Finance Committee on May 3rd, 2016

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Dusseault.

We'll turn to Mr. Sorbara.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Good morning, everyone. Thank you, Mr. Wiebe, for coming before us.

I did serve on the CICA user advisory council for a number of years. I don't know if that makes it better or worse, but I did. I can honestly say that, if you are a good tax lawyer or tax planner, you are obviously going to be sought after in today's world that we live in.

Nonetheless, the issue I have, and I think the issue a lot of Canadians have, is that we want to make sure that our tax system gives the confidence to all Canadians that it is transparent, that everybody is paying their fair share, and that honest Canadians are not subsidizing those who have the means or the wherewithal to implement tax measures or tax planning that raises red flags. From my conjecture, reading about this Isle of Man FSC structure obviously raised a number of red flags. I think the estimates worldwide are literally in the tens of trillions of dollars that individuals have put into tax havens—if I can use that term—in tax avoidance structures, and potentially, hypothetically, even tax evasion structures.

In Canada, I think in a prior report done by a prior committee, the potential tax gap is literally in the billions of dollars, which could be going to fund programs that Canadians need and that would make our economy stronger. It is obviously with some disappointment that we are sitting here today. Nonetheless, we are a committee, and we need to ask some questions.

You alluded, in your comments, to the negotiated settlement agreements. I take it that, over your long career, you have probably partaken in a few with your clients. I would like to stick to this for a little bit. Is it a more common practice to enter into an NSA rather than go to the courts, due to the length of time involved in the court system?

[Gregory Wiebe]

Yes, that has been my experience by far. From a tax perspective, I think very few cases actually go to court.

The Income Tax Act, like all law, is subject to interpretation, and there can be two sides to a story. When I advise clients, I know that from a client perspective they will often try to settle without going to court. It depends on their risk tolerance, but it is always subject to interpretation. Even if they feel they have a very solid case under the tax law, there is always some uncertainty. Court cases are very expensive, lawyers are very expensive, and there is some uncertainty. It can take up to a decade for a tax matter to go through the courts.

From CRA's perspective—I don't know, but I would imagine—if they can create certainty, if they can get a timely settlement so they can take their resources and move them to other files, I am sure that is what is driving their behaviour. If there are 80,000 formal notices of objection a year filed by Canadians because there is a dispute between what the taxpayer thinks is right and what the CRA asserts is right, and if there are only 3,400 cases in the courts, settlements happen routinely and daily.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

In our budget, our government has dedicated $440-odd million to the CRA to assist them, to strengthen their role in making sure that all Canadians pay their fair share of taxes. I think that is something we need to highlight.

In my particular experience now as an MP, I have had constituents come to me with liens on their houses for potentially owing just tens of thousands of dollars—or there has been a mix-up with their accountants, or their accountants actually haven't filed their taxes—while these few individuals here have benefited from a wherewithal of means to enter into an NSA. I think that is unfair. I think it is wrong.

[Gregory Wiebe]

We have 35,000 tax clients within KPMG Canada, and 15,000 of them are individuals who need help in filing their personal income tax returns. The average fee that we would charge is $1,400 annually for tax returns. We are a Canadian firm. We have offices in North Bay, in Lethbridge, and whatever, and we are helping all kinds of people comply with their tax obligations.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

I'll ask one more question, then I'll turn it over to the parliamentary secretary.

On the FSC structure, are there similar structures that are in place today, and that KPMG is offering its clients?

[Gregory Wiebe]

For individuals, we don't offer any offshore tax plans at all today. The legislative world has changed. The 2013 legislation that came in, retroactive to January 2007, gave some good indications of what was acceptable by the Department of Finance and what wasn't. So 2014 was the last year the Department of Finance allowed immigrants to use offshore trusts for putting money offshore. That was eliminated in 2014, two years ago, and that's been the end of it.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Sorbara.

Which parliamentary secretary, Mr. Champagne or Mr. Dubourg?

Mr. Champagne, you have time for a quick one.

[François-Philippe Champagne, Liberal, Saint-Maurice—Champlain, QC]

Thank you, Mr. Chair.

Mr. Wiebe, thank you for being here today.

As you know, the government is going to invest $444.4 million to equip the CRA with the technologies, teams, and tools it needs to better understand what you call tax plans. How does your corporation devise those tax plans? The Prime Minister also talked about international cooperation on this issue. I imagine these tax plans are devised, produced, and detailed. Would you kindly describe for the members of the committee how you come up with these tax plans?

Furthermore, as you know, your tax plans are going to be audited. I know you have 30 years of experience, so I'd like you to explain to me how the practices of the IRS in the United States compare with those of the CRA in Canada. How can we apply global best practices here, in Canada?

[Gregory Wiebe]

With respect to tax ideas developed in Canada, we go through four stages, generally. First, there is a technical review, to make sure it fits within the tax law. Second, a partner conducts a technical review to ensure that the first partner got it right. Then we have a review of our general anti-avoidance rule committee, to make sure that it doesn't offend the spirit of the act, that it's not so-called aggressive tax planning. Is it effective for the law? Does it meet the tests of the general anti-avoidance rule?

