Finance Committee on June 10th, 2021

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

Thank you for those answers.

[The Chair, Liberal, Wayne Easter]

I let that go on substantially, because I think that's pretty good information.

Ms. Dzerowicz.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Chair.

Mr. Gallivan, thank you for your presentation and remarks.

Thanks, everyone, for being part of this panel today. I really appreciate your spending the time here.

Mr. Gallivan, one of the narratives that's put forward at this committee is that the federal government has done nothing to combat tax avoidance and tax evasion. Would you agree with that statement?

[Ted Gallivan]

No, I wouldn't. In fact, I would say that successive governments have made significant investments and significant legislative changes, and have signed on to significant international initiatives, first, to tighten the rules, and second, to have a greater flow of data. I mentioned country-by-country reporting for multinationals. The common reporting system is worldwide banking information. Domestically in Canada we have the electronic funds transfer. We have a new paid informant program that was launched in 2013. Three or four years in, there was only $2 million collected. People were very critical of that. Well, we're approaching $200 million in unpaid taxes that would have been identified through that program.

I think there's been a broad range of things done both operationally and legislatively.

[Julie Dzerowicz, Liberal, Davenport, ON]

Mr. Gallivan, I'll be a little more specific, just because I have the numbers here from the 2016, 2017, 2018 and 2019 budgets.

In 2016 we invested $444.4 million. In 2017 we invested an additional $523.9 million. In 2018 we invested another $90.6 million. In 2019 we invested another $150.8 million. That's just dollars; it doesn't count some of the other things you had talked about to modernize Canada's AML/ATF framework or providing more dollars for the court's administration and some of the other measures you had talked about.

Would you say that this was a significant investment, over the last four years, to combat tax avoidance and evasion?

[Ted Gallivan]

Yes. The $1-billion figure that people have talked about as an investment that was to yield $5 billion was a very significant investment. We identified that $5 billion a year early, despite being disrupted by COVID for two years.

[Julie Dzerowicz, Liberal, Davenport, ON]

Can you just tell me, of all that investment, how much we have captured in terms of tax avoidance? Can you give us that number, please?

[Ted Gallivan]

It is over $5 billion.

[Julie Dzerowicz, Liberal, Davenport, ON]

So we have identified that it's $5 billion.

[Ted Gallivan]

That's correct.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much.

[Ted Gallivan]

That's a tactical result. In terms of outcomes, though, there are other positive indicators. We're getting roughly 4,000 people with offshore assets trying to come through voluntary disclosure every year. We've tightened it to make it less generous, but those are taxpayers speaking with their actions.

A second is complex legislation. From 2012 to 2020, the volume of complex legislation before the Tax Court roughly doubled, from 994 to 1,987. You see twice as much more complex legislation. Again, those are taxpayers who we've taken on, who are not rolling over and complying but are taking us to court.

Finally, there's form T1135, the disclosure of your offshore assets. Again, from 2012 to 2020, we've grown from 200,000 people disclosing their offshore assets to 400,000. Again, that's roughly a doubling.

I think you can see in these trend lines that taxpayers are reacting to the crackdown in two ways. Some of them are trying to do voluntary disclosures and disclose their offshore assets. They got the message and they'd like to comply. Others are taking us to court.

I think largely now there is a very well-populated court record at the Tax Court of Canada, Federal Court of Appeal, and three tax cases at the Supreme Court right now that kind of lay out where the state of play is in terms of aggressive tax planning in Canada. Again, I'd refer you to budget 2021. That had a number of measures, in part reacting to adverse court decisions and reacting to this reaction by taxpayers to CRA's increased efforts.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you.

Next, you were talking about Canada's being ninth in the world. Is that in terms of investment in combatting tax evasion and tax avoidance, or in being successful going after it? Could you clarify that?

[Ted Gallivan]

Absolutely. The International Consortium of Investigative Journalists, the people who kind of broke the Panama papers story, have a bit of a ranking where they're tracking public pronouncements by tax authorities around the tax that they've identified.

Right now the Canadian reporting approach has been very conservative. We have tended to get hung up on collected versus assessed. Canada, if you take CRA and Revenu Québec together, has just upwards of $50 million in additional tax already identified, which would put us in ninth place. If we look at our inventory, our open Panama papers audits that the auditors are working on right now to document, so that they survive court challenges, we know that we have another $60 million yet to come.

[The Chair, Liberal, Wayne Easter]

This is your last question, Julie.

[Julie Dzerowicz, Liberal, Davenport, ON]

That's great.

Is it ninth out of 300 countries?

[Ted Gallivan]

It's out 80 countries. Roughly 80 countries have said they're aggressively pursuing the Panama papers.

[Julie Dzerowicz, Liberal, Davenport, ON]

We're among the top.

Thank you so much, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

I would say to any other witnesses here that if you have additional information, put up your hand. If I don't see you, just yell.

Next we have Mr. Ste-Marie followed by Mr. Julian.

