Finance Committee on May 5th, 2016

[The Vice-Chair, Conservative, Ron Liepert]

Mr. Dusseault, I'm going to have to get you to wind up. You're well over time.

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

Just to finish, he said “...[the] assets is taxable in Canada in the Taxpayers' hand and that they are required to file form T1135”. So, if you know it's illegal, why would you offer an amnesty?

[The Vice-Chair, Conservative, Ron Liepert]

Mr. Gallivan.

[Ted Gallivan]

To take up your analogy again, I can't confirm that this document represents an actual offer, and I can't disclose any specific taxpayer information, but in cases like this, the analogy I would use is more, before the courts...and an accused who is willing to plead guilty but wants to have a conversation about the sentence. From the perspective of the agency, there's always a legal risk around our position. We've taken the position that the specific Isle of Man structure is not compliant. Only the courts can give us a final determination, and that hasn't happened yet.

We sought information from KPMG because we wanted to hold those participants to account, and we're in court trying to get those names. We have no guarantee that we'll be successful, and so in a situation like that, if there were a theoretical opportunity to get value for the Canadian taxpayer, the agency might do so.

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

Thank you, Mr. Chair. I just want to put a notice of motion. I would like to discuss it later. It's related to what we are discussing right now. It's notice:

That the committee compel the Canada Revenue Agency to provide all written correspondence, including, but not limited to letters and emails, between the Canada Revenue Agency and the KPMG LLP accounting firm, issued between January 1st 1999 and May 5th 2016, regarding the Isle of Man tax plan and any matters related to that plan, and that the documents be provided to the committee no later than Wednesday May 18th, 2016.

This is just a notice of motion. I would like to discuss it later at committee—

[The Chair, Liberal, Wayne Easter]

Okay, notice is given.

Mr. Sobara.

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

Thank you, Mr. Chair.

Thank you to the witnesses this morning, and this afternoon as well.

Since I'm batting cleanup, if I can use that analogy, I'll just ask a couple of questions. A lot of stuff has been asked.

There was mention that a tax gap study is currently under way. Have you any idea when that will be available or completed?

[Andrew Treusch]

The minister announced the government's approach to tax gap. She announced it on April 11. It will be a series of things as opposed to one big bang. What she committed us first to was a conceptual paper on the definition of tax gap, on approaches to measurement, on the methodological issues, and on the approach that the agency would be taking. She also committed to a specific tax gap, and I think we were fairly clear that it would be the GST/HST domain that would be the first thing. That was committed for before the summer, as I recall.

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

The second question is this. We have heard a lot of noise about, say, the complexity of our tax system in Canada and what it costs both businesses and individuals. I think the number thrown out was it costs something like $25 billion for compliance for everything from someone like me preparing my taxes at home to costs incurred by a large multinational corporation. I think it would behoove us to take a look at cleaning up our tax system.

On that tangent, I'm really curious about the answer on the transfer pricing issue with respect to businesses and multinationals, because transfer pricing is an issue in which the line between tax avoidance and the other side can be easily blurred, from my accounting background. How confident is the agency on the transfer pricing file?

[Andrew Treusch]

First, on complexity, any commissioner of a revenue agency would prefer to have a tax system that would be simple, that would be clear, and that would reduce compliance efforts. All Canadians would welcome that.

I feel a little torn, to be honest. I think that is a good outcome for individual taxpayers, and in particular for small and medium-sized business, particularly microenterprises, for which I feel there's ground for improvement.

What I feel ambivalent about is large global enterprises with very complex structures and financial arrangements. You referred to transfer pricing. These are not simple matters. It would be naive to think they ever could be simple.

Concerning transfer pricing, could you elaborate, Mr. Gallivan?

[Ted Gallivan]

The OECD has released a BEPS action plan including 15 items, of which items 9 through 11 relate exactly to transfer pricing. Those new global standards very much represent the Canadian mode. This makes us feel that both in the past we were on a good footing and going forward we are even more so.

Secondly, the commissioner alluded to the 1,200 economic entities with more than $250 million in gross revenue; these are under real-time risk assessment. Every year we do a deep dive, and 100% of those that we consider to be high-risk are audited. That's why last fiscal year we had an $11.3 billion fiscal impact, up from $8.7 billion in 2011-12. The multinationals and transfer pricing are a strong focus of the agency.

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

I'm glad to see that 6,400 auditors will be hired in addition, too, so that you'll have more resources. I think that's wonderful. I also take a step back and say that I hope some of those auditors don't show up at the doors of some of those individuals in my riding who are working very hard and who may have made a simple mistake. They'll feel the wrath of the MP who represents those residents. I've had to deal with a couple of tax issues in which liens were put on people's homes for insignificant amounts, or at least what I consider insignificant amounts, or in which CPP and old age security were garnisheed—I think that's the proper term—and we've had to help the individuals out and have taken steps with them and obviously have guided them to go to an accountant ultimately.

