Finance Committee on Nov. 3rd, 2025

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

From what you're saying, I understand that there's a good use for tax havens. However, where do you see the line between legitimate tax planning and aggressive tax avoidance? It's important to remember that taxes are ultimately used to provide social services to people who need them, and multinationals don't fall into the category of people in need.

[Patrick Marley]

In terms of where I would draw a clear distinction between the proper use of offshore companies and the misuse of offshore companies would be particularly where certain countries had bank secrecy rules where wealthy individuals around the world could invest their passive investments in those countries and avoid detection through banking secrecy.

Canada and others in the OECD have made terrific inroads in eliminating banking secrecy rules. The common reporting standard rules, the FATCA and tax information exchange agreements all allow the tax authorities access to the information to stop tax evasion and the misuse of offshore companies in those ways.

We have very detailed tax rules. Again, I worked in the department. From the nineties to now, there have been continuous improvements and refinements of those rules to ensure that we get the right balance between allowing active business income to be earned offshore in a competitive way and taxing currently, on a current basis, in Canada any passive investment income.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

In that sense, can it be broadly considered that Canada is a tax haven of sorts for certain multinationals, such as the digital giants, which operate in Canada without paying their fair share of taxes?

In that regard, it should also be mentioned that the Prime Minister, Mark Carney, has sided with those companies by distancing himself. From what we understand, he also has a personal financial interest in having the digital giants and big corporations not pay taxes or having them engage in a form of tax evasion or tax avoidance for the benefit of the United States, which has consequences here.

Is there a conflict of interest on the part of the Prime Minister?

[Patrick Marley]

I don't think there's a conflict of interest. Again, particularly in this area, the courts have said the tax rules are extremely complicated and precise. The complication and precision are important. Where there's a difference in views, where thinking people disagree on whether taxes are owing, that's where we have the courts to make those decisions.

Ultimately, in terms of what the fair share is, or the correct amount of tax, that's up to Parliament to decide. Anytime Parliament disagrees with a court decision, the proper process is to then amend the rules to however Parliament would like them to be, to ensure the line is drawn clearly. What's inappropriate is to have ambiguous rules and not to have it clear and precise as to what amounts of taxes are owing.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Mr. Cochrane, do you want to respond to that?

[D.T. Cochrane]

The explosion in complexity of our transnational economy over the last several decades was the product of a change in rules that freed corporations to move money and other resources around the world much more easily. However, our failure to establish international rules around taxation created a huge opportunity to exploit all kinds of gaps and mismatches among the tax rules in different countries. That is a big part of the reason we've seen a massive explosion in the size of the biggest corporations and in the wealth of the wealthiest people. It's the use of creative accounting and creative legal mechanisms to exploit these gaps.

In addition to PCBCR, really we need to be looking at creating an international tax framework to eliminate these kinds of exploitable gaps and differences.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you very much.

[The Chair, Liberal, Karina Gould]

Thank you, Mr. Cochrane.

Thank you, Mr. Lemire.

We're going to move over to the Conservatives now. Mr. Lefebvre, you have the floor for five minutes.

[Éric Lefebvre, Conservative, Richmond—Arthabaska, QC]

Thank you very much, Madam Chair.

Thank you to both witnesses for being here today.

My question is for you, Mr. Cochrane.

I'd like to come back to a topic from earlier. As was said, the Prime Minister tried to defend the use of tax havens by Brookfield, the company he used to head, by saying that it was a way for taxes to be paid here in Canada.

Isn't that a bit like laughing at Canadians who pay their taxes every week?

Do you agree with what the Prime Minister is saying, which is that the use of tax havens is a way to guarantee that taxes are paid in Canada, when you told us earlier that Brookfield was the master of tax avoidance?

I'd like to hear your thoughts on that.

[D.T. Cochrane]

Most of what I know about Brookfield, about its taxes and its corporate structure, just raises questions upon questions, and they certainly lend themselves to the concerns that you're pointing to. The last time I looked, Brookfield's effective tax rate was somewhere below 10% versus what you would expect of over 26% as a corporate income tax rate.

As it has been mentioned, they're lowering their tax bill through a whole range of methods, many of which are perfectly legitimate. We can say that we wanted them to do that, but there are probably a lot that are, at the very least, questionable. Given that Brookfield, as I mentioned in my opening remarks, relies on a lot of the things that governments provide to people, it should be making a contribution to those things.

It was said that corporations aren't people, but corporations like to play both sides of that. When it comes to taxes, they're not people. However, when it comes to certain other legal rights, they'll say that they have the same rights as being naturalized persons. Which is it? Corporations should be making contributions to the public revenue because they benefit from what the public provides.

[Éric Lefebvre, Conservative, Richmond—Arthabaska, QC]

You're confirming that Brookfield, the company that the Prime Minister used to head, paid less than 10% tax, when it should have paid 26%. When the Prime Minister tells us that this is a way to guarantee that taxes are paid in Canada, then, he's laughing at Canadians who pay their taxes every week.

[D.T. Cochrane]

Yes, we all have to pay our taxes. It's one of the things that binds us together. We love complaining about the weather; we love commiserating over sports, and we love complaining about our tax bills. It's a thing that binds us.

