Finance Committee on June 15th, 2021

[Bruce Ball]

No, not really. I believe Quebec actually does have a rule that compares tax positions taken by companies when they enter into contracts with them. I think there might be something there to look at.

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

So we could be inspired by what is also done in Quebec. Thank you, Mr. Ball.

Mr. Lareau, in the case of KPMG, you alluded to what was done in the United States. I believe KPMG had used a similar scheme in the United States, and the Internal Revenue Service, the IRS, immediately brought out the heavy artillery. It really didn't work that way in Canada.

Could you comment on this and give us some possible avenues of solution that could be followed by the Canada Revenue Agency, the minister or the government?

[Prof. André Lareau]

This was in relation to advance tax planning, and KPMG got caught in this situation. KPMG and the individuals themselves were committed to stand trial. There were fines totalling $450 million as well as the possibility of jail time. I don't know if there were any, because I can't remember the full decision.

Let's compare the KPMG situation with that of Fiscal Arbitrators, which I mentioned earlier. The information I have is that there were aggravating circumstances in a tax case for which people were sent to prison; there was a high level of preparation of the fraud involving several people and the sophistication of the fraud was demonstrated by, among other things, the use of an accountant. So people were sent to prison because they had used the services of an accountant, even though they were accountants themselves.

There was also the fact that there was an attempt to evade the amount of tax, which was in excess of $1 million, the fact that public funds were put at risk, the fact that the fraud took place over a period of almost a year, and the fact that after repeated requests from Revenue Canada, the individual continued his actions, as was documented.

In short, people continued to perpetrate their crimes, and it's the same thing in the case of KPMG. We were told that it was over, when it was not. It continued until 2015.

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

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you all. We'll turn to Mr. Julian next.

Mrs. Jansen is the next questioner on the Conservative side, but I don't see her on my screen.

Oh, she's in the room. Great.

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

Thank you very much, Mr. Chair.

I will not filibuster with respect to Mr. Easter. I had already commented on that. We will probably have a chance to talk more about it in the next few days.

I thank our witnesses for being with us today. We hope that their families and loved ones are safe in these pandemic times.

My first questions are for Mr. Lareau.

Mr. Lareau, thank you very much for being with us today.

In a few meetings a year ago, we met with representatives of the Canada Revenue Agency, and we also met with them last week. We asked them why none of the individuals and firms featured in the tax haven documents and the Panama Papers had been prosecuted. One year later, nothing has changed. There are no ongoing legal proceedings.

In 2016, you were supposed to testify before this committee, but that didn't happen and you didn't get a chance to give your opinion on the situation.

We are still wondering why there is such a lack of willingness to go after KPMG, other accounting firms and wealthy individuals who are defrauding the system.

There are two parts to my question.

First, what would you have said in 2016, had you had the opportunity to testify before the committee?

In your view, is the situation different today?

[Prof. André Lareau]

In 2016, we did not know that the strategy had been used after 2010. Today, we know. What I would have said in 2016, I have said to you today. I think I would have made the same argument then.

One thing is certain: the KPMG representatives told us that in 2003 they had learned their lesson and had stopped using this strategy. They implied that they didn't want to do that anymore. They seemed to acknowledge that they were wrong.

Either they decided to acknowledge that it was a crime, in which case criminals should be prosecuted, even 18 years later, or they just got caught red-handed. My theory is that they were caught red-handed and thought it wasn't worth it. So they decided to make amends and distance themselves from this a bit.

The answers they gave to the questions you asked them show that they have no willingness to co‑operate. The behaviour of this accounting firm is in no way indicative of a desire to co‑operate, to be fiscally transparent and to stop tax evasion. On the contrary, it sends you packing and simply tells you that it will not answer questions on the grounds of professional secrecy.

Yet the committee has every power to compel KPMG representatives to answer its questions. This professional secrecy does not protect accountants as they would have us believe.

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

Thank you.

The committee intends to ask representatives of KPMG to answer these very questions.

At the last committee meeting, we learned that one of the front companies was shut down by KPMG this year, just weeks after the whole affair was revealed by the television programs Enquête and The Fifth Estate. Some companies continue to employ these schemes.

You also mentioned a public inquiry. Do you think a public inquiry should also look at the impact of tax frauds like the one committed by the founder of the Cinar production company? This was perpetrated on retired people who have lost all their savings; justice needs to be done for these people and they should get answers to their questions.

[Prof. André Lareau]

A public inquiry must still target certain specific situations. You can't have a public inquiry into tax fraud in general, because that would get you nowhere.

If you are investigating KPMG or Cinar, which caused a lot of people to lose money, you have to target some of the most problematic situations. That way we can get somewhere.

There does have to be an inquiry that will give the commissioner and the investigators sufficient powers to demand the information, otherwise there would be consequences for people who refuse to co‑operate. There has to be an investigation, but it has to be about certain specific situations.

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

I would like to ask a final question about the consequences of double taxation avoidance agreements.

The current government signs agreements with countries that are considered tax havens. What are the potential repercussions of having this double taxation avoidance provision? We know that a person can declare income in one country, such as the Bahamas, where the tax rate is 0%, and then get that money back in Canada.

[Prof. André Lareau]

This situation crops up often for Barbados, because we have a tax treaty with them, and in the case of the Bahamas, because we have an exchange of information agreement with that country.

Canada has tax information exchange agreements with about 20 countries. The tax information exchange agreement allows resident companies in those countries to pay tax-free dividends to Canadian parent companies.

So they pay no tax there, and the dividends come back to Canada tax-free. This is totally absurd. Under the guise of wanting to sign these information exchange agreements, Canada's power to tax corporate profits has been let go, when the objective is not being met at all.

