Finance Committee on Oct. 21st, 2014

Evidence of meeting #50 for Finance in the 41st Parliament, 2nd session. (The original version is on Parliament’s site, as are the minutes.) The winning word was unions.

A video is available from Parliament.

On the agenda

Pre-Budget Consultations 2014

MPs speaking

Also speaking

Arthur Cockfield Professor, Faculty of Law, Queen's University, As an Individual

Mike Moffat Assistant Professor, Ivey Business School, As an Individual

Eric Dillon Chief Executive Officer, Conexus Credit Union, Credit Union Central of Canada

Bruce MacDonald President and Chief Executive Officer, Imagine Canada

Jon Cockerline Director, Policy and Research, Investment Funds Institute of Canada

Brigitte Alepin Tax Expert, Agora Fiscalité, As an Individual

Jennifer Robson Assistant Professor, Kroeger College, Carleton University, As an Individual

Frances Woolley Professor, Associate Dean, Carleton University, As an Individual

Clay Gillespie Member, Board of Directors, Conference for Advanced Life Underwriting

Andrea Mrozek Executive Director, Institute of Marriage and Family Canada

5:40 p.m.

Conservative

Gerald Keddy Conservative South Shore—St. Margaret's, NS

Thank you, Mr. Chairman.

Welcome to our witnesses.

To Ms. Alepin, thank you very much for explaining your graph because that was a one-page that we all had, and were trying to interpret so that's much appreciated.

I have to compliment you on your quote “Bill Gates, pay your taxes just like the rest of us”. Quite frankly we've seen tax avoidance from far too many major companies and corporations across the country. But it's a huge responsibility to try to build a system by taking the system that's already in place and trying to mould it so that it's more responsive to the needs and the changes that Canadians expect to see.

When you look at fairness in the tax system, closing the loopholes, strengthening tax enforcement, and you take some of the larger corporations, and in particular your graphs on the charities, how do you propose changing that system to make it more responsive and, quite frankly, more fair for all Canadians?

5:40 p.m.

Tax Expert, Agora Fiscalité, As an Individual

Brigitte Alepin

That, of course, is a very good question.

In terms of private foundations, it is easy. I think the simplest way, and in fact there is one, is to impose additional obligations on private foundations in the charitable sector. Right now, we cannot really say that these foundations are charities because they do not spend more than they make. As a result, the initial capital is always intact. That is true for most foundations. Studies show that they raise about 4% each year as a charity, and that covers their operating expenses.

Overall, Canadian private foundations are probably designed to be permanent. That is the crux of the problem. We must support private foundations and charitable work, but we must ensure that it is good for Canadians.

In my view, the simplest way to correct the situation is to increase the charity rate every year. Right now, the rate is 3.5%. In the U.S., it is 5%. Studies show that it could be easily set at 8%. An amount of $25 billion is tied up in private foundations. A lot of money is therefore reinvested every year.

Do I have time to answer the question about multinationals?

5:40 p.m.

Conservative

Gerald Keddy Conservative South Shore—St. Margaret's, NS

No, I'm going to switch. Thank you.

You're talking about $25 billion of non-tax revenue sitting in foundations in Canada today. That's a huge amount of money.

One of the other issues you talked a lot about is tax evasion and tax fairness, international tax evasion and tax avoidance. Again, the whole principle of tax evasion is a difficult number to equate. Those taxes have been evaded, because people have broken the law to hide that money.

One of the things we have seen that's working is the voluntary disclosure program. Although it is criticized by some, the voluntary disclosure program has really brought people out of the closet, quite frankly. They went from 1,200 in 2006-07 to 5,200 in 2013-14, and this year so far 6,700 people have voluntarily disclosed. That's nearly 12,000 individuals and companies hiding money offshore.

How do you account for that, how do you qualify that, and how do you continue to build on that record?

5:40 p.m.

Tax Expert, Agora Fiscalité, As an Individual

Brigitte Alepin

The voluntary disclosure program is a good program, although it can be improved in some ways. I am pleased that the federal and provincial governments are doing something along these lines.

To go even further down the road of detaxing Canadian multinationals, I will say this. Right now, there is a global movement because there are a number of problems. I think the OECD is doing quite an amazing job with its BEPS project. Some aspects need to be improved, but, overall, taxing revenue at its source is a great idea. Setting up the system is going well.

Whether in Canada or abroad, the shortcoming is that we are not addressing the race to the bottom issue. We seem to think that countries will act differently from what economic theory teaches us. The theory is that, when we are in the ideal competitive position, we can make decisions that do not benefit us overall.

Tax rates in Canada are still adequate for multinationals as well as small and medium-sized businesses. We are not like Ireland where the rate is 12% or the U.S. where the rate is 35%. In Canada, tax rates are adequate and our way of doing things seems to work. In fact, tax rates have been significantly reduced in the past 10 years.

What country will lead the race to the bottom in tax rates next? Our position might be less favourable then. Canada needs to address this problem.