Corporations are always going to lower every cost they possibly can, so to suggest that the corporation lowering its tax bill is done to help Canadians, yes, I would agree that's pretty laughable. It's quite duplicitous about what a corporation exists for and then what the benefit is to the rest of us.

[Éric Lefebvre, Conservative, Richmond—Arthabaska, QC]

How much tax revenue do you think Canada loses every year as a result of tax avoidance mechanisms?

[D.T. Cochrane]

When I put out a report a few years ago, at that time, I believe it was in the tens of billions of dollars. I don't remember the exact figure, and I haven't updated those numbers, but I think it's safe to say it's in the billions. It's a number that, if we were collecting that revenue, could go a long way to doing some of the good that we know we need government to do.

[Éric Lefebvre, Conservative, Richmond—Arthabaska, QC]

It's clear that this is a major problem.

What could be done to modernize the regulations and prevent these losses?

[D.T. Cochrane]

One of the things I didn't talk about but was going to is the need for an updated general anti-avoidance rule, or GAAR. The previous government was in the process of updating GAAR. This is the rule that allows the CRA to identify where a tax scheme is maybe adhering to the letter of the law but it's clearly violating the spirit of the law. Then they will say, “No, you don't get to claim this reduced tax. You have to pay.”

As far as I know, the process of updating GAAR is completely stalled. It hasn't been updated since the emergence of so many of the new features of our global economy, so I would like to see renewed movement on updating the general anti-avoidance rule.

[The Chair, Liberal, Karina Gould]

Thank you, Mr. Lefebvre.

Thank you, Mr. Cochrane.

We're moving to Mr. Sawatzky for five minutes.

[Jake Sawatzky, Liberal, New Westminster—Burnaby—Maillardville, BC]

Thank you, Chair.

Thank you to the witnesses for coming in today.

Mr. Marley, in your introduction, you mentioned how some CRA agents could be better trained. Could you elaborate on some specifics on what kind of training might be useful here?

[Patrick Marley]

Sure.

Very quickly, I want to note, with respect, that the general anti-avoidance rule was recently significantly amended, and it has passed through Parliament, so that has in fact happened.

From a CRA perspective, again, I don't want to be disparaging against the CRA as an organization entirely. There are a lot of great people who work at the CRA who do a lot of great work. Unfortunately, as with any large organization, there are some auditors who spend a lot of time on an audit and then feel at the end of it that they need to show something for their effort, so whether it's because they're concerned with a TEBA, tax earned by audit, statistic or otherwise, in some cases they'll audit taxes that should never have been audited and should never have been assessed.

It's doing whatever the CRA can as an organization to prevent those instances. When they do occur, the CRA should try to identify what the root causes are, whether it's poor training, not enough supervision or just having the right incentives within the organization to ensure as best as possible that audits are accurate and not overturned on appeals or by the courts.

[Jake Sawatzky, Liberal, New Westminster—Burnaby—Maillardville, BC]

Thank you.

Additionally, I was wondering if we could go through some of the history, since, let's say, the 2000s. What are some of the measures that were in place that might have made it easier for this to happen, and what are the some of the steps the government has taken since then?

[Patrick Marley]

Are you referring to the use of offshore companies, or...?

[Jake Sawatzky, Liberal, New Westminster—Burnaby—Maillardville, BC]

I'm talking about being able to track and prevent the use of offshore tax havens.

[Patrick Marley]

Very quickly, I'll go back a bit further. In the mid-1990s, there were significant changes to our foreign accrual property income, FAPI, rules, and those significantly expanded the ability of Canada to tax that income. We entered into a significant number of tax information exchange agreements with various countries, including Cayman Islands, Bermuda and others, to ensure that the CRA gets access to all the information there.

I mentioned the CRS, common reporting standard, and FATCA. That's very important for getting access to the bank account information, so that information gets automatically exchanged and the CRA gets access to that information as well.

There is expansion in our tax treaties and in the exchange of information provisions there.

I also noted briefly that the elimination of bank secrecy rules around the world is obviously very important to ensuring that the tax authority, the CRA, does get access to that information.

Again, in my view, the most important place for that information to be is with the tax authorities, who can use it in an appropriate manner. Once you make information public, that opens it up to all kinds of potential misuses, such as the potential kidnapping of executives of those companies as they travel abroad. If others know with precision how much a company might be able to afford to get them free, it opens up competitiveness issues with competitors scanning that public information if it were to be made public to try to figure out exactly how prices should be set against Canadian companies.

I think it's important that the information is there for the CRA and the Department of Finance. As you said, many steps have been taken over the last number of years to get access to that information.

[Jake Sawatzky, Liberal, New Westminster—Burnaby—Maillardville, BC]

Thank you.

In more recent years, let's say, over the past 10, what could be some of the specific steps that the government has taken?

[Patrick Marley]

I think that the most recent significant step is pillar two in the Global Minimum Tax Act. Canada's participation with the OECD and the G20 includes a framework that puts a 15% minimum tax for the largest multinational companies in every country around the world. That obviously ensures that taxes are being paid in each jurisdiction where the income is earned.