Evidence of meeting #29 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was evasion.

A video is available from Parliament.

On the agenda

MPs speaking

Also speaking

Alain Deneault  Researcher, Réseau pour la Justice fiscale Québec
Michaël Lambert-Racine  Committee Researcher

11:45 a.m.

Liberal

The Chair Liberal Wayne Easter

Mr. Champagne.

11:45 a.m.

Liberal

François-Philippe Champagne Liberal Saint-Maurice—Champlain, QC

Thank you, Mr. Chair.

Thank you, Mr. Deneault, for being here today.

I am very interested in what you have to say, and I think you bring, as you said, a philosophical perspective to the discussion. It's worthwhile to look at these major issues from that angle.

You made two comments that I want to address. You spoke of the Prime Minister of Canada's action regarding the Panama Papers. I think the Prime Minister clearly stated that we included historic amounts in our budget to support the Canada Revenue Agency's work. The commitment was even made during the election campaign, well before the Panama Papers became a hot topic or hit the media headlines across the country.

I want to address two points with you on a philosophical and intellectual level. You said you're not in favour of out-of-court settlements. As a lawyer, I can say the practice is common in the legal field, not only in Canada and not only for tax matters. Most disputes between individuals are settled out of court because that's the quickest way to resolve the cases. The practice exists in many cases involving the crown, whether the case is related to criminal or tax matters. It helps make courts more efficient, because establishing proof beyond reasonable doubt is obviously not always easy, especially in cases involving international issues, as you mentioned. I want you to elaborate on that first point.

The second point is this. I lived abroad for a number of years. I remember that, when I was in Europe, the European states had encouraged the return of capital to their jurisdictions. They said that, once the capital was back in their tax base, taxes could be imposed.

11:50 a.m.

Liberal

The Chair Liberal Wayne Easter

Mr. Champagne, you'll have to sum up quickly. We're already over time.

11:50 a.m.

Liberal

François-Philippe Champagne Liberal Saint-Maurice—Champlain, QC

Okay.

11:50 a.m.

Liberal

The Chair Liberal Wayne Easter

We'll have no time for the answer.

11:50 a.m.

Liberal

François-Philippe Champagne Liberal Saint-Maurice—Champlain, QC

You see my point. Once the funds are brought back into the country, they can be taxed in future years. A number of European states established these measures for the purpose of onshoring the income that couldn't be seen to make sure to have the funds in the future.

11:50 a.m.

Researcher, Réseau pour la Justice fiscale Québec

Alain Deneault

You raise a lot of points.

I just want to mention that I remembered your colleague's question in the meantime. Of course, Canadian companies engage in transfer pricing because they are always trumpeting the fact that it's legal. I'm not sure which newspapers your colleague reads, but it happens every day. All he has to do is read Jean-François Cloutier's articles in the Journal de Montréal—he's a fairly easy read—and he'll see that, every week, some new tax haven scandal or another is breaking.

As for out-of-court settlements, they are very contentious. I won't quote legal experts, but those in sociology and philosophy of law circles are quite concerned. What troubles them is the fact that the tendency towards out-of-court settlements deprives us of jurisprudence and ultimately transforms the law into a type of narrow-minded logic that relies on haggling and the balance of power. It's no longer the law being applied. Oftentimes, in settlement conferences, the mediator, who may be a judge, will point out that the purpose is not for the parties to assert their rights but, rather, to renounce them. The basis for out-of-court settlements is having the parties renounce their rights, and that's a really big problem. If you want to get into the philosophical arguments, we could have a fine debate, indeed. It's a very serious problem from a philosophy of law standpoint.

I wasn't trying to attack the Prime Minister. I simply wanted to make clear that most countries around the world are interested in the structure behind tax havens, not just the administrative measures that can be taken domestically. Clearly, it's encouraging to see the new government invest in the Canada Revenue Agency. That said, given the many cuts the agency has endured in the past, all this money is doing is restoring the balance. The government has armed itself with slingshots to fight a massive problem, one that requires special attention from both the Department of Finance and the Prime Minister's Office instead of disclosure mechanisms, which, despite carrying some weight, are not enough.

As far as Europe is concerned, the debate is raging. It's a tremendous challenge. It's a fact that, in Europe, Luxembourg literally soaks up the tax revenues of other governments by allowing companies that operate in the European Union to record their profits in the grand duchy, even though all of their operations are located elsewhere and they benefit from taxpayer-funded public infrastructure in those countries. When all is said and done, we are missing the boat in a big way.

11:50 a.m.

