Finance Committee on June 10th, 2021

[Ted Gallivan]

I did that comparison, and I think that relative to our economy, we were 10th. There was a slight change.

I will use the example of Colombia, which your colleague mentioned. Colombia, surprisingly, has $100 million U.S., all from one voluntary disclosure by one taxpayer, so I would suggest that this was an anomaly. The point I was trying to make is that we are far from being a laggard. We were in the mix. I hope to do better in the future, but we were clearly not in last place, at zero.

[The Chair, Liberal, Wayne Easter]

This is your last question, Peter.

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

As a final question, has KPMG ever consulted with CRA about how to change the Isle of Man scam to make it more acceptable to CRA?

[Ted Gallivan]

Not to my knowledge, no, and it would have been highly unusual if they had.

[The Chair, Liberal, Wayne Easter]

Thank you both.

We will turn to Mr. Lawrence, who will be followed by Ms. Koutrakis.

Go ahead, Mr. Lawrence, for five minutes.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you very much, Chair.

Mr. Gallivan, I'm going to build on some of the questioning that has already been put forward. I would also say to you publicly that I believe you and your team are working as best you can. I believe it's the government that's ultimately failed. Perhaps we see a sign of that, as the minister has failed to appear today.

With respect to section 380, how how many individuals or how many corporations have been charged under section 380 with respect to offshore tax havens?

[Ted Gallivan]

Right now we have 55 ongoing investigations that have an offshore tax element. I'm not trying to duck the number on convictions; I just don't have that number in front of me right now.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Could you get that to the committee?

[Ted Gallivan]

I'd be happy to do it.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Perfect.

By the way, what sanctions has KPMG faced for their role?

[Ted Gallivan]

Our work on the KMPG Isle of Man situation is ongoing, and I guess the details would be protected under section 241. I would just say that our work in that regard is ongoing.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Transparency International referred to us as having a “notorious reputation” for money laundering. In accordance with the commission inquiry into money laundering in British Columbia, it's estimated that $45 to $113 billion flows through Canada illegally. If you did the math on that with a 20% tax rate, you might come up with $20 billion. The PBO said we're losing $20 billion to offshore tax havens. How would you rank us compared with the rest of the world? I ask because it appears that most of the NGOs are putting us near the bottom.

[Ted Gallivan]

Colleagues from the Department of Finance may have a view on this as well. I spend most of my time looking at Canadian residents who may owe tax to the CRA. I think what you're describing would be resident nationals of other countries that other tax authorities would be interested in. I would say that the beneficial ownership registry announced in the budget should definitely make a significant shift in the transparency around beneficial ownership of corporations in Canada.

[The Chair, Liberal, Wayne Easter]

Does anybody from the Department of Finance want to enter? No?

Sorry, Mr. Lawrence; go ahead.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

No worries. Thank you, Mr. Chair.

What I wanted to talk to you about next was beneficial ownership. Am I correct that it's not planned for that registry to be in place until 2025?

[Ted Gallivan]

I believe the exact timeline—oh, go ahead, Trevor.

[Trevor McGowan, Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance]

I was just going to confirm that budget 2021 proposed to provide funding over two years to Innovation, Science and Economic Development Canada to support the implementation of a publicly accessible corporate beneficial ownership registry by 2025—

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Right, so in the next four years, while countries all across the world have this in place, we're planning to do it. The United States already has this in place and the U.K. already has this in place. We're spending lots of money, but we're not getting any gold. How many billions of dollars are we going to lose while we wait for Canada to be a decade behind the rest of the world?

[Ted Gallivan]

The first point I would make is that we're not idle. In other words, we haven't downed tools while waiting for the beneficial registry. We have legal tools at our disposition. We're able to do our own research. I mentioned the increased data that we're getting by looking at worldwide bank accounts and looking at electronic funds transfers. We're looking at the flow of funds by using the paid informant program that I mentioned earlier. We do have other sources of information, so I don't think we're going to be idle between now and 2025.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

No, and I'm not saying that at all. Like I said, I believe it's the government that's letting you down and letting our taxpayers down.

Would it not be tremendously beneficial, and is it not fair to say that it would save Canadian taxpayers potentially billions of dollars, if we were able to get that beneficial ownership registry done in the next couple years as opposed to in four years from now?

[Ted Gallivan]

I think the key to understanding a tool like the beneficial ownership registry is to recognize how it helps. I think just announcing it deters some behaviour and change some behaviour, just as when we announced country-by-country reporting for multinationals. Many of them decided to change their approaches. I do think there's already been a deterrent effect, just from the announcement.

I'd also caution that once it exists, from a CRA perspective that's just a start. As we're seeing with this explosion in cases before the court, even with the registry, even when we found somebody doing aggressive tax planning, they're very happy to take us to court and fight us all the way to the Supreme Court in the cases I mentioned.

I would say that we are already having some benefits. Once the registry arrives in 2025, we probably still have many years of litigation ahead of us until some of the determined actors really stop their behaviour.

[The Chair, Liberal, Wayne Easter]

All right. We are going to have to move on, Philip. I'm sorry.

Ms. Koutrakis and Mr. Sorbara were going to split their time, but we're used to an hour and a half in committee, and so I think we have time for them each to take the full time if they want to. I'll put Mr. Sorbara down further.

Ms. Koutrakis.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you, Mr. Chair.

Thank you to our witnesses for being here this afternoon and answering our questions.

I would like to quote Debi Daviau, the president of the Professional Institute of the Public Service of Canada, the PIPSC, who appeared before finance committee in early May.

Ms. Daviau stated at the time that the CRA used to have “international tax units that were very well organized and could work together more effectively to produce...documents [from an offshore tax filer], 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.”

Since these budget cuts to the CRA...and we've already heard in this meeting this afternoon that the federal government has invested over $1 billion in the CRA to restore its capacity in this regard. Can you comment on how recent funding from past federal budgets has helped repair the CRA's capacity to fight offshore tax avoidance? Can you share your thoughts on any additional funding or resources that would be required to completely restore these specialized international tax units?

[Ted Gallivan]

Thank you for the question, Mr. Chair.

I would say the combination of better data and access to additional sources of data that let us identify and then prove aggressive tax planning, co-operation with the Department of Finance to close the loopholes once we surface them, and additional sources like the paid informant program or the FTEs have really made a significant contribution.

It's not just about having more audits, but it's the right audits.

Absolutely, the resources that have been provided have allowed us to identify that gross $5 billion that we keep talking about, but I think more importantly it is bringing the right cases to court so that the full consequences are felt. Recently, the government has identified additional funding for CRA and the Department of Justice for roughly 140 additional lawyers to handle just tax matters before the courts.

I mentioned 2,000 complex issues before the Tax Court of Canada. There are actually 3,000 pieces of high-end litigation, if you include the Federal Court and the appeals branch. I do think it's that pressure of 3,000 high-end cases where taxpayers are being called to account that is helping. For sure, the resources to CRA helped, but I think we also need that access to data, and increasingly we need lawyers and legal resources; because I would say the fight has moved from the audit front to the courtrooms now, and the crackdown that the government started in 2016 has largely moved to the courtrooms.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you for that.

It's with great sadness that I hear that, unfortunately, these cuts happened during the last Conservative government. I'm happy to hear that the new funding that we've given since that time is helping in that regard.

Can you provide the committee with an overview of the CRA's leads program?