Finance Committee on May 19th, 2016

[The Chair, Liberal, Wayne Easter]

The committee this morning will be meeting in the first hour pursuant to Standing Order 108(2), which is the study of Canada Revenue Agency's efforts to combat tax avoidance and evasion.

We have appearing before the committee, the Minister of National Revenue as a witness, as well as Mr. Gallivan who is assistant commissioner, international, large business, and investigations branch, Canada Revenue Agency.

Mr. McColeman, you have a point of order?

[Phil McColeman, Conservative, Brantford—Brant, ON]

Yes, thank you, Chair.

Before we begin I'd like to put before the committee an issue that has come to light, and I know we were not able to address this effectively in our last meeting or put it on the table, but we've become aware that there are two pages of incorrect translation from English to French in Bill C-15. I'd like to present these to you, Chair, with the corrections to the bill we feel are required because of the improper translation, and we've itemized it by line item. I'm happy to share this list with other committee members. I don't have copies with me in both official languages, but I'd like to be able to submit this so that we can get the bill translated correctly.

[The Chair, Liberal, Wayne Easter]

Yes. If I can get a copy, I can get that checked out.

[Phil McColeman, Conservative, Brantford—Brant, ON]

I'll pass it to you.

[The Chair, Liberal, Wayne Easter]

That's not a problem. You can give that to the clerk, and we'll get back to you on that, Mr. McColeman. Thank you for that information.

All members will have received a number of documents from KPMG and CRA related to the tax issue.

Committee members have this one from KPMG. This one just came in last night from CRA, and it's not in both official languages. CRA's was not distributed to the members. KPMG's was. We need to make a decision as a committee whether that information is public or confidential.

Are there any discussions on that point?

Mr. McColeman.

[Phil McColeman, Conservative, Brantford—Brant, ON]

I believe we're called here as a committee to be open and transparent, and I would propose that the documents be made public much the same as the testimony of any minister or any other witnesses who comes forward.

[The Chair, Liberal, Wayne Easter]

Is there any problem with that?

Mr. MacKinnon.

[Steven MacKinnon, Liberal, Gatineau, QC]

Thank you, Mr. Chair.

Although I'm unhappy about the fact that these documents are not available in both official languages, I think that the committee needs to be transparent. I therefore fully agree with releasing these documents and the letter that was sent to us by the law firm. If a motion is moved in that regard, I will be pleased to support it.

[The Chair, Liberal, Wayne Easter]

I don't think we need a motion. If I see no opposition, that is what we'll do.

The Revenue Canada information is the public court file and the proceedings are in English, and that should be translated. Departments are supposed to submit in both languages. This is a court document. The committee can accept it in the language it's in, if we want to accept it that way.

Mr. Caron.

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

Mr. Chair, I also don't usually accept documents that aren't available in both official languages. However, I realize that we need to consider the fact that the CRA was not given much time. We gave the CRA a very tight deadline within which to provide the documents.

I suggest a compromise. Let's make these documents accessible to the committee and let's get them translated so that they are available in both official languages as soon as possible.

[The Chair, Liberal, Wayne Easter]

Are we agreed on that?

[Steven MacKinnon, Liberal, Gatineau, QC]

I agree with my colleague.

[The Chair, Liberal, Wayne Easter]

Thank you, then.

There's a last point I would make on documents. I got through about half of them myself. There's a lot of material. The committee might want to take under advisement the need to call certain witnesses at a later date after members have had the opportunity to thoroughly go through this information. We'll keep that option open.

Sorry, Madam Minister, for taking time away from your time. Welcome. The floor is yours. I understand you have opening remarks.

[Diane Lebouthillier, Liberal, Minister of National Revenue]

Thank you, Mr. Chair.

I am pleased to accept the committee’s invitation to discuss the Canada Revenue Agency’s actions to address aggressive tax avoidance and offshore tax evasion, and to provide the current status of the Isle of Man file.

I am joined today by Mr. Ted Gallivan, the assistant commissioner of the International, Large Business and Investigations Branch at the CRA.

Let me begin by asserting that the Government of Canada’s position on tax evasion and tax avoidance schemes is unequivocal: all participants must be identified and brought into full compliance with all their tax obligations.