Liberal

The Chair Liberal Wayne Easter

Thank you both. You're well over time.

Mr. Aboultaif.

11:50 a.m.

Conservative

Ziad Aboultaif Conservative Edmonton Manning, AB

At the very beginning of your speech there were a lot of mixed messages in different directions. That led me to the conclusion that what has happened with tax havens is more political than anything. If that's the case, and it's what you're truly suggesting, it means that no matter how much money we invest in the CRA, the result is going to be the same.

Is that correct?

11:50 a.m.

Researcher, Réseau pour la Justice fiscale Québec

Alain Deneault

That's not what I was saying. I was saying that it's a complementary approach. If we tackle the problem from the periphery by making investments in the Canada Revenue Agency to give it the tools to nab a certain number of tax evaders who may have otherwise gone undetected, we are making headway, yes, but the fact remains that we aren't dealing with the crux of the problem.

I'm referring to the automatic sharing of information, the lifting of bank secrecy, and the problems at the state level, as a result of which, the information may still be non-existent despite bank secrecy being lifted. The Panama Papers showed us that the shell companies are so numerous in many cases that it's almost impossible to identify who the holdings in question really belong to. These measures aren't enough, but it doesn't mean they are completely in vain. That's one aspect of the problem.

Fixing the problem of tax avoidance requires more than just investing more money to put additional tools and staff at the Canada Revenue Agency's disposal. It also requires revisiting a number of provisions, as well as treaties that Canada has signed, and doing that isn't overly costly. It would mean reviewing the agreements we've signed with Barbados and other tax havens. It's a matter of more than just making investments. Some problems also require a different way of thinking.

11:50 a.m.

Conservative

Ziad Aboultaif Conservative Edmonton Manning, AB

I gather you're looking for a change of policies, which means you're suggesting that we're probably living on an island, and we have nothing to do with the rest of the world, so we can do whatever we want as Canada. That means there are other consequences to how to develop such measures and such policies. Don't you see any problem in doing so?

11:55 a.m.

Researcher, Réseau pour la Justice fiscale Québec

Alain Deneault

I'm saying the exact opposite. The witnesses who appeared before you last week, if I'm not mistaken, said the same thing: Canada is lagging behind. Canada is the one living on an island. If you keep track of what's happening internationally to combat tax havens, you know that the U.S. has quite a leg up on us. In fact, some U.S. multinationals are moving their head offices from the United States to Canada, precisely because of the tax advantages our country offers.

On a small scale, we serve as a tax haven for the U.S., instead of contributing to the broader international dynamic, including the implementation of FACTA by the U.S. and the efforts of the French Republic. France made the disclosure of assets and the number of subsidiaries owned by French banks around the world mandatory in order to better control and track French banking activities in the international arena, including tax havens. There are many examples of countries acting independently and adopting such an approach. I'm trying to convey to the members that Canada is lagging behind, as far as this movement is concerned. It's time for Canada to join the rest of the world on this issue, rather than standing on its own.

11:55 a.m.

Conservative

Ziad Aboultaif Conservative Edmonton Manning, AB

How much time do I have left?

11:55 a.m.

Liberal

The Chair Liberal Wayne Easter

You have time for another question, if one of you wanted.

11:55 a.m.

Conservative

Ziad Aboultaif Conservative Edmonton Manning, AB

Lisa, do you want it? I can go.

11:55 a.m.

Liberal

The Chair Liberal Wayne Easter

One more, Mr. Aboultaif.

11:55 a.m.

Conservative

Ziad Aboultaif Conservative Edmonton Manning, AB

The bottom line from what I hear you saying it this. Don't you think that if we have such a policy that you are suggesting, then we would scare off investments coming to Canada and scare the multinational corporations or enterprises from coming here, and investing, and working, and putting their head offices here, and being part of Canadian business at large?

11:55 a.m.

Researcher, Réseau pour la Justice fiscale Québec

Alain Deneault

We are light years behind what the U.S. is doing right now, and to my knowledge, they aren't seeing American capital flow out of the country on a massive scale. Canada has one of the lowest corporate income tax rates in the OECD, so we have some room to manoeuvre. There's no reason for us to tax corporate income at a lower rate than Germany or the U.S. does. U.S. companies aren't going to pack up and move to Canada as though we were the tax haven of choice for the socialist republic that is the U.S., after all. We aren't there by any stretch of the imagination.

Rather than languishing in ideological mode and adopting rhetoric that leads us nowhere, I think Canada should take a hard look at the reality and see how other countries are dealing with it.

