Finance Committee on May 3rd, 2016

[Raj Grewal, Liberal, Brampton East, ON]

I should have framed my pro bono question by saying, how many pro bono cases do you do when people are being audited by the CRA, because filing taxes is a lot simpler than helping people navigate the complicated structure? People only hire you guys for your expertise, and I would highly encourage KPMG and other people in the industry to look into that. You don't need to answer that question.

On your code of ethics, the global code of conduct that you're extremely proud of—and I think it is very necessary for your industry—how much emphasis for new employees joining the firm is put on their relationship with tax authorities, particularly when they meet them at after-work events such as the tailgate parties and the soirees that we've been hearing about on CBC?

As a lawyer, I remember that a lot of emphasis was placed on that in law school, in the professional responsibility courses, and at the firm that I practised at. What is KPMG's thought on that?

[Gregory Wiebe]

As soon as an employee joins us, they have to take the one fundamental course, in my humble opinion, and that's on acting with integrity. Everyone gets trained on integrity courses and I've been doing it now.... Every two years you have to redo it, and I've done it quite a few times because I've been with the firm for an awful long time. Integrity and our ethics are core to who we are and what we believe in.

If I can talk a little bit about the other aspect, which is the relationship with CRA, the tax system only works in Canada if there can be a relationship between tax authorities, taxpayers, and tax advisers.

CRA has very stringent rules about what they can and cannot do. They cannot come out for dinner, they cannot join us, etc. There was—and I hope there still is—one limited case, when we get together for tax conferences like the Canadian Tax Foundation's. I was speaking at that one you're referring to in 2010 on global tax trends, or whatever. The fact is that you get a huge amount of tax professionals who attend, because we want to understand policy, we want to understand where planning is going, we want to understand global trends, etc., and CRA is there as well.

That's critical, because they need to understand what we're thinking about planning, or what we're thinking about might be some opportunities where there might be some tax areas to save some taxes, etc., because if they see something and they say, we don't like it, then they're in the know.

Probably even more importantly, the most important parts of those conferences for me as a tax professional were to understand what CRA likes and doesn't like. What are they working on? What are they concerned about? What aspect of tax planning or tax policy is on their radar screen? That's when I can properly advise my clients.

During those meetings, two- or three-day meetings like the one in Vancouver, we have a breakfast that's sponsored by an accounting firm. We sponsor for $5,000 a coffee break. One law firm sponsors at night an opportunity for everyone, all members who attend the conference, to get together to have a coffee, a beer, piece of cheese, or whatever else it is.

I hope that opportunity for CRA doesn't go away, because they should be treated like absolutely everyone else who attends those conferences. They shouldn't be made to feel any different from anyone else. I've been in this business for over 30 years and I've met a lot of people from CRA and I can't imagine that a beer and a piece of cheese would impact their integrity in one way or whatsoever. I just don't think that's frankly even fair.

[The Chair, Liberal, Wayne Easter]

I'll have to cut you both off there. You're well over your time.

Mr. Dusseault, you have three minutes.

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

Thank you, Mr. Chair.

I was surprised to hear you say that you want to help get back the trust of Canadians in the tax system. Do you think that setting up a scheme on the Isle of Man for 16 people, who can pay a $100,000 fee to get that scheme helps to restore the trust of Canadians in the tax system?

[Gregory Wiebe]

I think that if you look at that particular issue through the lens that we look through today, no. I think that if you look at that issue through the lens that existed at the time, in 1999, when it was policy and practice for individuals to have monies in a non-resident structure offshore, it was a very different time. We used to smoke in restaurants in 2006. We used to text in our cars up until two years ago. Times change, and we change with them.

Looking at it through that lens, I can't defend it.

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

Do you think continuing to set up schemes, complicated schemes, with a bunch of lawyers and accountants, to help avoid paying taxes...? You said every taxpayer is free to arrange their affairs as they see fit, as long as it's legal. But when the multimillionaire clients of KPMG come to you and ask if you are able to provide them a scheme to avoid as many taxes as possible, do you think it helps to regain the trust that you said you want to get back?

