to speak to clause 11?

Go ahead, Mr. Brison, on clause 11.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you, Mr. Chair. This provides further opportunity to discuss the issue of pooled registered pension plans.

The Liberal Party believes that PRPPs are an additional tool for Canadians saving for retirement, but we're concerned that the government may be ultimately overselling the benefit. We don't agree with the NDP that the PRPPs do not provide any additional benefit to Canadians saving for retirement, but we do have some concerns.

We don't agree with a mandatory CPP increase at this time because of what still remains stubbornly high unemployment, particularly in some regions, as you break out the unemployment rates across the country. At the same time, we believe an optional voluntary supplemental CPP in addition to the PRPP would be good public policy. It would help provide Canadians with, among other things, an additional option in terms of their savings.

The Canada Pension Plan Investment Board is well managed. It achieves a very low cost of management, largely due to the size of the asset base being managed, which I think is around $155 billion. It is well diversified across asset class—everything from natural resource investments to private and public equities to infrastructure. It's well diversified in terms of geography. The Canada Pension Plan has become one of the most impressive vehicles for global investment, reach, and influence on behalf of Canada around the world, in addition to other Canadian sovereign wealth funds, including AIMCo, teachers' pension plans, OMERS.

Mr. Chair, what we have proposed is a voluntary supplemental CPP in addition to the PRPP. One of the benefits would be that by providing that kind of competition, you would potentially have a really well-managed and well-diversified option for Canadians. It's an option that Canadians would have trust in. It would potentially encourage greater levels of savings.

The first decision a Canadian has is how much they want to contribute, if in fact they can. One of the challenges, Mr. Chair, with any voluntary plan is that left to their own devices, particularly cash-strapped Canadians, at a time when personal debt as a percentage of income for families is around 161%, find it really tough to save, and not enough savings are occurring.

When Canadians make the decision to save for retirement, the decision of where to invest is a big one. While the PRPPs are one option, having a voluntary supplemental CPP would provide what I believe would be a lower-cost option in terms of potential fees being charged ultimately to investors and future Canadian retirees. Therefore, the offering of a voluntary supplemental CPP would help keep fees on the PRPPs low. All members of the committee, the Conservatives included, will appreciate that there is a benefit to providing a low-cost, well-managed, highly diversified alternative.

Mr. Chair, the Canadian Association of Retired People, CARP, recently appeared before this committee, and they have supported our Liberal plan to have a voluntary supplemental CPP. Additionally, the Canadian Federation of Independent Business, the CFIB, has endorsed the plan to have a voluntary supplemental CPP option.

I reiterate, Mr. Chair, this is not instead of PRPPs. This would be in addition to PRPPs and would potentially actually strengthen the option for Canadians. Again, with the endorsement of several national organizations, we would hope the committee would have—

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Brison.

Are there further interventions on this?

Shall clause 11 carry?