11:55 a.m.

Liberal

The Chair Liberal Wayne Easter

Thank you, both.

Ms. O'Connell, the last series of questions.

June 14th, 2016 / 11:55 a.m.

Liberal

Jennifer O'Connell Liberal Pickering—Uxbridge, ON

Thank you for your testimony today. I want to ask a couple of questions and summarize this. I don't think there's a question or a doubt, based on the testimony we've heard, that there were severe cuts to CRA in the past that have led to our falling behind. We're not quite where we should be in comparison with other countries around the world in dealing with tax evasion.

I guess where I'm having difficulty with your testimony is that it almost gives the impression that we're continuing the ways of the past—doing nothing and turning a blind eye. I recognize, in your testimony that it's not just the CRA, but that there has to be a more global approach to this. But when I look at CRA and the investment made there, in addition to the money, there was a committee formed, the Offshore Compliance Advisory Committee, with the following initial focus:

Strategies to help alleviate and discourage offshore non-compliance;

Administrative policies being used by other tax administrations to address this global issue;

Advice to the CRA in moving forward with its measurement of the tax gap;

Additional strategies and practices related to promoters of tax schemes; and

Potential ways to improve the CRA’s criminal investigation functions.

Isn't that essentially what you're asking for, what we're moving forward with? We don't have all the answers, because, for example, we've had years of cuts to the CRA in this regard. We're moving forward in that direction, but we're getting international experts as well as local ones to provide the specifics and the strategies needed to implement the very policies you're speaking of.

Noon

Researcher, Réseau pour la Justice fiscale Québec

Alain Deneault

I agree with you.

In my view, I don't think we should look at the issue of tax havens as simply a curse befalling us and an external phenomenon that we should fight against. As Canadians, we have created our own problem in large part.

The avoidance of double taxation agreement, which Canada signed with Barbados in 1980, will actually be voted on in the House of Commons for the first time, after the non-partisan initiative of Gabriel Ste-Marie, MP. This agreement encourages tax avoidance and makes it legal, as is the case with other agreements, which I will not mention because it would take too long. With this agreement, it is the Government of Canada that caused our problems. We were not required to sign it and nothing justifies the fact that it still exists today. Similarly, there was no reason for Canada to sign an accommodating free trade agreement with Panama.

In addition to what you have mentioned, which are certainly positive steps, we must obtain a clear diagnosis of the geopolitical issue and Canada's active responsibility in creating the problem so that we can sort of undo what we did wrong. I think the avoidance of double taxation agreement with Barbados is a good example. Barbados is the country with the second highest level of investment by Canadian companies in the world, after the United States. That makes no sense because there will be no Olympic Games in Barbados in two years. There is no capital spending, no real investment. We are using that agreement, which Canada voluntarily signed with Barbados and which was renewed, strictly for tax avoidance purposes. It's hugely expedient. It is also one of the problems that we need to have the courage to raise now.

Noon

Liberal

The Chair Liberal Wayne Easter

This will be your last question, Ms. O'Connell.

Noon

Liberal

Jennifer O'Connell Liberal Pickering—Uxbridge, ON

Thank you.

Again, I don't disagree. The errors of the past don't preclude the good work happening now and into the future to deal with this.

For my last point, I want to touch on the tax gap. I think that until we as Canadians really understand what that tax gap is, how can we aggressively combat it? I know that previous calls to have the CRA calculate the tax gap were “stonewalled”, according to some media reports. How important is CRA's initiative, in terms of the measurement of the tax gap and that being released, in the work moving forward?

Noon

Researcher, Réseau pour la Justice fiscale Québec

Alain Deneault

I would simply say that the double taxation treaty with Barbados is not a mistake of the past, but a mistake being made every day. Every day, we are repeating the same mistake. Some day, we have to put an end to it. It is a contemporary problem. This agreement is still a problem today since Barbados is the country with the second highest level of investment by Canadian companies.

In terms of the tax losses measure, I mentioned just now a sociological method that I think is complementary to an arithmetic approach. This method consists of seeing to what extent the problem is exponential and immeasurable. The more tax havens attract capital from Canadian companies legally, or from individual wealth holders illegally, and the more we tend to scale back the corporate tax rate, the less adequately public areas are financed and the more debt and service charges increase. If we really want to take a nuanced approach to address these complex issues, we will have to incorporate the sociological considerations. That is what I am advocating.

Noon

Liberal

Jennifer O'Connell Liberal Pickering—Uxbridge, ON

Thank you.