I hope the auditors who come on board understand that not only are we dealing with businesses and stuff; we are dealing with individuals' lives and livelihoods. We are sometimes dealing with people who generate a lot of economic wealth for our country and for our constituencies, and we're there to work together, not to go against them.

[Andrew Treusch]

On the first part, the reference to 6,000-plus auditors, that is the number of auditors we have today. That's over the period of fiscal restraint. The indication I had is that we were still able to grow our auditor complement by 20%.

Going forward, following budget 2016 and a $440-million investment, we will again be very active in the field, which is why the question about post-employment is a really important one. We're going to have to be hiring for attrition thousands of employees, in the budget, so we need to get the balance right.

The second part of the question was about debt collection. There is a video that we have put up, with a lot of promotion. The Revenue Agency has to uphold the law to collect debts owing to the crown. We're really encouraging people to come forward to talk to us. You'll see an article in this morning's Globe and Mail, with the same message: talk to us. Things become difficult when a taxpayer avoids the Revenue Agency and doesn't respond; then, over a period of time, we are required by law to take some of the actions that you referred to.

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

I was just reading some of the information on the voluntary disclosure program. It seems that the program is working well, if I may say that.

I've always been curious about the difference between the voluntary disclosure program and the negotiated settlement agreements wherein CRA comes to a business or an individual and...I don't want to say “offers that choice”—I may be choosing my words incorrectly—but you have voluntary disclosures and you have negotiated settlements agreements when an individual moves from one bucket and goes to the other bucket, in terms of CRA's view. A person may have been able to come forward and did not and then gets put into this second bucket in which a settlement agreement might be negotiated.

[Andrew Treusch]

I'll answer part, and Ted Gallivan can complement the answer.

I'm asserting that we've been more and more successful in tightening the noose around offshore tax avoidance and tax evasion.

What is a way of measuring that? Well, when people come forward under the voluntary disclosure program, it shows that they're becoming increasingly worried that they can't hide from us. Our voluntary disclosures have been up 400% in the last six years. That's a billion dollars in tax that we wouldn't otherwise have found. I think that's a cumulation of all the things I spoke about in my opening statement.

Mr. Gallivan.

[Ted Gallivan]

Just quickly, the voluntary disclosure program is primarily targeted at Canadians who want to come forward. Often it happens with an estate. One generation of a family passes away. The next generation has this wealth that they weren't expecting, but they find out that it wasn't tax-compliant and they want to move forward in compliance with the law. That's who that is for.

In terms of legal settlements, usually the CRA is already on the case, either with a specific taxpayer or through an unnamed persons requirement. That's a very different setting. Through those legal agreements we will seek to assess the facts and reach an agreement in cases in which it makes sense for the taxpayer. In some cases we won't, because the offer isn't there. In other cases, the principle or the precedent is so important that the agency won't come to an agreement.

[The Chair, Liberal, Wayne Easter]

Thank you. We are out of time.

I have one quick question.

An accounting company is coming up with, say, a tax-reduction scheme. Is there a process whereby they can get an advance ruling from CRA? Does that happen? What is that process?

[Andrew Treusch]

Yes, sir, we do provide rulings. It's a significant part of the responsibility of the Revenue Agency whereby we're asked to provide a ruling. It's an important part of our responsibilities.

[The Chair, Liberal, Wayne Easter]

Okay.

With that I thank you, Mr. Treusch, and all the other witnesses from CRA with you. Thank you very much for coming here this morning.

We will suspend for a couple of minutes and then come back.

[The Chair, Liberal, Wayne Easter]

We'll reconvene.

As indicated at the last meeting, we are dealing with the motion from Mr. Dusseault.

Would you like to reread that motion, Mr. Dusseault?. Then we'll go from there.

[Steven MacKinnon, Liberal, Gatineau, QC]

On a point of order, Mr. Chair, who is the NDP member on this committee?

[The Chair, Liberal, Wayne Easter]

Who is sworn in?

I'm sorry; Mr. Caron is officially the member, and so Mr. Caron will have to read it.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Would you mind repeating your request, please? Which motion would you like me to read?

[The Chair, Liberal, Wayne Easter]

It's from the notice of motion that was tabled by Mr. Dusseault at the last meeting: “That the committee compel KPMG to provide documents...”—that one.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

The motion we began talking about and are now resuming our discussion on reads as follows:

That the committee compel KPMG to provide documents indicating the names of clients who used the Isle of Man tax sheltering scheme and the names of KPMG employees responsible for the development and marketing of the tax scheme.