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

Thank you, Mr. Chair.

I have a brief comment on what was just said.

Canada is still behind Colombia, and the amounts targeted or recovered have nothing to do with what is being done in Germany or the United Kingdom. According to the Radio‑Canada article, even Revenu Québec has managed to recover more money and identify more files than the Canada Revenue Agency. In my opinion, there is a problem. To say that everything is fine is to keep playing the song Don't Worry Be Happy.

First, the purpose of today's meeting was to ask the Minister of National Revenue about tax evasion and to get her explanation as to why the Agency signed a lenient amnesty agreement with KPMG and its clients. The purpose of the meeting was to ask her what she is doing, as minister, to address the fraud and embezzlement in the case involving Mr. Weinberg and executives of Norshield and Mount Real, where a Ponzi scheme defrauded thousands of small investors of their savings.

Five hundred million are missing, and most are still unaccounted for. The purpose of the meeting was to ask her how she was going to ensure that the small savers who were robbed could get their money back. The minister has the power.

Will she use her ministerial power to call a public inquiry as she alone has the authority to do under subsection 231.4(1) of the Income Tax Act?

The purpose of the meeting was to ask her what she is doing about the sword companies, which is what I wanted to ask her.

However, the minister chose to go AWOL. She chose to bury her head in the sand. She was invited last week and now she is running away. This is deplorable and I can assure you that we in the committee will continue to hold her accountable. We will not stop there. Hiding like this may help save her skin once, but not twice.

Mr. Chair, let me tell you that I'm sure we'll come back and find a way to hear from the minister on this. As I told you during the point of order, she was at her desk all through question period. Blowing off such an important study is honestly unacceptable.

We are talking about tax justice and fairness for individuals and taxpayers. Justice must be done for small savers like Ms. Watson, who came to the committee for this study. Honestly, I find the minister's attitude unacceptable.

Having said that, I welcome the presence of the senior officials. My thanks to them for being here to answer our questions, and I appreciate that. Of course, my questions were primarily for the minister to address the points I raised.

My first question is for Mr. Gallivan.

Mr. Gallivan, thank you for your presentation.

On the issue of KPMG and the clients who used their scheme with the shell companies in the Isle of Man, can you confirm that there were 16 clients, 14 of whom agreed to identify themselves and two of whom refused?

Is that correct, Mr. Gallivan?

[Ted Gallivan]

No, the numbers are a little higher. From memory, there are 25 clients, and two are apparently still in the process of being verified. I think you're talking about the ones that have reached a voluntary agreement to identify themselves.

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

Yes, that is correct. Thank you for the clarification.

With respect to the cases where clients chose to disclose their identity, I would like to know why the Agency did not follow the usual process. Under the process, amnesty or the possibility of partial amnesty is offered upon voluntary disclosure, not when the investigation is already under way, as was the case here.

Why did the Agency not follow the usual process?

[Ted Gallivan]

First, when there is a dispute, negotiations are always carried out to reach a settlement. Settlement discussions are not unusual when there are disputes. It is a normal process.

The legislation that the Canada Revenue Agency used to force KPMG to disclose the identity of taxpayers had only just changed. When we went to court, the wording of the legislation had not yet changed. Once in court, we were told that it was not certain that we would be able to obtain the identity of those taxpayers.

The first factor was a legal opinion asking that the Canada Revenue Agency would never know the identity of those taxpayers.

Second, because the schemes went on for a number of years, we found a way to backdate the review of tax returns to 13, 15 and 16 years for some participants, which increased the amount of the bill. We then decided that all taxes had to be paid.

To avoid the risk of losing in court and never knowing the identity of those taxpayers, we agreed to take all the tax returns back 15 to 20 years, which is very rarely done, to get that money and move on, instead of running the risk of getting nothing.

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

Mr. Gallivan, in my opinion, this is still a bargain‑basement agreement, especially when we see that the Internal Revenue Service (IRS), the federal agency in the United States, demanded that KPMG and its clients provide names, and obtained them. The IRS even threatened KPMG in the U.S. with being classified as a criminal organization if it did not hand over its documents.

As for the Canada Revenue Agency, the agreements it has reached are to ask the offenders to pay back unpaid taxes and interest, but at rates lower than those charged to small and medium‑sized businesses and the average person, without imposing any form of penalty. In my opinion, this is borderline illegal and should be considered criminal. That is my beef.

I think there is too much accommodation in the deals being made, and the way KPMG and its clients are being treated sends a message internationally that “Folks, if you feel like defrauding, come try it in Canada, because the worst that can happen to you, once there is an investigation, is that we are going to make you pay your taxes, maybe even for the last 15 years.”

In my opinion, a lot more should be done. Again, this is a political issue that I would have liked to discuss with the minister, but she chose to duck out.

[The Chair, Liberal, Wayne Easter]

Gabriel, we'll have to get to the question.

Go ahead.