Evidence of meeting #56 for Finance in the 43rd Parliament, 2nd session. (The original version is on Parliament’s site, as are the minutes.) The winning word was cra.
A video is available from Parliament.
Liberal
Liberal
Peter Fragiskatos Liberal London North Centre, ON
Thank you, Mr. Chair.
I will begin in the same way. I think you have to get used to it, Chair. It's just one of these things. I know you're modest. You don't like the attention on you, but it's the reality.
I think we all share a level of respect for you, Wayne, that really cannot be expressed in words. You are an example for all MPs, particularly newer MPs like me. I think whenever this time in office comes to an end for me, whenever that might be, if I can look back on it and say that I was half as good an MP as Wayne Easter, then I will have achieved a great deal.
Thank you for everything you have done. It's greatly appreciated.
Liberal
Peter Fragiskatos Liberal London North Centre, ON
Perhaps I could begin with you, Mr. Lareau, and then go to Mr. Vaillancourt and Mr. St-Jean on this question as well. It relates to international jurisdictions. To be simple about it, who does it well? If we look at countries that have put in place measures to effectively deal with the challenge of avoidance and evasion, who can we best look to?
I'll start with you, Mr. Lareau, go to Mr. Vaillancourt, and round it out with Mr. St-Jean.
Associate Professor, Faculty of Law, Université Laval, As an Individual
They all have problems with people who hide money. Obviously the U.S. put more money into the IRS. Their penalties are much more severe than what we have here. The European Union tries, as a whole. All the countries of the union try, but obviously each country individually has the same problem, because they cannot find what is hidden. They all have the same problem. Nobody has a perfect score, but the more significant penalties in the U.S. perhaps give them an advantage because the criminals will be less inclined to act there.
President, Quebec Association for the Taxation of Financial Transactions and Citizen's Action
One current issue is that no one is doing anything. Each country is waiting for the other country to respond. We then end up in a sort of spiral of inaction that's ultimately counterproductive.
That's why, in our presentation, we asked Canada to become a leader in the fight against tax avoidance and tax evasion so that it can take a firm stand. There are some good models, including the Biden administration, which has become much more active in addressing the issue of tax havens.
It should be noted that the CRA's equivalent in the United States is currently much better funded. According to our calculations, it receives about 30 times more funding. When we say that more money can be invested in fighting tax fraud, I think that this is a very good example.
If the United States is doing it, why shouldn't we?
President and Chief Executive Officer, Chartered Professional Accountants of Canada
Thank you.
To build on what Professor Lareau said, I think nobody has the magic formula today for how to deal with this situation. It's a very complex matter. Criminals have different ways of doing it. Are there some better practices in various countries? Well, nobody has the perfect solution. Higher penalties could be part of the solution, but a better exchange of data and better treaties are also part of the solution. It's a very complex issue that cannot be solved quickly by un bouton magique.
Liberal
Peter Fragiskatos Liberal London North Centre, ON
I'll stay with Mr. St-Jean, if I could.
Mr. St-Jean, do you any thoughts on international tax treaty reform that you could share with us?
President and Chief Executive Officer, Chartered Professional Accountants of Canada
My colleague Monsieur Bruce Ball is much more of an expert in taxation issues than I am, so maybe I could ask him to help me out with this one.
Vice-President, Taxation, Chartered Professional Accountants of Canada
This is really tied in to the previous point. When I look at the situation, I look at what the CRA has in comparison to other countries. Mr. Gallivan laid out what the CRA has been doing recently, and there's more coming. There's more mandatory reporting and that sort of thing.
I think the biggest thing is access to information. That's a key part of tax treaties, the ability to share information with other countries. That is happening with country-by-country reporting and that sort of thing. There is more discussion going on among tax administrators around the world. I think that's a key part. Penalties are obviously important, but I think also transparency as well. In addition to the international reporting, we're also looking at a corporate registry in Canada.
I think you have to look at all of these things combined. I don't think there's one magic solution to the issue.
Liberal
Peter Fragiskatos Liberal London North Centre, ON
Thank you very much.
How much time is remaining, Chair?
Liberal
Peter Fragiskatos Liberal London North Centre, ON
Perfect.
I'll remain with Mr. St-Jean.
I take your point, Mr. Vaillancourt, about resources, but I'm happy to see that this government has pivoted in important ways. We did see the previous government under Mr. Harper make very significant cuts to the CRA.
Mr. St-Jean, you've talked about the most recent budget, budget 2021, and a number of measures there to deal with this problem of avoidance and evasion. I wonder if you could expand on that and talk about the potential that we have through the budget to deal with the problem in a meaningful way.
President and Chief Executive Officer, Chartered Professional Accountants of Canada
Thank you for the question.
The recent budget, budget 2021, is providing significant new resources or additional resources to the CRA. This is very much welcome. There are more resources on the legal side that are also provided to the department, and also more help is on the way to make better use of artificial intelligence to see patterns. These are all measures that will be helpful. The money and the people who have been promised in the budget are very welcome and will make a difference, no question.