The CRA systematically pursues cases of non-compliance. CRA auditors conduct over 120,000 audits every year that result in more than $11 billion in additional taxes assessed as well as penalties and interest. At least two-thirds of that amount involves international and large business aggressive tax planning, including high-net-worth individuals and multinationals.

The CRA also takes action against tax professionals who offer, assist, or create opportunities for clients to participate in offshore tax evasion and tax avoidance schemes. The CRA is very active in combatting this problem and is already achieving significant results, but we know that we need to do more. Wealthy taxpayers must pay the taxes that they owe. It’s a question of fairness.

As you know, for budget 2016, the Minister of Finance announced a historic investment of $444 million to improve the agency’s ability to detect, audit, and prosecute tax evaders in Canada and abroad.

The CRA will use some of those new funds to hire additional auditors and specialists to conduct investigations. For example, we will increase the number of auditors who focus on those who create tax schemes. We will also hire another 100 senior auditors to pursue investigations on high-risk multinationals. This federal investment will increase the number of examinations focused on high-risk taxpayers from 600 per year to 3,000 per year. That will allow the agency to better target promoters of illegal schemes, increase its audit activities, and improve the quality of investigative work focusing on criminal tax avoiders.

The CRA is also developing business intelligence infrastructure for gathering and analyzing information that will help detect tax evasion and avoidance activities. For example, on May 13, I announced that Canada and 30 of its international treaty partners signed the Multilateral Competent Authority Agreement.

Large multinational enterprises will be required to make their global operations more transparent by providing “country-by-country reports” that contain their income, taxes paid, and economic activities. This will help ensure they pay appropriate taxes in the countries where they do business and where their profits are generated.

It also takes effective international cooperation to address offshore tax evasion. To that end, Canada has one of the world’s largest treaty networks, having entered into 92 tax treaties and 22 tax information exchange agreements. Moreover, we recently ratified the multilateral Convention on Mutual Administrative Assistance in Tax Matters, which further expands this international tax information-sharing network.

Canada is also a member of the Organisation for Economic Co-operation and Development—the OECD—and its Joint International Tax Shelter Information Centre network. The CRA recently participated in a JITSIC network meeting to coordinate measures concerning information related to the Panama affair. The CRA is also accelerating its offshore compliance measures related to the activities of some Canadians.

We are talking about measures taken based on information gathered concerning electronic funds transfers of more than $10,000. We have also received over 17 million records of such transfers into and out of Canada. Using that information, the CRA will target up to four jurisdictions a year, without any warning.

The net is tightening. Those who hide income and assets offshore, or who evade or avoid the taxes they owe, will be identified and will face the consequences.

The first targeted jurisdiction is the Isle of Man. The CRA is in the process of contacting 350 individuals and 400 businesses that have conducted transactions there. Over 60 audits are underway, with more to come.

Mr. Chair, there has been some recent speculation in the media about the CRA’s handling of this investigation, particularly regarding its relationship with KPMG and its treatment of some of its clients.

I cannot speak about a particular taxpayer or case, beyond what is on the public record. I can say that the KPMG offshore tax avoidance scheme was discovered through the efforts of the CRA, and that legal action is underway to obtain the identities of participating KPMG clients who have not yet been exposed or come forward voluntarily.

I can also point out that very specific legislation governs what the CRA may or may not do. Its decisions within that legislation are guided by the facts available to them.

In terms of overall stakeholder relations, the CRA has a responsibility to listen to those affected by its policies and programs. That includes individual taxpayers, businesses, and those who represent them, including KPMG and similar organizations.

In meeting with these stakeholders, CRA employees help them to better understand the requirements of Canada’s tax system and improve compliance. They do not discuss specific taxpayer files.

The agency avoids circumstances that could lead to real or perceived conflict of interest or preferential treatment. At the same time, it works hard to ensure that its operations are open and transparent to the public it serves.

In a show of commitment to openness and transparency, and in following the rules that govern its actions, the CRA commissioned an independent review of its investigation of the KPMG-Isle of Man case. The review concluded that the CRA's compliance actions were in accordance with its established policies and procedures and that no inappropriate interaction took place between KPMG and agency officials involved in the case.

