Finance Committee on June 17th, 2021

[Serge Bilodeau]

Exactly. It's risk management. This is referred to as a general anti‑avoidance measure.

The issue of whether a planning operation respects the spirit of the law is in large part a matter of interpretation. Like I said, there have been many cases like this and there is some case law to work with. All partners rely on an experienced team to help them get a good idea of the situation or issue at hand.

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

Thank you.

Does KPMG U.S.A. have the same system of anti-tax avoidance through a risk management committee?

[Serge Bilodeau]

I have no idea. I can't answer that question.

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

Where would KPMG Canada have come up with the system of risk management that you described?

[Serge Bilodeau]

It came from people who are involved in KPMG's management or from tax managers. With the legislation changes over the years, establishing a risk management committee seemed like a good idea.

The general anti‑avoidance measure has been in place since 1987. However, I don't know when KPMG created the risk management committee. I would have to ask the firm.

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

Wouldn't it make sense that the American KPMG would have the same system? I would imagine that it's just as concerning to follow the law in the U.S. as it is here in Canada. It seems odd to me that you have no idea how KPMG does their risk management in the U.S.

[Serge Bilodeau]

It's a concern in all countries.

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

Yes, exactly.

I'm just curious, because obviously, whatever risk management system they have in place didn't seem to have worked in this case.

You mentioned that you're retired, but for some reason you decided to go into the KPMG office today to be a witness. Why did you decide to go to their office since you're retired, and as I understand it, haven't been working there for many years?

[Serge Bilodeau]

Please allow me to clarify certain things. As I said in my opening remarks, I maintained ties with KPMG and I still work there as a consultant, but on a temporary basis. So, I still have a relationship with KPMG. I still go into the office, albeit not regularly. My relationship with KPMG is still good. After all, I worked there for 40 years.

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

My understanding is that you have legal counsel with you there right now. Are you paying for that yourself, personally, or is that a KPMG expense? Are you paying for that personally?

[Serge Bilodeau]

The cost will be met by KPMG, because I am here to discuss matters that date from the time when I was an associate with KPMG.

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

Right. Okay.

It is a bit concerning to hear that KPMG U.S. and KPMG Canada wouldn't have the same sort of systems in place for risk management. If it didn't work in the U.S., is it possible that the system you have in place also didn't work? I wonder if you could speak to that.

It is concerning as a taxpayer, as a business owner myself. I always want to make sure that we do the right thing. We've always trusted our accountants to give us good information because we don't know the tax law very well, so how can we be sure, as businesses, that we're not being given poor advice on these sorts of tax schemes?

[Serge Bilodeau]

I explained the risk management situation as it applies to tax planning. In my opening remarks, I also explained that the Isle of Man tax product had been analyzed by senior associates in the office, whose names you have asked me for. In addition, the documentation that you have been sent describes the establishment of the companies in the Isle of Man and also provides the analysis that was done more than 20 years ago.

[The Chair, Liberal, Wayne Easter]

This will be your last question, Ms. Jansen.

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

Again, I'm just curious. I didn't really get an answer that could make Canadian businesses feel secure that the tax advice they're getting is correct, especially seeing that KPMG U.S. clearly failed in their duty to ensure they were doing things legally. It doesn't sound like KPMG U.S. and KPMG Canada are sharing the same sort of risk management committee. How can we be sure that we're getting good advice?

[Serge Bilodeau]

You would have to ask the right people.

I was an associate in Quebec and part of the Canadian company. I do not know the risk management procedure in KPMG United States. That is a matter for KPMG United States.

Like all large companies, KPMG has a risk management procedure in place. I have explained the procedure in Canada, but I cannot explain the procedure in the United States, because I am not familiar with it

[The Chair, Liberal, Wayne Easter]

Thank you, all.

We'll go to Annie Koutrakis, followed by Ed Fast. We may have to stop at 5:30, but, as I said earlier, if anybody has a specific fairly quick question they want to ask, they should put up their hand.

Go ahead, Ms. Koutrakis.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you, Mr. Chair.

Welcome to the committee, Mr. Bilodeau.

Can you explain to us how the taxation system in Canada, and, more broadly, the taxation system internationally, has changed since the OCS structure, as you call it, has been in place? More specifically, what laws or regulations have been put in place to fight against these tax avoidance strategies?

[Serge Bilodeau]

Over the years, there has been a major evolution in taxation and in other aspects. Twenty years ago, who would have thought that we would be wearing masks today? The same has happened in the taxation system. Tax laws have evolved; they are constantly changing. The case law has also evolved. Moreover, tax rates have gone down. These factors have contributed greatly to a change of behaviour and culture, and even to the recognition of what is called fiscal morality.

Twenty years ago, fiscal morality did not exist. Legislation was applied as it was written. Because of the events that I have just explained, fiscal morality has taken hold. This is not only the case in Canada; it is happening in all industrialized countries.

The work done by the OECD has greatly contributed to this evolution. I can think, for example, about a report entitled “Harmful tax competition: an emerging global issue” that was published in the major industrialized countries, and about the measures that have been put in place. Organizations are now required to declare their profits by country, so that the countries with advantageous tax rates can be identified. Organizations of a certain size are required to make that declaration.

I don't know whether that answers your question, but it does explain the evolution, in my opinion.

[Annie Koutrakis, Liberal, Vimy, QC]

Yes. As I see it, society has also evolved and has defined what is acceptable and what is not. I am sure that all members of our committee share that view. Basically, that is why we are conducting this study.

I have one last question for you.

What tax planning strategies does KPMG currently use, and how have those strategies evolved in the last 20 years or so?

[Serge Bilodeau]

KPMG has evolved as the situation has evolved. It adapts to the situation. As I said earlier, 20 years ago, no one talked about fiscal morality. Now they do. It's now about more than the letter of the law. It goes beyond that. Furthermore, the courts are handing down judgements along the same lines. Everyone is required to adapt to taxation legislation and to what the courts are deciding in specific cases.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you very much, Mr. Bilodeau.

That's all for me, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Thank you, Annie.

We'll now turn to Mr. Fast in the West Block.

Go ahead, Ed.

[Ed Fast, Conservative, Abbotsford, BC]

Thank you, Mr. Chair, and thank you, Mr. Bilodeau, for coming to our meeting.

You may feel like you're in an inquisition, but in fact, this study is much broader than Cinar or the sword companies or the paradise papers or KPMG. We're trying to get to the bottom of how tax evasion can be eliminated.

My guess is we're not going to get to the bottom of it, but we're trying to make some progress. I'm glad you mentioned the OECD, because the OECD did come out with a very interesting report entitled “Ending the Shell Game: Cracking down on the Professionals who enable Tax and White Collar Crimes”.

I'd be surprised if we were able to get any accounting firm from across Canada to come to committee and admit that they've been engaged in tax evasion. They may even deny that they've been involved in tax avoidance, but as you've suggested, tax avoidance is different from evasion and is a matter of degrees and there is aggressive tax avoidance and there is just simple tax avoidance.

[Serge Bilodeau]

There's a huge difference between the two. I invite you to consult the website of the Canada Revenue Agency. It very clearly establishes the difference between tax evasion and tax avoidance.

Tax evasion is wilfully failing to comply with the law. If you wilfully fail to comply with the law—