Finance Committee on June 10th, 2021

[The Chair, Liberal, Wayne Easter]

We'll call the meeting to order.

Welcome to meeting 55 of the House of Commons Standing Committee on Finance. Pursuant to Standing Order 108(2) and the motion adopted by the committee on Tuesday, April 27, the committee is meeting to study the Canada Revenue Agency's efforts to combat tax avoidance and evasion.

This meeting is taking place in a hybrid format, pursuant to the House order of January 25. Between ourselves as members and the witnesses on the panel today, I don't think we need to go through all of the further rules.

I should mention to committee members that we will reserve about 15 minutes at the end of the meeting. We have the report on the steering committee to deal with, which members have been sent, and also Mr. Julian's motion. I understand there have been some discussions on it. It shouldn't take too long to dispose of those two items.

With that, our witnesses from the Canada Revenue Agency are Ted Gallivan and Alexandra MacLean. From the Department of Finance, they are Trevor McGowan, Stephanie Smith and Kevin Shoom.

I'm not sure if you each have an opening statement or if it's just one among you who does.

Maybe I'll turn it over to you, Mr. Gallivan, assistant commissioner, to start.

[Ted Gallivan, Assistant Commissioner, Compliance Programs Branch, Canada Revenue Agency]

Good day, Mr. Chair.

To maximize the time for questions, I might just cover some key points of emphasis. The full remarks are filed with the clerk of the committee.

Both the Government of Canada and the CRA are firmly committed to combatting tax evasion. We are also determined to make it much more difficult for all those who intentionally choose not to meet—

[Ted Falk, Conservative, Provencher, MB]

I have a point of order.

[The Chair, Liberal, Wayne Easter]

Hold on, Ted. I don't think we're getting translation.

Is that what it was about, Mr. Falk?

[Ted Falk, Conservative, Provencher, MB]

That's right. Thanks, Wayne.

[The Chair, Liberal, Wayne Easter]

Could we check on the translation again?

Just give us a couple of lines, Ted.

[Ted Gallivan]

It must be recognized that international tax evasion and aggressive offshore tax avoidance are very complex global issues.

[The Chair, Liberal, Wayne Easter]

Are we getting the French, Gabriel? Yes? Okay.

Go ahead, Ted. Thank you.

[Ted Gallivan]

Thank you, Mr. Chair.

Through the government's investments, which have been announced in federal budgets since 2016, the CRA has been able to equip itself with tools and resources that allow collaboration and exchange of data at a global scale and provide much more transparency for Canadians.

Because of these investments by the Government, the CRA has benefited from better data, better partnerships, and ultimately, better results in its fight against tax evasion.

Canada is one of more than 70 countries that exchange information via country-by-country reporting. Since 2015 Canada has participated in the sharing of data related to international electronic funds transfers of over $10,000. Additionally, with the implementation of the common reporting standard in 2016, Canada and nearly 100 other jurisdictions have been able to benefit from data from financial institutions that identify financial accounts held by customers who are non-residents for tax purposes.

Thanks to budgetary investments since 2016, the CRA has observed excellent signs of success. In fact, the agency has identified over $12 billion in gross audit assessments every year, over 60% of which is related to tax avoidance by large multinational corporations and aggressive tax planning by wealthy individuals. While the CRA had committed to finding an additional $5 billion over five years, we actually achieved that goal a year early, despite the pandemic. In addition, our proven results demonstrate that we're taking the right tax cases to the Tax Court of Canada, the Federal Court of Appeal and the Supreme Court of Canada.

Of course, there is still work to be done, but we have a proven track record to show that we are making it increasingly difficult for non‑compliant individuals to continue their activities.

As part of the fall economic statement 2020, and confirmed in budget 2021, the government committed to investing an additional $606 million over five years, starting this fiscal year. Notably, we are working to close the high-net-worth compliance gap, bolster technical support on high-risk audits and enhance the criminal investigations program. These investments will allow the CRA to fund new initiatives and extend existing programs targeting international tax evasion and aggressive tax avoidance.

The Government of Canada's continual investment in fighting tax evasion and aggressive tax avoidance promotes an international exchange of information that is both modern and collaborative, and ultimately ensures that all Canadians pay their fair share.

[The Chair, Liberal, Wayne Easter]

Okay, thank you.

Does anybody else have anything to add? Is it Mr. McGowan with the Department of Finance?

I see quite a number of people have their cameras off—Ms. MacLean, Mr. McGowan, Ms. Smith, Mr. Shoom. You're quite free to leave them on. It's not like what we're doing with Bill C-30. Leave your cameras on if you like. You're quite fine either way, but it's better to see us. I see Ms. Smith is all smiles there.

Is there anybody else? Trevor, did you have anything you wanted to add?

Okay, with that, the lineup for the first round of questions is Mr. Kelly, Ms. Dzerowicz, Mr. Ste-Marie and Mr. Julian.

Mr. Kelly, you have six minutes

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

Thank you, Mr. Chair.

First of all, I'd like to say I am quite disappointed. Perhaps I should have raised this as a point of order earlier. I'm using my time. Where is the minister?

[The Chair, Liberal, Wayne Easter]

The....

Sorry, go ahead.

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

I have a point of order.

Thank you very much, Mr. Chair. I think Mr. Kelly was intending to raise this as a point of order. I don't think he intended that it would take up part of his time.

[The Chair, Liberal, Wayne Easter]

Well, that's fine.