You mentioned the Panama Papers and the tax haven documents. We can see that we didn't get the information that we should have managed to get. We can make a comparison with what the United States obtained. As our population is equivalent to 10% of the American population, we could have hoped to obtain 10% of the revenue. But that's not the case at all, we got absolutely nothing.

[The Chair, Liberal, Wayne Easter]

Thanks, all of you.

Following Ms. Jansen will be Ms. Dzerowicz. Ms. Jansen, all the way from the committee room in the West Block, the floor is yours.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

First, Mr. Easter, over this time that we've been working together, I have detected a farmer's heart in you, and I'm very thankful for that. When you were going to make an announcement, I thought that maybe you were going to cross the floor and come to the good side.

[Voices]

Oh, oh!

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

It has been a pleasure to work with you. Thank you very much.

Now I'll go back to the matter at hand. Mr. St-Jean, we are here to evaluate the CRA's progress in regard to tackling tax evasion. I want to go back to 2015, when Prime Minister Trudeau said that the wealthiest Canadians were using small business tax rates to reduce their tax bills. He was basically calling small business owners tax cheats.

At the time, I was one of those people out there delivering flowers to customers in the heat of the summer, sweating it away in the old Hino truck with no air conditioning, which was, according to him, nothing more than a clever tax haven. I have to say that I was really insulted, as I believe many other small business owners were.

Now here we are in 2021, and the Liberals have thrown billions of dollars at the CRA to expose these supposed small business tax cheats. I know that the CFIB said at the time that his assumptions were seriously flawed, and so far there appears to be no evidence whatsoever that he was right. Does it make any sense for the Liberals to have developed this tax policy and hired so many new staff based on those assumptions, especially when we see that the CRA makes deals with the big tax cheats but keeps going after the little guy?

[Charles-Antoine St-Jean]

Thank you very much for that question.

I think we saw that the last budget was talking about investing a lot more money in tracking the tax data, getting better systems and getting more legal firepower to the CRA to help combat tax evasion. This is the way we read the announcement from the government, which we support, but I will let my colleague Bruce Ball comment especially on the small business tax.

[Bruce Ball]

Maybe I'll start with the first part of the question. I do know that a lot of businesses took exception, I guess, to the suggestion that they were somehow doing something wrong, and I'd agree that the majority aren't.

The issue is the underground economy. There are still business people and other people doing activities in the underground economy. Over the years we're working with CRA in trying to find ways to have these individuals or these companies come forward. Typically they're individuals, because corporations can be tracked, and there will be more of that with the registry, but it's to have these individuals come forward. We've been talking to them about education and taking advantage of the voluntary disclosure program and that kind of thing.

In addition to the money for verification, I think it's also important for the government to continue to try to get people out of the underground economy and to come forward and become compliant taxpayers.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

Maybe I'll continue with Mr. Ball.

How do you think we can expect ethical behaviour from regular Canadians when our government so blatantly and repeatedly is flaunting ethics laws? I don't know how we can expect Canadians to be better than the government.

[Bruce Ball]

Well, I don't think I'm really in a position to comment on the ethics side.

I think it's incumbent on all of us to be compliant taxpayers, though, and I know that our members—CPAs—work with people who want to be compliant taxpayers and do the reporting that needs to be done.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

I couldn't agree with you more. I know that we've been very thankful to have accountants who were honest and wanted to help us make sure we could sleep at night because we did the right thing.

Last week at the finance committee, I asked the CRA's Ted Gallivan why they were continuing to target small business owners with audits during a pandemic, and he proudly told me they had initiated a six-month pause on those audits. Considering that this pandemic has been going on for more than 15 months, would you say that aggressive audits are just another way of going after the easy target rather than the big tax cheats?

[The Chair, Liberal, Wayne Easter]

That'll have to be the last question, Mrs. Jansen.

Go ahead.

[Bruce Ball]

I was listening to the conversation last week. I'm not sure that they were auditing small businesses generally.

What Mr. Gallivan said agreed with what I thought. They were doing reviews of the assistance programs, so maybe that was part of it. They were reviewing the wage subsidy applications and later the rental applications. I'm not quite sure what the audit activity would be if it wasn't around some of the support programs.

[The Chair, Liberal, Wayne Easter]

Thank you both. That's interesting information.

We have Ms. Dzerowicz and then we'll be back to Mr. Ste-Marie for a short round.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Chair, and of course I'm going to start off the same way everyone else has.

I too want to thank you so much for you leadership. You'll be extraordinarily missed. You are absolutely a noble example for all MPs. You very much set an example of the kind of MP that we strive to be—at least I do. I'm only mad that you're leaving before we could have an oyster and lobster festival, so we might have to visit you in P.E.I.

With that, I will start with my first question.

At our last session, we learned that the federal government has indeed made, over the last five or six years, significant investment in tackling and combatting tax avoidance and evasion. We've actually recouped $5 billion from that $1-billion investment.

We've also heard that globally we're ranked about nine or 10 out of 80 in terms of identifying tax and being very successful in our efforts. Of course, we could always be more effective.

We also heard a little bit about some of the encouraging signs we've seen in voluntary disclosure, which has been great. I'd like to know how we can encourage more voluntary disclosure.

I have a second question around that. We know that a lot of the complex cases are coming before our courts. It's because it's cost-effective for these big companies to pay a million or two million to avoid paying $40 million in taxes.

I wonder what more we can do to make it less attractive to engage in these types of tax court cases.

Perhaps I could start off with Mr. St-Jean and Mr. Ball. Could you respond to that?

[Charles-Antoine St-Jean]

Thank you for the question.

On the question of litigation for taxes, there are a lot of dynamics around it. Many taxpayers say they'll go to court because they have an expectation that they will win. They have a valid case. People don't just do it for fun. I think there's that dynamic at play.

We were discussing that very question before the testimony today, so maybe Bruce could comment.