Finance Committee on June 15th, 2021

[Bruce Ball]

Sure. Maybe I'll talk about the voluntary disclosure part first and then the court case part.

Voluntary disclosures are tough. You don't want to be too easy on the people who maybe were intentionally not complying, but at the same time you want to make sure that those who want to be compliant can come forward and do it in a reasonable way.

I haven't done much over the years, but in the few circumstances I was helping out on a voluntary disclosure, it really brought peace of mind to people. I think it's really an education point.

On court cases, I'd agree with what Charles-Antoine said. The other thing I'd add is that we, CPA Canada, have been working with the CRA in terms of the objection process. That's the step before you get to court to try to head off some issues. There are cases that make it into court that are legitimate disagreements. We've been pushing to see if we can do more of that before it goes to court and to have some way to resolve tax disputes without going to court first.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you.

My other question is around the global minimum tax. There was a big announcement last weekend or two weekends ago.

Is that going to be helpful in terms of combatting tax avoidance and tax evasion in any way?

[Bruce Ball]

I assume that's still to me.

It should be. The idea is that the corporate minimum tax would fill in the gap. If you have a company in Canada that's headquartered here and does business in another country, the corporate minimum tax would bring the effective tax rate up to 15%. The idea was that if they were paying 5% in the other country, then you'd be able to charge another 10% on income attributed to that country in Canada.

I think it could be effective. We'll have to see how it plays out. This is a brand new concept, but it has the potential to reduce the profit-shifting issues under BEPS, so we'll see how it works.

[The Chair, Liberal, Wayne Easter]

This is your last question, Julie.

[Julie Dzerowicz, Liberal, Davenport, ON]

Okay, great.

My last question is on penalties. Do we have any other constructive ideas about how we can further punish tax evaders from a penalty perspective?

[Bruce Ball]

From my perspective, I don't know if I have any.... We have a criminal system and a civil penalty system. I think if it's deemed that they're not sufficient, I think they should probably be reviewed. I don't think I have any other ideas.

[Charles-Antoine St-Jean]

It's the size of the penalty.

[Julie Dzerowicz, Liberal, Davenport, ON]

Do you think we could increase it, and that would make it more...?

[Charles-Antoine St-Jean]

That could help.

[The Chair, Liberal, Wayne Easter]

With that, thank you all.

We'll turn to two-and-a-half-minute rounds. We will go to Mr. Ste-Marie and then Mr. Julian, and then Mr. Kelly.

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

Thank you.

Let me come back to the question that was just raised.

If I'm not mistaken, the penalties in Quebec are 30%, while the Canada Revenue Agency imposes 0% penalties for voluntary disclosures. If we take the KPMG case in the U.S., the penalty was 50%, plus criminal prosecution, among other things.

So we can build on that, Ms. Dzerowicz.

My next question is for Mr. Lareau and Mr. Vaillancourt, but the CPA Canada representatives may also intervene.

In the Cinar, Norshield and Mount Real affair involving their executives, including Mr. Weinberg, thousands of small investors were cheated. I was very touched by the testimony of Ms. Watson, one of these defrauded investors, who came to testify before the committee. What has happened is appalling. Nearly $500 million has disappeared, most of it unaccounted for.

What can we do? What can the government do? What can the minister do? What needs to change so that situations like this do not happen again and we are able to find and get the money back?

The companies with the sword names are related to this. The CBC/Radio‑Canada reports make a very compelling case that KPMG is connected to these companies, because KPMG had a shell company registered at the same time that these four companies were registered. KPMG tells us that this is not the case. We have asked its representatives and they have written to us saying that they have examined their documents going back ten years. They stand by their denial.

What can be done to get justice in such a case and to ensure that it never happens again?

Mr. Lareau, I would like to have your comments first.

[Prof. André Lareau]

The struggle in this case is the result of a lack of information. We don't know what is going on. And I repeat: we cannot control what we do not see, as the journalist Laurent Laplante used to say.

We must therefore be able to demand accountability. It must be the courts that demand accounts. Accounting firms will have no choice but to respond adequately to court demands, or the penalties will be severe. As soon as all the information is obtained, a proper analysis can be carried out, but until we have the information, we cannot analyze it. People have this information, and they have to disclose it. We need to force the disclosure of information.

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

Thank you.

Mr. Vaillancourt, do you have anything to add?

[Claude Vaillancourt]

The current problem is that absolutely colossal sums of money are disappearing without any way of tracing them. This means that there's a basic problem, which is fundamental.

