Evidence of meeting #223 for Finance in the 42nd Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was countries.
A video is available from Parliament.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Thank you for that explanation. When you say the level of transactions is not equivalent to the level of economic activity, are you measuring country A in comparison with country B in terms of the totality?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
We're looking at the transactions between Canada and a certain country: the flows reported to CRA and the flows with respect to electronic fund transfers with the real economic activity as measured by the GDP. We didn't look at two-way trade, but we could have looked at that. There's no commensurate link or proportionality between.... The flows of money are often disproportionate to the economic activity of countries. That's what we're saying.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
I take it transfer pricing would come into that and would play a big role there.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Yes.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Is there an avenue to improve the transparency on transfer pricing within the taxation system here in Canada?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Probably, but that's a question for tax specialists themselves. We looked at numbers, and our conclusion is that the numbers speak to a high proportion of transactions that are done purely for financial planning and tax purposes. There's no tangible economic activity that supports all of these numbers.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
If I can do a 10-second closing, Chair, I'm the biggest proponent of capitalism and making money and creating wealth in any jurisdiction that lifts as many boats as possible. I'm the biggest proponent of that and also someone who's against crony capitalism and new corporations using other jurisdictions to lower their tax “payables”, if I can use that word.
Thank you for this work, because it does provide us answers.
NDP
Peter Julian NDP New Westminster—Burnaby, BC
First, I would like to express my condolences to Mr. Kmiec and Mr. Poilievre and to everyone who knew Mark Warawa well. I also want to express my condolences to his widow, Diane, and to his entire family. This is really a sad day.
I want to commend you, Mr. Giroux, because I think this is one of the most important reports you've ever produced.
Over the last four years, we haven't had a single charge from the Canada Revenue Agency on corporate tax avoidance. This is going to become a major issue, I believe, in the federal election campaign because of the fact there has simply not been any action taken against tax avoidance.
At the same time, Canadians are struggling for affordable housing, for medication and to get their kids through school. The answer they're always given is that they're going to have to wait because there are other priorities, but the reality is that there are astronomical sums that seem to be getting around a taxation system, with no action being taken by the federal government.
I want to start by asking you about this, just so I can understand the figures. They seem astronomical.
First, we're talking about nearly a trillion dollars—$996 billion—in reportable transactions with offshore financial centres. Then there are the electronic funds transfers, where we're looking at $1.6 trillion. How much overlap is there between the reportable transactions—that nearly trillion dollars—and the $1.6 trillion? How much of that is actually an overlap? What would be the comprehensive final figure combining those two?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
I don't think you can combine those two, because there is, as you mentioned, significant overlap. One would hope that all of the transactions between Canada and the OFC, as reported on the T106 forms, have been captured by Canadian financial institutions that have to report any transaction out of or into Canada of more than $10,000. There should be quite a bit of overlap if the system works.
The amount reported on the T106, if we take it at face value that corporations have been honest and fully transparent in reporting their transactions with affiliates, is in my opinion probably the most reliable, because the EFT amounts probably include transactions from corporations and with corporations that may have little to do with affiliates. These could be pure economic transactions, but no one can be sure.
NDP
Peter Julian NDP New Westminster—Burnaby, BC
You don't have a precise figure to give us, and it is still likely to be in the trillions of dollars.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
I would say that the $996 billion is probably as solid as it can be, but there for sure could be additional amounts because of the T106. Under the T106, corporations have to report only transactions over $1 million.
NDP
Peter Julian NDP New Westminster—Burnaby, BC
Those are astounding amounts.
Next, in your conclusion you say that if we assume that 10% of the trillion dollars in reportable transactions has avoided corporate income tax in Canada, it would represent an amount of $100 billion in taxable income that should have been taxed. Then you make an estimate of the billions of dollars that is part of this massive tax chasm that exists.
The assumption of 10% comes from where? Is it possible that the assumption is actually low and that, potentially, the percentage of those transactions avoiding corporate income taxes in Canada is much higher than 10%?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
The assumption is just for illustrative purposes because we don't know for sure what the real number is. It could be 10%, it could be 5% or it could be 15%. I don't think it's much higher than that, but it could be more or it could be less. We don't know for sure and that's why we said, for example, that if it were 10%, this is how much it would mean in lost revenues. However, we have no way of knowing for sure, aside from having to do very thorough audits of all of these transactions, which would require immense resources. I don't think there is enough capacity in this country to undertake that many audits involving these huge amounts.
NDP
Peter Julian NDP New Westminster—Burnaby, BC
What resources would you need to really get to the bottom of this?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
I'm not sure it's a question of resources as much as it is a question of reliable and accurate data, which I'm not sure exists anywhere. It involves offshore financial centres, which by definition are not very co-operative when it comes to revealing the dealings that their institutions have with Canadian corporations or Canadian residents. I think it's a matter of trying to get the appropriate data. A parallel that I sometimes make is trying to estimate the amounts that the Mafia makes. It's very difficult. You can try to estimate but you cannot get reliable estimates.
Liberal
The Chair Liberal Wayne Easter
Okay. We'll go over to Mr. Sorbara.
I do want to point this out, Mr. Julian. I know you're not regularly at this committee, but it might be useful for you to go back to the minister's testimony to this committee. You stated that the government has not done anything on corporate tax avoidance. That is, quite bluntly, not true.
Liberal
The Chair Liberal Wayne Easter
Over $1 million has been spent on tax avoidance, and tax recovery has increased.
We can't leave that on the record that way.