Vice-President, Taxation, Chartered Professional Accountants of Canada
Maybe I'll jump in, if that's okay.
Vice-President, Taxation, Chartered Professional Accountants of Canada
There were a number of important changes in the budget. I mentioned the mandatory reporting: There will be more requirements to report transactions and plans that are more aggressive. They're going to show a list of transactions and also whether the transactions have one of the three hallmarks.
They're also going to be doing more on the international side. There's a proposal to deal with hybrid mismatches, which has been a large international issue over the years, and interest deductibility as well. There's a review of the general anti-avoidance rule coming, and that will be significant as well.
Liberal
The Chair Liberal Wayne Easter
Okay. Thanks, all of you.
We now have Gabriel Ste-Marie, followed by Mr. Julian. We're on our six-minute round.
Gabriel Ste-Marie Bloc Joliette, QC
Thank you, Mr. Chair.
I want to extend my greetings to all the witnesses here today.
I want to thank them for being here. They provide some very valuable input that I hope will advance the work of the committee.
Before asking my questions, I'll say a few words to the chair.
Mr. Easter, you're an exemplary parliamentarian and committee chair. It's truly a pleasure to serve with you. I find you sometimes tough, but always fair. I tip my hat to you. I'm still shocked by the news that you won't be with us after the summer break. We'll certainly miss you. We'll certainly still have the opportunity to squabble, since we have a few meetings left. Thank you for everything.
My first questions are for Mr. Lareau.
Mr. Vaillancourt and Mr. St‑Jean, if you want to add anything, feel free to speak.
Mr. Lareau, in response to Mr. Falk's question, you said that it was very important not to let the matter rest in the KPMG case. If nothing were done, it would send a kind of message of impunity to companies that create these types of schemes, such as shell companies.
What do you think should be done by the minister—you spoke about her investigative powers— by the government and by the committee?
Associate Professor, Faculty of Law, Université Laval, As an Individual
Tax evasion is a crime. Yet, no matter how many provisions there are in the law to prohibit this crime, it must still be discovered, detected. We must therefore act upstream. We must discourage people who are tempted to commit economic crime. As long as the Canada Revenue Agency offers large sums to KPMG clients for voluntary disclosures, the situation will not be resolved.
This all came from the agency, which wrote this to KPMG: “We invite your clients to file voluntary disclosures.”
The Cooper family was sent notices of assessment until 2010. More recently, we learned that it was until 2015. There has been a settlement in the case. We definitely need the CRA to take much tougher action.
In the case of KPMG, particularly, there needs to be a public inquiry or, simply, criminal complaints filed, which the court can evaluate to really get to the bottom of this whole thing. KPMG is refusing to answer your questions and get to the bottom of this. If KPMG is not required by a court to come and testify, no one will know anything. Is KPMG acting elsewhere, in other countries, using the same strategy? In addition to the 16 taxpayers, are there others?
We do not know. However, we do know that Mr. Barry Philp of KPMG wrote the following in 1999:
“It is not unreasonable to expect that if Revenue Canada were fully apprised of the proposed arrangement, they would seek to have offshore companies treated as a deemed resident of Canada, in which case it would be taxable as if it were income.”
In 2002, he added the following regarding the protection offered to the Cooper family in connection with the share capital: “This should be done in a separate agreement and not in the share capital.”
“This had the decided advantage of not being in the public domain, as are the articles.”
We can see that they want to hide all this. Therefore, severe sanctions must be imposed: a criminal trial against KPMG and against the actual people who devised this scheme. Of course, the agency also needs to be much more forceful. We are talking about tax evasion.
If we were talking about tax avoidance, I would say amend subsection 245(4) of the Income Tax Act, which provides for a reverse onus; the CRA, or Justice Canada, then has to prove that there was tax avoidance. It is then no longer up to the taxpayer to prove that they did not avoid paying taxes. However, this burden of proof is very difficult to establish. The reverse onus in subsection 245(4) should be removed.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you, Mr. Lareau.
Mr. Vaillancourt, do you have any comments to make on this matter?
President, Quebec Association for the Taxation of Financial Transactions and Citizen's Action
I completely agree with Mr. Lareau. I find it totally unacceptable that a company of this importance, a recognized company, should engage in such manoeuvres which go against the interests of the citizens of Canada.
We have to wonder whether the government has entered into contracts with such a company. If that is the case, could they not be terminated?
Wouldn't this be another way to penalize this company, which is doing something that is completely unacceptable today?
I think the Canadian government should ask itself what it can do about this problem. For example, it could cancel contracts with other companies acting in a similar way. That is what we suggest.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you.
Mr. St‑Jean or Mr. Ball, did you want to add a comment?
President and Chief Executive Officer, Chartered Professional Accountants of Canada
I have no further comments to add on this matter.
Maybe my colleague Bruce does.