One of the solutions we see to this problem is the beneficial ownership identification regime, which would no longer allow numbered companies to exist, where the identity of the owners may be impossible to trace. In my view, such corporations are an unacceptable way of making fortunes disappear.

This system must be put in place as quickly as possible, it must be as effective as possible and, of course, it must meet the conditions I mentioned earlier, which I won't repeat.

In our opinion, this is really something fundamental that needs to be done right away.

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

In this regard, the House has just adopted a motion moved by my colleague Stéphane Bergeron. It is a private member's bill. We hope it will be used to solve the problem.

Mr. St‑Jean, do you have anything to add?

[Charles-Antoine St-Jean]

I was going to agree with Mr. Vaillancourt. The system in question will then provide new means to prevent this kind of thing. It won't be perfect. When there are criminals, there are criminals, but at least there will be one more tool to reduce risk.

So we fully agree with the recommendation to put the regime in place as quickly as possible.

[Prof. André Lareau]

If we are dealing with a company from the Isle of Man, hidden in the Isle of Man, and no disclosure is made, it's impossible to trace it. We are then playing hide and seek. However, when we play hide and seek, the goal is to hide. Even the best registry in the world won't give us the information if they don't want to put their name on it.

[The Chair, Liberal, Wayne Easter]

Okay. Thank you all.

Mr. Julian, you have about three minutes.

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

Thanks, Mr. Chair.

I'd like to ask my next questions to Mr. Vaillancourt, Mr. St-Jean and Mr. Ball.

As has been pointed out, the Norshield and Cinar frauds caused massive amounts of money to be taken from Canadians, wiping out their life savings—$500 million—yet the government has done nothing to follow up on that fraud. It's really the tip of the iceberg. The Parliamentary Budget Officer has evaluated what Canadians lose every year in tax dollars at $25 billion. When we look at all the problems that Canadians are facing—lack of affordable housing, the struggle to make the transition to clean energy, the lack of safe drinking water in indigenous communities—we see that $25 billion a year could resolve so many of those issues that Canadians are having to confront.

My question is twofold. First off, what should the government be doing now to get to the bottom of the Cinar and Norshield frauds and the KPMG linkage with the Isle of Man? Second, are you in agreement that this is a massive amount—$25 billion a year—of taxpayers' money that is essentially being lost to these overseas tax havens and frauds, money that could be so important to raise the quality of life for so many Canadians?

[Claude Vaillancourt]

I say this as a citizen because I'm not really an expert in this field.

You’re absolutely right, Mr. Julian, that we’re going to need incredible amounts of money over the next few years.

The energy transition and the green transition will be expensive, and major public investments will have to be made. We have learned that there are holes in which huge amounts of money are completely buried and that, in addition, we don't have the necessary means to go after them. In my opinion, we need to do everything we can to remedy this situation. I think that all kinds of organizations, such as the Canadians for Tax Fairness group and the Collectif Échec aux paradis fiscaux, have a series of solutions. Read their documents, read what they advocate. I don’t have time to explain it in a few minutes, but it’s all there.

You also have experts at the Canada Revenue Agency who are able to find solutions. We really need to address this problem as quickly as possible, because we have an urgent and considerable need for money. We are making a significant transition, and we need all our money to do that.

The situations you mentioned, Mr. Julian, must not happen again, and it is the responsibility of elected officials to ensure this.

[The Chair, Liberal, Wayne Easter]

I believe Mr. Ball or Mr. St-Jean wants to add something.

[Charles-Antoine St-Jean]

I'll add a point on the $25 billion. No doubt it is a very important number. It's very, very important that everybody pays their fair share of taxes. It's a civic duty.

There are many things that can be done from an enforcement perspective, but it's also a question of education. We firmly believe in having more education on why it is important for people to pay their fair share of taxes and in having those discussions to change their behaviour to enable that to happen. Social education would be helpful to close that gap, because that money will be needed. As Mr. Vaillancourt said, we need that money going forward, so the more we can do as a society, the better we all will be.

[The Chair, Liberal, Wayne Easter]

Thank you.

We're back to five-minute rounds. We'll start with Mr. Kelly and then go on to Ms. Koutrakis.

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

Thank you.

Mr. Lareau, what, if any, changes are needed to Canadian law to enable vigorous prosecution of overseas tax evaders?

[Prof. André Lareau]

The answer lies primarily in the penalties imposed by the legislation. It also lies in the latitude given to the Canada Revenue Agency and in the financial means, of course, that will be given to the CRA to detect tax fraud.