Thank you very much, Mr. Chair, and members of the committee.
First of all, I'd like to express my condolences at the loss of a colleague and friend of many of you, former Ottawa Centre MP Paul Dewar. Paul was the same age as me. He was a neighbour and a friend. He always built on the positive side of people and situations all through his life of public service. He was devoted to the less fortunate right through to his final days, and I hope he inspires many others to do the same.
This legislation, Bill C-82, which would enable Canada and other countries to effectively implement wholesale changes to their numerous bilateral tax treaties is, in general, very much a positive step forward to reduce the hundreds of billions in revenues that are lost annually around the world from aggressive international tax avoidance, primarily by larger corporations. This represents approximately $1 billion in Canada, if you include everything.
This multilateral instrument is the culmination of five years work through the OECD's base erosion and profit shifting initiative. It's an efficient way of consistently adjusting the thousands of bilateral tax treaties that have been signed between nations in order to implement a number of action measures of the whole BEPS process. By having a generally consistent set of measures, it will limit but not entirely eliminate the practice of treaty shopping that many large corporations have engaged in to avoid taxes and drive a race to the bottom.
The introduction of these changes will be especially beneficial for lower-income countries by strengthening the rules for taxation based on the source of the economic activity and not the putative residence, often in the tax haven of the corporation. It will limit tax avoidance through hybrid mismatch arrangements that exploit differences in tax treatments, treaty abuse through double non-taxation, and the avoidance of permanent establishment. These are all positive measures.
At the same time, there are some concerns about the part IV provisions for mandatory binding arbitration, as these opaque and secret panels rarely favour source countries, and they should consider not opting into them.
Article 17 also has some problematic measures, and countries should consider making a reservation under this section.
While this bill and the 2015 BEPS initiative that it stems from are positive, they are limited. They are all about patching a system that has a lot of problems, and they are now about to be eclipsed by much more important and fundamental changes that need to be made to the international corporate tax system.
Two weeks ago, following meetings with almost 100 countries in Paris, the OECD issued a policy note entitled “Addressing the Tax Challenges of the Digital Economy”. In the words of Alex Cobham, chief executive of the Tax Justice Network, “The three pages of text in this...policy note may be more significant than the thousands that made up the BEPS project.”
The archaic arm's-length transfer pricing system that underlies our international corporate tax system, which this bill is trying to patch up in different ways, is so broken and ineffective for our new economy that major countries around the world, including the United States, the U.K., France, Germany and others are already leapfrogging it with a range of different measures to tax large digital corporations using different approaches based on their actual economic activity in their country.
National revenue authorities have found that the transfer pricing approach also enables traditional and resource sector corporations such as Cameco to easily avoid billions in tax. There has been a case of CRA taking Cameco to court, but the courts have sometimes sided with the companies over transfer pricing.
What we ultimately need to do is to move to a unitary international corporate tax system with an apportionment of corporate profits to different countries based on their share of sales, payroll and/or other factors, preferably with a minimum corporate tax rate. This is a very straightforward system, and it's exactly what we have in place in Canada to apportion corporate profits for tax purposes between provinces. It's also the system used by American states and other federal countries to apportion corporate profit. We have this in place within Canada and other countries. We need to move to this globally as well.
In addition to its simplicity, the beauty of this approach is that a global agreement isn't necessary to proceed. It's preferable that Canada could move forward in this way, just as the United States, the U.K. and other European countries are doing.
The other beauty of this approach is that it would increase tax revenues from multinational corporations by about 33% to 50% according to the IMF, and by significant amounts for lower-income countries, which are the ones most harmed by the existing system.
In conclusion, this bill is a positive step, but we can and must take much bigger steps forward to develop a more equitable and functional international corporate tax system, and it doesn't need to be that complicated. It's the smaller and medium-sized businesses that lose out, mostly from the international corporate tax system that we have right now. They often pay a higher rate of tax than do the large corporations that are able to exploit the system that exists right now.
Thank you very much.