Finance Committee on May 5th, 2016

[Andrew Treusch]

I apologize if my response seemed that way. I'm very pleased to see the interest of the committee in issues of tax administration, and in particular in what is a genuine issue of great concern: international tax evasion and avoidance.

I am extremely proud of the employees of the Canada Revenue Agency, including everyone here. They are hard-working and dedicated officials, and the occasional commentary from some sources that seem to defame or call into question their professionalism and integrity— However, it was in no way related to your questions, which were entirely appropriate.

[The Vice-Chair, Conservative, Ron Liepert]

We have to stop there, Lisa.

[Lisa Raitt, Conservative, Milton, ON]

Thank you very much.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Mr. Chair. Thank you, Commissioner, and your colleagues for coming today.

I think the heart of the issue, why constituents in my riding are particularly upset about fairness, is the perception that all Canadians are paying their fair share. There is also the second element, which in my humble opinion is a perception that the CRA treats everyone equally, that it's not just the people who can afford to hire KPMG for $100,000. It's the perception that those people are getting a better deal than the truck driver or the taxi driver who is being audited for their gas receipts and stuff like that, and they're having to spend so much time. It's not just the money and the effort, but their time as well. People are very concerned when the CRA starts reviewing their files.

An internal audit of the CRA in October 2010 said that the agency had concerns that it didn't have the resources to deal with complex cases, specifically international tax evasion. The previous government cut heavily into the CRA.

Have the previous government's cuts had an impact on the CRA being able to fulfill its mandate, specifically on international tax evasion? Please be very brief because I have a lot of questions.

[Andrew Treusch]

On the first question, and I'll try to be very brief, we have increasingly taken a very different approach to small and medium-sized enterprises from large international global enterprises. Increasingly, you are seeing far fewer deployments of audits with small business. Also, you've seen that we've introduced the liaison officer initiative. Rather than approach a small-business person with an audit, we're moving our resources to come to small business with a helping hand to ask how we can help the plumber, the electrician, so they can avoid some of the mistakes they're making. We are redeploying our resources to international and large business.

I've served two governments loyally. We work with the resources governments give to us. Obviously, we have come through a period of considerable fiscal restraint, but during that period, we redeployed as best we could all the resources to be stronger and more effective in a five-year period. Also, we have been given some tools. The new budget gives us an enormous reinvestment that will be a return for the crown and will move us forward in addressing the concern that I know Canadians have, as will international efforts.

[Raj Grewal, Liberal, Brampton East, ON]

The CRA determination of whether tax avoidance has occurred is made on a balance of probabilities, which is a lesser threshold than beyond a reasonable doubt. In your opinion, did the taxpayer who participated in the Isle of Man tax scheme participate in tax avoidance, based on a balance of probabilities?

[Ted Gallivan]

Taxpayer confidentiality prevents me from responding specifically.

[Raj Grewal, Liberal, Brampton East, ON]

Hypothetically, if you participated in a tax scheme like that, on a balance of probabilities, did you participate in tax avoidance? It is a simple yes or no question.

[Ted Gallivan]

To me, it's not simple. First I have to state, on the advice of the Department of Justice, that I can't comment on specific taxpayer situations.

What I will say is that the CRA examines every case based on its facts. The Isle of Man situation has been applied. There could be variations in the approach by the taxpayer, and those facts may vary.

Finally, our work on this matter is far from done. There are files active before the courts in respect of tax assessments that we've levied. There's action in front of the courts with respect to obtaining additional names. Our minister announced on April 11 that we're pursuing all Canadians who have interactions with the Isle of Man to risk-assess those transactions. So our work is far from done.

[Raj Grewal, Liberal, Brampton East, ON]

I think we on the committee can all agree that the balance between a regulator and those whom they regulate is pretty sensitive. I'm going to refer to your code of integrity and professional conduct and quote directly from the duty of loyalty portion. It says, “Employment in the public service requires the acceptance of certain constraints, which should be considered in our day-to-day activities and our off-duty conduct”.