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

Perhaps, Mr. Chair, you have an explanation. I am open to it. I understand that the ministers are busy, but we asked for the minister. We have an expectation, as a committee, to hear from the minister on this study. We haven't had the minister at this committee on anything for a very long time now. I think it's about time she appeared. We expect her to appear on this study.

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

A point of order, Mr. Chair.

On this point, I completely agree with my colleague Mr. Kelly, especially since the minister was present for the whole of question period. She was on Zoom just a few minutes ago. We could see her chewing her gum, as usual. So we would like to have an explanation for her absence.

[The Chair, Liberal, Wayne Easter]

I don't have an explanation. The invitation was sent. The minister wasn't able to appear. We have also invited officials in her stead.

You've made your point. I will send a note to the minister that the committee was dissatisfied that she wasn't able to appear and that we look forward to her appearance at the earliest opportunity. That's about all we can do at this stage.

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

Thank you, Mr. Chair. I will say to officials that we are happy and pleased to have you here. It's great to have the detailed information that officials can provide, but members of this committee likely have political questions about the policies and priorities of this government that officials cannot properly answer.

If I may, then, to the officials.... I'm not even sure where to start.

Let's go back to the Auditor General's report in 2018. I've asked this question before. This was a very shocking report. Canadians were disappointed to hear that the Canada Revenue Agency would automatically disallow expenses as eligible tax deductions. This is for ordinary Canadians who don't have offshore accounts and don't participate in complicated offshore tax avoidance schemes. If you're a regular Canadian, you must provide documents within 90 days or you will automatically have your deduction disallowed and taxes applied.

I'm reading right from the Auditor General's report, “For other taxpayers, such as those with offshore transactions, we found that the time frame to provide information was sometimes extended for months or even years”, and often with no taxes applied. Could the officials tell us if it is still the CRA's practice to grant offshore filers seemingly unlimited extensions? If you're a small business operator in Canada, you have 90 days or you lose your deduction.

[Ted Gallivan]

Thank you, Mr. Chair.

I have a broader point and then a specific point.

The broader point is, in the case of regular Canadians, when we're asking them to substantiate a moving expense, it's true that we would allow 90 days. If they contact us, obviously we're open to extensions. However, there is a fairly narrow ask with a fairly tight frame.

Then you'd ask yourself why we would give the multinational enterprise or somebody with offshore...a series of extensions? Why would we appear to be indulging them? The fact is that those cases are going to court. We are sure, at the million-dollar point, that the taxpayer is going to want to litigate, and certainly when you get into the $300-million and $400-million files, there's going to be litigation.

The CRA has an onus at court to prove its case, so the additional time the CRA is putting into those files is actually to increase our chances at being successful at litigation. That's the general point.

More specifically, we have made timeliness one of our three corporate priorities for audit in the branch, and we are going to court to compel large taxpayers to give us the information we need more quickly. Also, in budget 2021 there was another measure concerning oral interviews.

I think I would explain for the committee that sophisticated taxpayers engage in stalling tactics to weaken the quality of our position at litigation as a deliberate tactic. We have tightened our procedures and processes, and through budget 2021, we've started to get ourselves more legislative power.

I think a longer period of time was actually better for taxpayers in terms of maximizing revenue, because it gave us more time to collect the evidence that we were going to need at court. Having said that, we're also taking those same taxpayers to court faster to get the information that we think we're entitled to.

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

I still think that answer would give no comfort to a small business owner who gets a letter from the agency with a demand for papers. That small business owner has to immediately drop everything and call their lawyer or accountant, or both, and in many cases for seemingly frivolous items.

Yet, I understand the point that in a large case that will be going to court, you need to gather the evidence, but there's a perfect opportunity there for the large tax filer—the overseas tax filer—to game the system through delay, because it's indulged by the agency.

We've heard about the KPMG case. We were talking about the Panama papers and the Paradise papers here. Have there been any convictions in the Panama papers and Paradise papers cases so far?

[Ted Gallivan]

Like most countries around the world, we have open investigations, some of which have proceeded to the search phase, but we don't yet have a conviction. At this point in time I wouldn't say that's a cause for alarm.

I would say that our criminal investigations are driven by the facts and the evidence particular to the case. It wouldn't be reflective of a lack of interest in making referrals to criminal investigations.

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

Do you know how many convictions have been made in Germany?

[Ted Gallivan]

No, I don't have the specific number for the German convictions.

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

Okay. There are reports of convictions and hundreds of millions of dollars being recovered in other jurisdictions, and yet not in Canada. Can you explain that?

[Ted Gallivan]

Yes. I think a key point on the Panama papers—because there has been media coverage saying there have been zero convictions—is that tax authorities have been reporting the gross amounts or the amount they've identified. In the case of Canada, which is the CRA plus Revenu Québec, roughly $52 million in tax was identified by them, which would place us in ninth place in the world.

We've refused 36 VDPs, which would add to that number, and we have about another $60 million under audit. At the end state, we're looking at perhaps $100 million in taxes from people listed in the Panama papers.

I think there's a semantical issue around, “Have you identified it? Have you collected it?” We've gone to the details. All other countries are reporting what they've identified, and they're not yet able to land on what's actually been collected. I'd also add that a lot of other countries higher up on the list—Italy and Spain, for example—have received voluntary disclosures in the range of $100 million.

Canada, I think, has taken the Panama papers list seriously. I think we've made a strategic choice to restrict VDPs and refuse some voluntary disclosures, because the consequences have to be there.

I think you have to look at the CRA results and the RQ results together. We're not in a competition, but we're two tax authorities in the country. Ninth place is maybe not where we'd hoped to be at the end, but it's not at zero.