Evidence of meeting #13 for Finance in the 45th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was data.
A video is available from Parliament.
Liberal
The Chair Liberal Karina Gould
Thank you, Mr. Loomer. That concludes the minute.
Mr. Kelly, go ahead for five minutes.
Conservative
Pat Kelly Conservative Calgary Crowfoot, AB
Mr. Loomer, I'm going to stay with you.
In your opening remarks, you spoke of the different investment destinations and the countries of origin for Canadian investment. A chart was circulated. I want to just make sure this is included in the record.
If I understand this correctly, the amount of money that Canadians invested in the United States in 2024—the total of investments from Canada to the United States—is $1.3 billion. In reverse, American investment in Canada is $683 billion. Is that correct?
Associate Professor, Faculty of Law, University of Victoria, As an Individual
On the outbound, it's $1.3 trillion, or $1,289 billion. On the inbound side, $683 billion.
Yes, we are a net capital exporter by a large margin.
Conservative
Pat Kelly Conservative Calgary Crowfoot, AB
It's a huge margin. It's $606 billion. That's the net amount that we are exporting to the American economy. Is that correct?
Associate Professor, Faculty of Law, University of Victoria, As an Individual
That's right.
Conservative
Pat Kelly Conservative Calgary Crowfoot, AB
Wow. That's actually a lot worse than the most recent numbers that I had been aware of.
It would seem to be accelerating, in that the net investment deficit since the beginning of the fiscal year, which is roughly when the Prime Minister was sworn in, is another $50 billion.
Perhaps I won't get you to comment on that.
I want to go now to Professor Martin and pick up where Ms. Cobena left off around legislated solutions and data deficiencies in Canada.
There have been repeated attempts in Parliament to compel the CRA to measure and to actually give information to the Parliamentary Budget Officer, so that the Parliamentary Budget Officer can independently measure the tax gap in Canada. Senator Percy Downe has been the champion of this.
Are you aware of his work?
Professor of Economics, Université du Québec à Montréal, As an Individual
No, I am not aware of it.
Conservative
Pat Kelly Conservative Calgary Crowfoot, AB
What Percy Downe had proposed—and this was even moved in the House of Commons in the 42nd Parliament—was that anonymized tax data requested by the PBO be released to the PBO so it could independently verify the tax gap.
Would that be helpful for legislators and policy-makers, if we could actually measure the tax gap in Canada?
Professor of Economics, Université du Québec à Montréal, As an Individual
For the very large multinationals, that data is public in Europe and Australia, in any event. So we could do the same thing in Canada. I think there could be a consensus in that regard.
It would be more complicated to get a consensus to make the data for all corporations public. However, as I explained at the beginning of the meeting, most of the tax avoidance associated with tax havens is the work of a few large multinationals. So it would be very good to have the data about these few large multinationals. Maybe instead of asking for it for all companies, we should focus on those larger multinationals. That would be progress.
Conservative
Pat Kelly Conservative Calgary Crowfoot, AB
When it comes to the very large companies, the Auditor General reported, as far back as 2018, that if a company has an offshore bank account or offshore dealings, they would be given months or even years to comply with orders from the Canada Revenue Agency, whereas a normal Canadian with only domestic dealings, whether it's a corporate file or a personal filer, must comply within 30 days or automatically have the taxes assessed if they don't comply.
Is it a fair system when an offshore filer is given months or years to comply, or even just has the taxes struck, while a normal small business tax filer in Canada will automatically have their taxes assessed if they can't comply with the CRA within 30 days?
Professor of Economics, Université du Québec à Montréal, As an Individual
Here again, it is interesting to look at what is done internationally. If Canada could have the same requirements for these large multinationals as Australia and the European Union have, it would be progress. They are to be found everywhere. So if the European Union can ask them for something, there is no reason why Canada could not ask for the same thing.
Liberal
Liberal
Ryan Turnbull Liberal Whitby, ON
Thanks, Madam Chair.
Thanks to all the witnesses for being here today. It's a great conversation, with lots of great testimony.
Professor Loomer, I'll start with you.
I know you have made comments in the past about the general anti-avoidance rule and how it historically perhaps failed to meet its intended purpose. I hope I'm not mis-characterizing your comments, but I took that from something that you've said in the past.
How do you assess the government's recent changes to the GAAR, including the introduction of the 25% penalty that was included in Bill C-59, the fall economic statement?
Associate Professor, Faculty of Law, University of Victoria, As an Individual
Yes, that is an accurate summary of what I've said in the past.
The GAAR is notoriously difficult to apply. There are circumstances in which it has been, in domestic or international transactions, and many circumstances in which it hasn't been. The academic commentary in Canada—particularly the writing of Brian Arnold, who has been involved in the GAAR since the beginning—generally says that the GAAR has not really done what it was intended to do.
As for the recent changes, effective 2024, including a penalty and a new economic substance test, it's too early to know whether they will change the way cases are decided. I think the general feeling, at least among Canadian law academics and tax law academics, is that it's a step in the right direction. Taxpayers will have to think a little more carefully. The calculus changes when there's a penalty—it's not just, “Oh, let's try it. If the court decides that the GAAR applies, well, we'll have to pay the tax, but we would have to pay the tax anyway.”
The only penalty right now is a bit of interest—I mean, the interest could be significant—but adding a penalty does change the calculation. One has to think hard about whether this transaction is consistent with the policy or undermines the policy.
Liberal
Ryan Turnbull Liberal Whitby, ON
It sounds like it's a step in the right direction.
I know that budget 2025 also includes intentions to modernize Canada's transfer pricing rules to better align with international consensus on the application of the arm's-length principle, as reflected in the OECD transfer pricing guidelines. One aspect of that is to introduce new rules that provide more detail on how cross-border transactions between non-arm's-length persons must be analyzed, including a new transfer pricing adjustment application rule and a new definition of economically relevant characteristics.
Would you say those are also steps in the right direction? Would you care to comment?
Associate Professor, Faculty of Law, University of Victoria, As an Individual
Yes, thank you.
I would agree with you. There have been consultations on these changes for a few years now, primarily in response to the Cameco uranium company case and the way different courts of appeal interpreted the rules. It's a move to modernize our transfer pricing rules to make them more in line with the OECD guidelines and what some other countries are doing.
It's new and they are just proposals, so time will tell, but looking at it from a 100-foot level, it seems to be a step in the right direction, yes.
Liberal
Ryan Turnbull Liberal Whitby, ON
That's great.
I know my time is going to run out, but I note that you also made comments about the GAAR in particular, about some of the corporate tax avoidance rules not being all that effective and about us needing to have a more principles-based approach to drafting tax legislation. You've said that it would be preferable. I want you to go through why you said that. What does that really look like from your perspective?
Associate Professor, Faculty of Law, University of Victoria, As an Individual
I could talk all day about principles-based legislation.
I'm not the only one who says this, but it makes a lot of sense. You will hear tax lawyers in practice, from private firms or justice, say the same. It means thinking hard about what your principles and policies are, and then drafting the legislation to match that, rather than a scattergun approach with all these rules that point in different directions.
As Professor Li mentioned in a previous meeting, when you have an anti-avoidance rule, it's a double-edged sword. You say, “I can't do A, B, C or D. Well, I'm going to do E, which isn't covered by the legislation.”
In thinking about what the principle is.... For example, if your principle is on interest deductibility, you should be saying—
Liberal
The Chair Liberal Karina Gould
Thank you, Mr. Loomer.
That concludes the time, although I'm sure many of us would like to hear more about that at some point.
On behalf of the committee, I would like to thank all of the witnesses present today.
With that, I look to the committee members to adjourn the meeting.