Evidence of meeting #57 for Finance in the 43rd Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was kpmg.
A video is available from Parliament.
4:45 p.m.
Chartered Professional Accountant, KPMG
KPMG did an overall assessment and stopped offering those products in 2002, 2003 or 2004. In fact, the decision was the firm's, not the local office in Montreal. That's why I hesitated. That decision was made by the firm on a national basis.
4:45 p.m.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
What was the rationale for that decision? Was there a change in the law?
4:45 p.m.
Conservative
4:45 p.m.
Conservative
4:45 p.m.
Chartered Professional Accountant, KPMG
It would be difficult for me to give you the reasons for that decision, because I was not part of the committee that made the decision to no longer recommend the structure.
4:45 p.m.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
Were you involved or did you have any interaction with the Canada Revenue Agency over the allegations around the Cinar fraud? I know that you've denied that you were involved, but did either the CRA or any other investigative bodies question you or your company over these allegations?
4:45 p.m.
Chartered Professional Accountant, KPMG
As I mentioned, I am not familiar with the Cinar affair, except that I was informed about it by the firm. I imagine that requests were made to the firm. Some of my former colleagues at the national level asked me if I had heard of this company and I told them that I did not know this organization or the people involved. So it was easy for me to answer that question. I guess the—
4:45 p.m.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
In these conversations, your colleagues all denied to you or told you that they'd never heard of this either. Nobody within KPMG or your colleagues—
4:45 p.m.
Chartered Professional Accountant, KPMG
My colleagues did not comment on what was going on in the office. My former colleague mentioned to you what was happening with the famous situation between Cinar and KPMG.
I would imagine that, when the request was made to KPMG Canada, they took it seriously and investigated to see if anyone was involved in any way. Since I am in Quebec, people from KPMG Canada called me to see if I was aware of this situation. I told them very quickly that I had no knowledge of this case. They did not tell me if they had done any research elsewhere.
In any case, it was not my responsibility because I was working in client services, not in risk management or in the business of the firm as a whole.
4:45 p.m.
Liberal
4:45 p.m.
Liberal
Julie Dzerowicz Liberal Davenport, ON
Thank you so much, Mr. Chair.
I want to thank Mr. Bilodeau for joining us. Thanks for enduring all your technical difficulties.
Mr. Bilodeau, as you know, we're here to talk about how we can improve our efforts to combat tax avoidance and evasion. What practices are in place at KPMG to ensure that it is not in any way helping clients to avoid or evade paying taxes in Canada?
4:50 p.m.
Chartered Professional Accountant, KPMG
In connection with the development of tax planning, at the time, the firm had set up a risk management committee. I imagine that this committee still exists. You will understand that I am no longer an associate in the firm, as I have reached retirement age.
The professionals working on a particular file conduct an analysis. Then they must send it to a committee that analyzes the planning in more detail and draws conclusions about the level of risk. I'm talking about tax planning here.
4:50 p.m.
Liberal
Julie Dzerowicz Liberal Davenport, ON
For every single client, you send every single client to a risk committee for an assessment in order to ensure—
4:50 p.m.
Chartered Professional Accountant, KPMG
The associates still have a certain amount of autonomy. The risk management committee will not be asked to evaluate a contribution to a registered retirement savings plan, for example.
However, in terms of tax planning, a detailed analysis is conducted to determine compliance with the letter of the law. A final test determines whether the tax transaction is considered to be within the spirit of the law. That is a judgment call. As soon as we reach that stage, there is an obligation to go before the risk management committee, which must determine whether or not there is a problem with respect to the spirit of the law. That judgment is subject to interpretation. In fact, the courts have heard several cases on this test, called the general anti‑avoidance rule. Once the general anti‑avoidance rule comes into play, the risk management committee becomes involved to approve or reject the proposed planning.
4:50 p.m.
Liberal
Julie Dzerowicz Liberal Davenport, ON
Mr. Bilodeau, how does the approach at KPMG in ensuring that you have practices in place to ensure that you're not helping clients avoid or evade taxes line up with the best practices or best in class in Canada, or even around the world, actually? How are you ensuring that you have the best-in-class practices in place to make sure that you're not in any way, as a company, helping companies to avoid paying taxes or to evade taxes?
4:50 p.m.
Chartered Professional Accountant, KPMG
First, let's make one thing clear: KPMG does not engage or participate in transactions that could be considered tax evasion.
In short, tax evasion is deliberately ignoring the law. So you ignore the test of the law. KPMG is not involved in tax evasion.
However, tax avoidance, not tax evasion, is a different story. Tax avoidance refers to operations that reduce taxes, but that first follow the letter of the law. A second test seeks to determine whether it also follows the spirit of the law.
The professionals involved must first determine whether the tax plans proposed or analyzed follow the letter of the law. That is the first test. The professionals, the associates, have the expertise required to perform this analysis.
As for the second test, whether the spirit of the law is respected, the associates must automatically do their analysis, but they must send it to the risk management committee, which will either support or reject the transaction in question. If the committee rejects the transaction, the associate is not allowed to implement the plan. If the committee approves the transaction, the associate may continue discussions with the client on the plan.
4:55 p.m.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you, Mr. Chair.
Good afternoon, Mr. Bilodeau.
From my point of view, creating a company in the Isle of Man, into which wealthy Canadian clients pour their fortune, so that the shell company can then pay them tax‑free donations, is completely immoral. I, for one, want to live in a society where such schemes are illegal. That is why the committee is doing this study on the situation.
I want to remind you that all witnesses who appear before committees of Parliament are protected by immunity, meaning that you do not have to worry about incriminating yourself or anyone else. If something were to be revealed, under no circumstances could it be used in a lawsuit. That is what the Law Clerk and Parliamentary Counsel of the House has reminded us. What we want to do is get to the bottom of it, and I think that this immunity allows us to do that.
To your knowledge, is there a connection between KPMG and the sword companies: Shashqua, Katar, Sceax, and Spatha?
4:55 p.m.
Chartered Professional Accountant, KPMG
My former colleagues answered that question based on the analysis that was conducted.
