Finance Committee on May 6th, 2021

[Debi Daviau]

I certainly can't speak for the Canada Revenue Agency, although I personally don't know of any such mechanisms that allow the ground-level workers to feed up on some of those issues.

Recently there was a huge failure in the Supreme Court on the Cameco case. Again, going back to those who were involved in that case, there are legislative loopholes and there's nothing for them to do about that.

Sorry; I completely lost my train of thought, Julie.

Our auditors are telling us that they are simply lacking in particular resources and that they could do this job if those gaps were closed. I'm sorry if I'm not answering your question. As I say, I kind of lost my train of thought.

We're very passionate about this because we do have mechanisms for our members to feed up to us. We're hearing from them on a regular basis. We've conducted a number of surveys, some of which we've referenced during this testimony. Our members are telling us that there are gaps that need to be addressed. We're using this forum, as well as any other forum we can have a voice in, to ensure that their voices are heard by the decision-makers.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you. I think that's maybe one of the areas we could look into. I always think that for the people doing the work, it's good to find mechanisms to get feedback directly.

My next question—

[Debi Daviau]

I did reference the whistle-blower stuff. You need the ability for employees to be able to blow the whistle on bad practices. Unfortunately, the protections for them are very bad right now, so employees would not be compelled to do that.

[Julie Dzerowicz, Liberal, Davenport, ON]

Okay.

I don't know who I should direct this to. Maybe it's for Mr. Cohen or even Senator Downe.

We've spent a significant amount of money to try to deal with tax evasion. My sense has been that it's to try to deal with a lot of the international tax evasion. I think it was $444 million in 2016. I know it was $523.9 million in budget 2017. I know that in our fall economic statement, we invested another $606 million over five years to close the high-net-worth compliance gap, to strengthen technical support for high-risk audits and to enhance a criminal investigations program.

Has none of that been helpful to actually deal with the tax evasion issues, primarily internationally, as we've been talking about?

Mr. Cohen—

[Percy E. Downe]

I could answer that, Chair.

Of course you made the key point there, which is that it's over five years. When I asked for documentation of how the money was spent—for example, in 2019 I received a written question in the Senate—the government acknowledged that just over $250 million was actually spent from the 2016-17 budget. Then we find that the money was not spent quite where it was said it was going to be spent. The CRA advised us that they had to spend some of the money on funding towards employees' benefit plans. Obviously treating your employees fairly and fulfilling collective agreements is important, but it's not the same as cracking down on tax evasion, which was how the commitment was described in the budget.

I don't have any additional information on the money, although I do note that the revenue minister stated in response to a House of Commons question number 541 that in order to free up CRA resources for pandemic-related programs, many audits have been temporarily suspended as a non-critical service. I'm wondering what that means about overseas tax evasion.

All that is to say it goes back to the point I was making earlier. There's something structurally wrong in governance in the CRA and how they run their operation. That's an area that should be looked at.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you all for that.

There's a little confusion over times. I got some notes from committee members. This session, we'll give it the full two hours. That will make it 5:33 Ottawa time when we stop, and then we will go to committee business for a half-hour.

We'll go to Mr. Fast, then Mr. Fragiskatos, and then we'll pull in—

[Peter Julian, NDP, New Westminster—Burnaby, BC]

I have a point of order, Mr. Chair.

The committee hasn't decided to shift to that, and we still have a lot of questions.

[The Chair, Liberal, Wayne Easter]

That is what I'm saying we're going to. That's what's in the agenda. We can debate that later or we can take more time and debate it here right now.

We do have some other issues that we have to deal with as a committee, and the budget implementation act is pretty important too.

We'll go to Mr. Fast and Mr. Fragiskatos, and then we'll come back to Mr. Kelly, if that's where you want to go.

[Ed Fast, Conservative, Abbotsford, BC]

Thank you, Mr. Chair.

I'm going to direct most of my questions to Ms. Iacovelli, but first I have a question for Ms. Watson.

My sympathies go to you and all of the victims of these frauds. I wish there were a better way of recovering the losses that you've suffered.

You've heard Ms. Iacovelli say that KPMG has no culpability in the different frauds that we're discussing today, whether it's Norshield or Cinar or Mount Real. Do you accept her denial?

[Janet Watson]

No.

[Ed Fast, Conservative, Abbotsford, BC]

Can you tell me why?

[Janet Watson]

Just judging by what was uncovered in Enquête and The Fifth Estate, there were too many coincidences. Ms. Iacovelli keeps referring to not being involved with Cinar, but I know KPMG was involved with Norshield. I'm not satisfied with her answers. I will give her the benefit of the doubt to say possibly she is correct or maybe she's not permitted to give more information, which is probably the case.

[Ed Fast, Conservative, Abbotsford, BC]

All right.

I'm going to ask some questions of Ms. Iacovelli.

Ms. Iacovelli, you have denied any culpability in these frauds, but you did acknowledge that KPMG has established offshore structures for clients, correct? Just give a yes or no.

[Lucia Iacovelli]

We provided products, which was the offshore product, until 2003. We have not provided any products after 2003.

[Ed Fast, Conservative, Abbotsford, BC]

Prior to 2003, this product you provided was the OCS program.

[Lucia Iacovelli]

It was the OCS structure, correct.

[Ed Fast, Conservative, Abbotsford, BC]

All right.

Just for complete clarity, when you're referring to that product for these offshore structures, was the purpose of those structures to reduce the tax exposure of your client companies?

[Lucia Iacovelli]

With respect to the offshore structure, the purpose of the structure was that it would mimic a non-resident trust. Back in those days, those trusts were very much—

[Ed Fast, Conservative, Abbotsford, BC]

Okay. My question was very simple. Was it to reduce the tax exposure of your client companies?

[Lucia Iacovelli]

Unfortunately, it's not a yes or a no answer, Mr. Fast. It's a very complex tax act. The last time I looked, it was over 2,300 pages.

With respect to the offshore structure, the offshore structure very much operated like a non-resident trust, which was very much accepted by the government. The government welcomed those types of structures because they allowed for wealthy non-residents to move to Canada and establish residency in Canada.

[Ed Fast, Conservative, Abbotsford, BC]

Okay, then it was about reducing the tax exposure of your clients.

[Lucia Iacovelli]

Mr. Fast, with respect to the offshore structure, again, it's very complex. It's not just a yes-or-no answer.

[Ed Fast, Conservative, Abbotsford, BC]

I hate it when accountants try to hide behind complexity to avoid answering questions.

Let me ask you this: Why was the program terminated?

[Lucia Iacovelli]

The program was terminated because we very much felt that the landscape was changing. We very much felt that it was legal, and it also passed the GAAR testing, but at the time, KPMG was very much changing its views with respect to tax and what was acceptable from a responsibility perspective. The world was changing also with respect to what was socially acceptable.

I appreciate that I'm getting the sense that everyone feels I'm not being co-operative, but I want to point out that it's not my intention.

We are here voluntarily today. I am providing all the information that I'm able to provide. I think that you have to appreciate that my code of conduct precludes me from discussing specific client situations. I am happy—