Finance Committee on May 3rd, 2016

[Gregory Wiebe]

That's fairly rare. Tax Court cases overall are fairly rare. I think there are something like 80,000 notices of objection filed each and every year by taxpayers who dispute what the CRA has suggested is the right answer, from a tax perspective. I think, in total, there's something like only 3,400 Tax Court cases in progress right now. They can take many years, and very few of them are criminal in nature.

[Lisa Raitt, Conservative, Milton, ON]

Compare that to the United States for me, if you could.

[Gregory Wiebe]

I don't have the numbers, unfortunately, for the U.S. I do know that the way our system needs to work, and does work, in a self-assessing system is that taxpayers are expected to self-assess, CRA is expected to do their job and review the particular aspects of their tax filings. Conversations happen if there's a dispute. Sometimes it goes to court, but in the Canadian context that's very rare. Very rare. They're encouraged to settle because the court system just can't handle any volume.

[Lisa Raitt, Conservative, Milton, ON]

About this particular scheme that was developed and marketed by your firm, I find it curious the terminology that you use in here, your speaking notes, about how the world has changed and therefore you're not doing now what you did in 1999.

Is it possible that one of the reasons you do it differently is because of the charges that KPMG was subject to in the United States around the time period of about 2005 having to do with offshore tax havens? Did that cause KPMG worldwide to take a different decision on these kinds of schemes?

[Gregory Wiebe]

I think that's part of it. If you go back in the history of taxation, I see it now that there are three lenses. At one time there was only one lens: was it legally effective, yes or no? If it was legally effective, yes or no, then it was an effective tax plan and away you went. In 1988, the Department of Finance introduced a general anti-avoidance rule, which brought a different concept into the whole idea of taxation and really started to change behaviour. It basically said if there's a tax benefit, and it was an inappropriate tax benefit because it abused a section of the Income Tax Act or wasn't what Parliament intended, then you could undo the legal aspect of it. That was 1988. These things take a while, but the Supreme Court first heard on that in 2005. Since that point in time, there's been this evolution of: is it abusive or not abusive? Is it in keeping with the spirit of the act?

There's a third element, and I call it a reputational lens, that has been developing I think over the last 12 to 13 years. Some of it is because of some of the pressures that taxpayers would be under, multinationals would be under, tax advisers like ourselves around the world would be under, but we've been following that pretty closely. That's part of the reason why, in 2009, we developed our global tax code of conduct to reflect this changing world, because it is a very different world.

I think to offer proper tax advice today, you have to look at those three elements: is it legally effective, yes or no? Does it offend the spirit of the Income Tax Act, which kind of got codified mid-2005 to 2009, yes or no? And then from a responsibility perspective, I think there's almost a third lens there around: is it responsible? Even if you can do it, does it mean you should? I think that's just evolving today. We see a little of it in Canada, we see a lot of it in Europe. Sorry to....

[Lisa Raitt, Conservative, Milton, ON]

No, that's okay. For the record, in fairness, KPMG admitted to criminal wrongdoing in the United States and agreed to pay $456 million in fines right around that period in time. There may have been a deterrent, an X factor, as it were, in terms of moving us along that continuum of the three. That's an observation, not a question.

I did want to ask you a specific question though. I do find it interesting that you apply the three lenses, and I think it makes sense. How important to your practice is, I guess I would say, the truism that you tend to hire a lot of former CRA auditors and Department of Justice lawyers?

[Gregory Wiebe]

I don't know what you define “a lot” to be.

[Lisa Raitt, Conservative, Milton, ON]

Fifty.

[Gregory Wiebe]

Last count, of the 1,400 tax professionals we have in KPMG Canada, I could count seven or eight who have come from there, and probably as many have gone from our organization to the CRA or the Department of Justice. I think it's healthy. Frankly, I think the only way our system works in Canada is to have open and transparent dialogue between taxpayers, tax authorities, and tax advisers. We hire for expertise. There are some fantastic people within the CRA and I'm glad we can be a bit of a career option for them.

[Lisa Raitt, Conservative, Milton, ON]

Do you seek pre-opinions from Revenue Canada when you're developing these products to market?

[Gregory Wiebe]

You can get advance tax rulings. In this particular case, we sought and obtained two legal opinions—

[Lisa Raitt, Conservative, Milton, ON]

But not from CRA.

[Gregory Wiebe]

—but there was no advance tax ruling in respect of this.

[Lisa Raitt, Conservative, Milton, ON]

Why wouldn't you do that? If you knew that you could take that step—and you've already said that you value the expertise of CRA so much that you'd hire them, even though they have cooling-off periods—why wouldn't you take the step of making sure that...? Given you are on a thin line between tax evasion and tax avoidance, knowing the difference in law, why wouldn't you take that extra step to give your clients the assurance that they wouldn't be put through a legal test, which is extremely expensive, or that they wouldn't be found in contravention of the spirit of the law in Canada?

[Gregory Wiebe]

Even today, the use of advance tax rulings is quite rare. It is something that we don't engage in very frequently. It tends to take a lot of time. It tends to be a fairly costly process. Clearly, in the time when this plan was developed, 1999, that would not have been a standard thing for us to do. It's more frequent today, but in those days....

Times have changed, and it was not something that we would have done regularly.

[Lisa Raitt, Conservative, Milton, ON]

Do you think the possibility of criminal liability to the person who developed this product at your firm would be a deterrent for people seeking to go so closely to the line in terms of tax evasion and tax avoidance?

[Gregory Wiebe]

Just to be clear, the tax aspects of this plan were fully vetted by the firm, by various committees within the firm, and they fully comply with the tax law. Not one, but two, outside legal opinions also support that assertation.

[Lisa Raitt, Conservative, Milton, ON]

Okay, so you'd be comfortable if there was a law that said that an individual in a firm can be held liable for a product they put together and put their name to?

[Gregory Wiebe]

There are a couple of jurisdictions that have actually enabled that, and I don't think it's unhealthy at all. I stand behind the quality of our people and the quality of work we do. If there are tax advisers out there who are skirting the law, which is something that we never do, should there be consequences? Absolutely.

[Lisa Raitt, Conservative, Milton, ON]

More than just what you go through at CPA?

[The Chair, Liberal, Wayne Easter]

I'll have to stop you there, Ms. Raitt.

[Lisa Raitt, Conservative, Milton, ON]

I appreciate the answers. Thank you very much.

[The Chair, Liberal, Wayne Easter]

Mr. Dusseault, welcome to this committee. I believe it's for the first time. The floor is yours for seven minutes.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you, Mr. Chair, and thank you to the witnesses for being here today.

We're happy that at the initiative of the NDP we can get to the bottom of the KPMG case—the scheme you developed to have some taxpayers avoid paying their fair share of taxes.

Can you confirm that you think the Isle of Man scheme was legal at the time?

[Gregory Wiebe]

Absolutely. Thinking about the steps that we go through with that particular tax plan.... First of all it went through a detailed technical review by a first partner. Then it went through a detailed technical review by a second partner, and then it went through a review by our general anti-avoidance committee. Then we obtained an independent legal opinion as to the effectiveness of this particular plan, not once but twice, from both a Canadian perspective and an Isle of Man perspective. Then finally it was signed off and approved by the managing partner of our national tax practice before it was ever implemented.