Finance Committee on May 6th, 2021

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Have I got time for another question, Chair?

[The Chair, Liberal, Wayne Easter]

Yes, you have lots; you have two minutes.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

I'd like to get Ms. Daviau into this, then.

Senator Downe mentioned it, and also you mentioned it in your opening statement when you made direct reference to the Auditor General's report of 2018, I believe it was, in which they talked about the fact that when documents or information are demanded from a domestic tax evader or tax filer, they are given only a very short window before the taxes are automatically applied to them, yet an offshore filer, a filer with international banking connections, can be given months or years to comply with an order for information, without any tax being applied.

You're aware of this. What possible reason could there be for this discrepancy?

[Debi Daviau]

I'm not sure. I'm going to turn it over to our economist, Ryan, who has delved more deeply into it. Perhaps he can give you some insight.

From my perspective on this question, Mr. Kelly, the problems occur because there are gaps in legislation. Even when people are prosecuted, we're unsuccessful because the decision of the Supreme Court finds holes within the existing legislation, so legislation needs to be improved.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

We're talking about an order for documents and being given extra time just because you're overseas.

[Debi Daviau]

Yes. I'm not sure of the reason.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

I have asked this question at committee before and been told that usually these files are more complicated. If your colleague can give an answer that's better than the ones we've heard at previous committees, which would be great, go ahead.

[Debi Daviau]

I'm sure. Let's give him a crack at it anyway.

[The Chair, Liberal, Wayne Easter]

Mr. Campbell, the pressure is on you, sir.

[Ryan Campbell, Economist, Technical advisor, Professional Institute of the Public Service of Canada]

I think Debi provided a good answer. I will just reiterate that we're here as a representative of the auditors; we're not here as a representative of the Canada Revenue Agency itself. I think it would be better to hear from a representative from the agency.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

That's a fantastic point. Hopefully we'll have the minister here on this study at some point, and the minister should answer that question.

It would seem to me that complexity shouldn't enter into it. If you ask for a document and your corporate structure is too complicated to comply, then that should be on the filer.

[Debi Daviau]

Mr. Kelly, we used to have international tax units that were very well organized and could work together more effectively to produce those kinds of documents, but those units were broken down some 10 or so years ago in favour of interspersing these tax experts within more generalized teams. That has reduced the capacity of employees at the CRA to be able to deliver on getting international tax avoiders to pay their fair share.

[The Chair, Liberal, Wayne Easter]

We are well over time on that one.

Perhaps you could send us a little note on when those international tax units were cut out of the system.

Mr. Fraser, you have six minutes.

[Sean Fraser, Liberal, Central Nova, NS]

Thank you very much, Mr. Chair.

Before I get to my questions, I want to begin by thanking Ms. Watson for being with us today. Her story is a powerful one. I believe she wanted to remind us that this is not a victimless crime.

Although there are certain individuals who are impacted very directly, I would argue that the classes of victims are almost limitless [Technical difficulty—Editor]. Anybody who doesn't have a family doctor, can't afford to pay for school or suffers from a lack of access to services is a victim of those who choose to evade paying taxes that they properly owe, and the quality of life that we all enjoy is diminished as a result.

My first question is for Mr. Cohen.

You spoke with some enthusiasm about the announcement to establish a registry for beneficial ownership. This is useful in this audience of people who study the budget, but I'm curious as to whether you can put into plain language, for Canadians who may be watching, the importance of having a publicly accessible registry so folks know who's behind some of these shell corporations or organizations that might be used to hide the beneficial owner who might be benefiting from those who evade taxes.

[James Cohen]

As you say, it's a publicly accessible beneficial ownership registry to identify the true individuals. For anybody not familiar with beneficial ownership registry and shell companies, company ABC might be owned by company 123, which is owned by company Ontario 456, which was opened by...Bob. Who's Bob, at the end of the day, and why the level of secrecy?

Bob could be an entirely legitimate business person, but there is no precedent for anonymity behind all those layers. Bob could also be somebody who is evading taxes, denying Canadians revenue for various services that you discussed, such as health services or the environment. Bob could be a kleptocrat from overseas, stealing money from some of the most vulnerable people around the world and hiding it here in Canada. That individual could also be a criminal perpetuating the fentanyl crisis in Canada and facilitating gang activity. He could be a sanction-buster trying to move money around to allow weapons to go into countries like Syria. There's a whole host of people.

As Ms. Watson alluded to, this is not victimless. When we talk about these grand numbers that are being moved around through the shell companies, we should know that there's a precedent crime underneath them. Whether it's undermining Canadian society through sapping resources that should fund our public services, allowing criminals to continue to operate within Canada for crimes in Canada or overseas, or ruining our good name abroad while we give foreign aid money but have stolen money from those very same countries wind up back in mansions in Montreal, Toronto or Vancouver, this all has an impact, and it all should matter to everyday Canadians.

[Sean Fraser, Liberal, Central Nova, NS]

Thank you very much, Mr. Cohen. I'll use some of the examples you discussed, particularly in the global context of this problem, for my next question to Ms. Daviau.