We have a new lens that we placed on our reviews in our tax practice here in Canada and also globally. When I was a global head of tax, we instituted this. It started in 2006 and was codified in 2007. Finally, we have what I'll call, “Is it responsible?” Does it fit the needs of the client? Does it fit our needs? Is it something we would be proud of if it were to hit the papers?

[François-Philippe Champagne, Liberal, Saint-Maurice—Champlain, QC]

I understand that part.

[The Chair, Liberal, Wayne Easter]

I'll have to cut you off there, Mr. Champagne.

Mr. Aboultaif.

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

Thank you.

I would like to get some clarity on the tax gap in Canada. First, can you explain how the tax avoidance/tax gap situation has changed over the last decades? Second, are there measures that have strengthened the fairness and integrity of the system?

[Gregory Wiebe]

To your question on the tax gap, there is no Canadian data on the tax gap. A number of jurisdictions around the world analyze what the tax gap is. The tax gap is the difference between what the government expects to collect and what they actually collect. Canada doesn't publish those figures. I assume it would be fairly similar from a Canadian perspective, but I don't know. We just don't have the data.

From my experience in a bunch of other jurisdictions, I know that the primary driver of the tax gap is the underground economy. It's those citizens who have decided that they are outside the tax system and aren't going to report income. That is by far the largest bit of the tax gap.

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

That's on the government side. On your end, as KPMG, do you see any positive changes? Do you see any of the gaps narrowing?

[Gregory Wiebe]

It depends on the jurisdiction. There are cultural differences around the world in taxation and in respect of the obligation of the citizen to pay. In Japan, everybody pays their tax because it's the right thing to do. In a lot of other jurisdictions, there's a massive underground economy. Greece is one that's often cited.

I'd like to think Canadians are generally very compliant with the income tax system. My belief is that there is a much smaller problem regarding the underground economy than what we'd see in other jurisdictions around the world.

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

The previous government, the Conservative government, created something called the “stop international tax evasion program” in 2013.

[Gregory Wiebe]

It was a hotline.

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

Can you explain how that ensured the integrity and the fairness of our tax system?

[Gregory Wiebe]

I think it's important. The studies that have been done around the world would suggest that people are more willing to comply with their obligations under the income tax rules if they believe their neighbours are complying. The only way society works is if everyone complies and pays what they have to pay. If there's a perception that your neighbour is doing something that isn't appropriate, then I think the trust in the system breaks down.

The way the tax system is now is pretty good in Canada. It's maybe okay around the world, but it's got a long way to go to get that trust back into it, frankly. I like the work that the OECD is doing around the future of taxation because I think that, for average Canadians, tax is way too complicated, and they don't understand it. I've been doing it for a long time, and there are parts I still don't understand.

In society there needs to be trust, there needs to be transparency, and there needs to be a perception of fairness. I think, sometimes, that doesn't exist as tight as it needs to be. That's why, I think, the international tax rules need to change. A lot of them are broken. Business is now global; tax is national, and there exist, frankly, too many disconnects between the national tax systems and the global business reality we have today.

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

I gather from what you have said that there are psychological factors here in terms of how to deal with clients. Taxpayers are, basically, clients at the end of the day. How can the government better approach that in order to get the best result and to get people to practise less tax avoidance?

[Gregory Wiebe]

I like the approach the Canadian government has had over the last number of years around this entire issue on international taxation, as again, there's a perception out there that it's not fair. There have been some recent changes, and making sure the tax authorities have adequate resources to do their job properly I think is important.

There is a willingness of the Canadian tax authority to share information with other tax authorities, so this year, 2016, is the first time that Canadian tax authorities are going to be sharing their advance tax ruling with other jurisdictions where appropriate. I think that's critical. I think that there are new rules coming into play that have been announced for the last couple of years, and they're effective this year, that require a multinational corporation to explain themselves about where they are conducting business, where they leave the tax behind, where their operations are, how many people they employ, how much profit there is, and how much tax they are paying in all those jurisdictions. They're starting to collect that data starting this year and next year, and they're going to share it with other jurisdictions around the world starting in 2018.

If you can't have that transparency amongst tax authorities in a global business environment, I don't think the system works. The trend that we're on, that we're finally starting to see some momentum on, I think, is the right way to go from a tax authority perspective and the government—and society.

[The Chair, Liberal, Wayne Easter]

Thank you, both.

We turn to Mr. MacKinnon for five minutes.

[Steven MacKinnon, Liberal, Gatineau, QC]

Thank you, Mr. Chair.

Mr. Wiebe, thank you for being here today.

You are KPMG's global head of tax, is that correct?

[Gregory Wiebe]

I was until February 1 of this year. I was the global head of tax for KPMG International.