[Gregory Wiebe]

That, with respect, isn't what we do. What we do for the 35,000 tax clients we have is help them comply with the tax law, but we also provide planning.

Suppose a successful entrepreneur runs—I don't know—a pet food store, and makes $200,000 a year. If they have that business as an individual, they pay $85,000 worth of tax. If we help them incorporate, they pay $25,000 a year in tax. We can save them $60,000 a year in tax. That's tax planning.

That's absolutely legitimate because the government policy is to allow small and medium-sized businesses to earn up to $750,000 of their income and pay a very, very low rate of tax. That's how we keep the economy going. Our role is one of compliance, but also of ensuring that our clients understand the opportunities that are available to them, all legal, all lawful within the income tax system.

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

My last question is about the amnesty that was given to your clients. I know you cannot talk in detail about that, but do you receive that kind of amnesty letter often at KPMG? Do average taxpayers receive that kind of amnesty from the CRA, to avoid interest penalties and criminal rules?

[Gregory Wiebe]

Every Canadian has the right to have a voluntary disclosure with the Canada Revenue Agency about issues that they want to report on their tax return. They have the opportunity to do it right when they file their tax return, but also after the fact. If there's something that they don't feel comfortable about, they have the right to talk to the CRA under the voluntary disclosure program in Canada. That's a right every Canadian has, whether you're a waiter with undisclosed tips, or whatever else. When you arrive at a settlement with the CRA, you end up paying the tax you otherwise would have paid, plus interest. You don't fall into the penalty regime.

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

But do you see those kinds of amnesties often?

[The Chair, Liberal, Wayne Easter]

Sorry, Pierre.

Mr. Ouellette, you have five minutes.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Thank you for coming. It is very much appreciated.

You mentioned to a previous member that you have 155 member firms, partner firms.

[Gregory Wiebe]

Yes, we have firms in 155 different countries around the world.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

The Turks and Caicos Islands?

[Gregory Wiebe]

I don't know off the top of my head, but probably.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

The Principality of Andorra?

[Gregory Wiebe]

I don't know off the top of my head.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

The Bahamas? Bermuda? The British Virgin Islands? The Cayman Islands?

[Gregory Wiebe]

Barbados.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Cook Island? Costa Rica?

[Gregory Wiebe]

Yes.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Cyprus? The Dominican Republic?

[Gregory Wiebe]

Yes.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

St. Lucia? Gibraltar? Malta? Monaco?

Many of these are very well-known tax havens. What then is your relationship when you deal with, for instance, your other partner firms in these jurisdictions?

[Gregory Wiebe]

Let's take Barbados as an example, because I've been to that office on a number of occasions.

You would have seen in the press over the last couple of days, I think, talk about tax havens and that Barbados was the number one on the list as far as foreign investment going into Barbados. That's not individuals in Barbados, that's multinational corporations, Canadian based, going into Barbados. The reason they do that is because Canada has a tax treaty with Barbados. Barbados enjoys a tax treaty with Canada, just as Luxembourg does.

A multinational in Canada can take some of its business operations, not that does business in Canada but does business around the world, and they can put it in Barbados. The profits earned in that particular jurisdiction are taxed at a rate of 2.5% instead of the 25% they would have to pay if it were profit earned in Canada.

The Canadian government has, by policy, allowed its multinationals, when they expand globally, to use jurisdictions like Barbados to finance their international expansion, as long as they meet the tests around substance, etc. And for those of you who have been to Barbados, you'll have seen a lot of signs of Canadian businesses that are actually operating there.

Why does Barbados allow that? Well, Barbados doesn't have a lot of natural resources. They're not close to anybody. The only way they're going to get jobs or create a finance industry or whatever is to create an advantage. That advantage is a very low tax rate that Canadian businesses take advantage of. Ireland does the same thing.