Ms. Daviau, you mentioned that one of the things we continue to need to do is explore further initiatives on the international stage and co-operate with our global partners to ensure that we can stamp out tax evasion globally. What actions can the federal government in Canada take to help contribute to the global solution to the issue of tax evasion?

[Debi Daviau]

I'll ask Ryan to take that on.

[Ryan Campbell]

The biggest issue that has been advocated by auditors at the Canada Revenue Agency, based on their work, is to focus on corporate tax evasion. The scale is much larger. The PBO has identified that as much as $25 billion a year could be accessible or unlocked from tax havens if the right provisions were in place. In order to do that, it's really necessary to reorient the way the tax system is structured and to reform the current state.

Right now when an international corporation makes a sale, they have some discretion to transfer the profit or to modify the price within internal supply chains to book the value of that sale in a low-tax jurisdiction. From the standpoint of CRA auditors, it's a game of cat and mouse to try to figure out exactly what the fair market value of that transaction was and determine whether or not it was on the level.

In order to tip the scales back in favour of companies being taxed fairly everywhere, there's a specific combination of different reforms that can be put in place, or broad principles, a combination of which would solve the problem.

One is a formulary allocation of profits, which is basically a change in criteria that are currently in use in Canada that determine how corporations' profits are booked from province to province.

The other is unitary treatment to make sure that when these transactions happen between a parent company and a subsidiary, leading to this transfer pricing and profits being booked in low-tax jurisdictions instead of where the commerce actually happens, the corporations are treated globally as a unitary entity—

[Sean Fraser, Liberal, Central Nova, NS]

Mr. Chair, I think I'm very near the end of my time. Do I have a chance to squeeze in one more specific question along these lines again for Mr. Campbell?

You're on mute, Chair, but I sense you're saying that if I'm quick, I can go.

[The Chair, Liberal, Wayne Easter]

You're right.

[Sean Fraser, Liberal, Central Nova, NS]

Thank you.

Mr. Campbell, from the testimony we heard today, it seems there are quite a few different measures that we can implement. Most folks I've spoken with about the issue of tax evasion have argued that the return on investment, if we pour money into enforcement, is well worth it. Could you highlight one or two key areas where we would see the greatest return on investment for money we can put toward enforcement? Where is that?

I notice that Ms. Daviau has unmuted herself. I might give her the floor if she wants to give an answer.

[Debi Daviau]

Yes, if that's okay; I certainly turn it over to Ryan on the very technical stuff.

We're hearing from our members, as I mentioned very briefly, that there had been some organizational changes that were not helpful. For example, criminal investigation units were amalgamated. Now there's no criminal investigation between Calgary and Toronto. It's more of a domestic problem, but you really do have to look at the physical presence of resources in different regions.

There are also the international tax units. How do you leverage the best expertise of your international tax experts? How do you resource them properly? How do you give them the proper training and the proper technology that they need to go up against the tax giants they're having to work against?

It's that simple question of “invest a dollar, get five back”. It might even be higher. Certainly, that one has some facts and evidence behind it. It just makes sense that you want to properly resource your people at the Canada Revenue Agency so that they can actually combat some of this. That doesn't require big changes. It just requires an investment in people.

[The Chair, Liberal, Wayne Easter]

We will have to end it there.

We'll turn to Mr. Ste-Marie, followed by Mr. Julian.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

I would first like to give my regards to all our guests and thank them for their presentations. I also want to thank them for joining us today.

Ms. Watson, your testimony was very powerful. Let's hope that justice is done.

I would also like to acknowledge our colleague Elizabeth May, who is with us today.

Finally, I would like to remind you that my colleague Stéphane Bergeron is bringing motion M-69 to the House, which includes most of the measures suggested by the guests to combat tax avoidance and tax evasion.

My questions are for the representative from KPMG.

Ms. Iacovelli, I'm asking you and KPMG Canada to provide the Standing Committee on Finance with the following information.

KPMG has put in place tax strategies that provide a financial vehicle for some of its clients to reduce the tax they owe. For each case where KPMG Canada has directly or indirectly created or assisted in creating one or more companies in the Isle of Man, thereby enabling one or more Canadian taxpayers to hide money or reduce their tax payable, I am asking you to provide the committee with: all the documents used in these plans; a list of the companies created through these strategies; a list of the directors and officers associated with these strategies; a list of all those who benefited directly or indirectly; and the fees received by KPMG for each of these plans.

I would also ask that you provide us with the complete information for each plan carried out in a country or territory other than the Isle of Man and that you identify the country or territory. Of course, the clerk will be able to send you this request. If you are unable to respond fully now, I would ask that you provide your responses in writing to the Standing Committee on Finance as soon as possible or within 30 days.

Are you taking note of that?

I will continue with my questions.

[The Chair, Liberal, Wayne Easter]

We will have to give Ms. Iacovelli a chance to respond first, Gabriel.