I remain confident that taxpayer fairness is paramount at the CRA, as it is for all Canadian taxpayers and the public in general. The substantial investment of close to half a million dollars, announced in the last budget, will help the CRA ensure that the Canadian tax system works to its full potential, and contributes to an economy that is fair and that benefits all of us.

Thank you for your attention.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Madam Minister.

Thank you as well for the written text. I will admit that it doesn't always happen with all ministers.

Turning to questions, we'll go to five-minute rounds, due to the time.

Mr. Sorbara.

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

Good morning, Minister, and good morning, Mr. Gallivan.

My question is for the minister.

I've repeated several times on the committee that we need to ensure that Canadians have faith and trust in the tax system, that everyone is paying their fair share, and that no one Canadian is subsidizing another Canadian when it comes to programs by someone possibly undertaking a tax avoidance scheme, tax evasion, or whatever you want to call it.

Can you, again, detail the measures that we have put in place since the beginning of the year to boost or strengthen CRA and the individuals who work there?

[Diane Lebouthillier, Liberal, Gaspésie—Les-Îles-de-la-Madeleine, QC]

I would like to thank my colleague for his question.

Mr. Chair, I would like to reassure all of the members here today that the CRA's main objective is to make sure that it recovers the amounts owed to the government. The government has made that a priority. It was also part of the Liberal Party's election platform. My mandate letter clearly states that we need to work toward a tax system that is open, transparent, and fair for all Canadians.

The massive investment of $444 million will improve our ability to detect, audit, and investigate, as well as impose penalties and prosecute. Since we took office, we have improved the transmission of information to taxpayers. A total of 75% of the documentation that taxpayers receive is more accessible and easier to understand.

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

Minister, thank you.

My understanding is that last Friday we entered into an agreement to examine the unfair practice of aggressive tax planning by large corporations. I was wondering if you can comment on that. It's the world's largest treaty network, with 92 tax treaties and 22 tax information exchange agreements in place. How is this another step forward for CRA to ensure that all individuals, as well as corporations, are reporting their income properly and paying their fair share of taxes?

[Diane Lebouthillier, Liberal, Gaspésie—Les-Îles-de-la-Madeleine, QC]

You are absolutely right. This is an international problem. We are working with our international partners. Given the meeting and the agreement signed in Beijing, I would ask Mr. Gallivan, who was there, to provide more information in that regard.

[Ted Gallivan, Assistant Commissioner, International, Large Business and Investigating Branch, Canada Revenue Agency]

Thank you, Minister.

I think this represents a paradigm shift in tax administration by receiving the information proactively. In other words, the tax authorities worldwide are receiving country-by-country reporting from multinationals as a matter of course.

Under the common reporting system, which will come into place in 2018, banking information from Canadians worldwide will be received by the tax agency. This comes to complement the international transfers over $10,000 that the minister mentioned. We now have 17 million of those on file and it also complements the enhanced T1135 reporting by taxpayers regarding their offshore assets above $100,000.

I think the country-by-country reporting is part of a new approach where individuals and multinationals have their offshore affairs disclosed automatically and globally to tax authorities, allowing us to risk assess and also having a huge deterrent impact.

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

Thank you.

My last question relates to CRA's investigation of the Isle of Man structure and with that the resources that are available to CRA. My understanding is, Minister, that we will be beefing up the resources available to CRA to undertake other investigations, if needed.

[Diane Lebouthillier, Liberal, Gaspésie—Les-Îles-de-la-Madeleine, QC]

With regard to audits and investigations, the historic investment announced by the Government of Canada will be used to establish programs to stop organizations that promote tax schemes. Our goal is to examine 12 times more tax schemes. We are going to focus on high-risk taxpayers. We are going to increase the number of examinations from 600 to 3,000 per year. We are going to hire another 100 senior auditors through an independent process.

As a result of the unprecedented announcement that we made, we expect to recover $2.6 billion over the next five years.

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

Thank you, Mr. Chair.

Thank you, Minister.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Madam Minister.

Mr. Aboultaif, you have five minutes.

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

Thank you very much.

Thanks to the minister for being here today.

An April 11, 2016, article on iPolitics says:

The controversial amnesty deal that the Canada Revenue Agency signed with wealthy clients of KPMG who stashed money in the offshore tax haven of the Isle of Man is still available if others want to come forward, says Revenue Minister Diane Lebouthillier.

Can you respond to that, please?