Now I will refer to the CBC's report on April 17, 2016, where 20 CRA officials from the compliance division were not only invited but were required to attend an after-hours reception. I was a lawyer in my previous life, and you have to attend professional settings. I understand that the people at CRA are CPAs. But the conflict of interest comes from the fact that the CPA hosted the event for CRA officials from the compliance division, individuals from KPMG, and individuals from the CPA.

Generally, that wouldn't be an issue, but the CPA applied for intervenor status on this issue between the CRA and KPMG. This puts the CRA in a direct conflict by attending a CPA and KPMG event.

[The Vice-Chair, Conservative, Ron Liepert]

Mr. Grewal, would you wrap it up? You're well over.

[Raj Grewal, Liberal, Brampton East, ON]

Do you not agree that it was a conflict of interest for the CRA to attend when CPA applied for intervenor status and KPMG officials were there?

[Andrew Treusch]

In broad strokes, CRA could never leave the Connaught Building if we were worried about coming into interaction with a taxpayer or a taxpayer's representative with whom we had issues. There are 100,000 appeals a year and 5,000 litigation cases. It's our conduct, not our attendance, that matters. Section 241 continues to apply in all of these instances.

[Raj Grewal, Liberal, Brampton East, ON]

I see it from my perspective—

[The Vice-Chair, Conservative, Ron Liepert]

I have to wrap you up now.

Mr. Dusseault.

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

Thank you, Mr. Chair.

Coming back to the letter that was on the CBC website, Madam Henderson, can you confirm that the signature we see on the letter is your signature? If I ask you to sign a piece of paper, would that be your signature?

[Stéphanie Henderson]

It appears to be my signature, but I can't confirm that I signed the document. I don't know the source of the document.

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

Mr. Treusch, I would like to ask you if you can come back to the committee to confirm that this letter was sent. I understand the legal implication of providing us with the letter, but can you come back to the committee to confirm whether this letter was sent or not?

[Andrew Treusch]

I think this question has been asked and answered by me and by legal counsel. We're unable by section 241 of the Income Tax Act to enter into that kind of discussion.

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

I don't want you to provide the letter itself, just to tell us whether you sent that letter.

[Andrew Treusch]

I sent no letter.

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

Why?

As parliamentarians, we want to know if you did send that letter. It will help us in our work.

[Andrew Treusch]

Perhaps you mean a representative of Canada Revenue Agency rather than me, but I'll ask Ms. Lovett again to talk about the legal restrictions that bind all Revenue Agency employees.

[Lynn Lovett]

I spoke earlier about section 241 of the Income Tax Act. Without referring to any specifics of what may have happened or not in the KPMG litigation, I can say that anything that would have been sent in that context would also be subject to settlement privilege, and so I believe that your question is an effort to determine whether or not this specific letter was sent in that specific case, and Ms. Henderson isn't in a position to answer that question.

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

Thank you. Now I'll turn to something else.

I'd like to draw an analogy between the situation at hand and a bank robbery. Let's say a group of masked thieves walk into a bank and rob it. As soon as they step outside, the bank is surrounded by police officers. But the thieves are wearing masks, so they can't be identified. The police order them to put the money back and tell them that, if they do, they will only be subject to minor penalties. Then the police let them continue on their way, thank them for returning the money, and assure them that they will never be subject to prosecution since their masks made it impossible to identify them.

What is your take on my analogy between that story and the KPMG case?

We know what's going on, in this particular case.

In the application in the Federal Court, you have the name of Mr. Russell Lyon, auditor, of Victoria, British Columbia. He swore an affidavit filed with the court that reads:

As a result of the compliance audits of the Taxpayers, the CRA's position is that the Taxpayers, through the [offshore company] structures set up for them, did not cede control and influence over the assets they caused to be transferred to the offshore company.

He says, “The CRA's position is that the investment”—