Government Operations Committee on Feb. 20th, 2007

[Sheila Fraser]

Public Works, yes, was largely responsible for the procurement, but the departments as well, in their management of the contracts—there was also significant improvement in it.

I just remind committee members that the spending on advertising and public opinion research for the year we looked at was about $75 million combined. So it is a significant sum of money.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Do I understand we're down to about $48 million, give or take, for now?

[Sheila Fraser]

For advertising we are, but there's about another $25 million or $26 million, I think, in public opinion research. So the two together—

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

And that would be relatively consistent then with what has taken place in the past?

[Sheila Fraser]

It is lower. It has declined, probably in part because of elections, because there is no public opinion research or advertising that goes on during the time of an election campaign.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Okay, thank you.

[The Chair, Liberal, Diane Marleau]

That's it, Mr. Kramp. You've had more than your time.

Mrs. Nash, go ahead, please.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you, Madam Chair, and good afternoon.

Regarding the Canada Revenue Agency, I should say I find the Canada Revenue Agency very helpful in my constituency, especially for seniors with regard to the disability tax credit, workshops, that kind of thing. They're tremendously helpful.

I wanted to ask you a couple of questions about the international taxation issue in addition to what my colleagues have already asked. You have already said that the issue of getting the kind of expertise that's needed is particularly acute in the GTA, because so many companies would be headquartered there and the banking and finance and insurance industries would be headquartered there.

You said that the amounts that are potentially uncollected as tax revenue could be significant. Do you have any sense of what that could mean?

[Sheila Fraser]

No, we don't, but we know that the estimation of transactions is, as I mentioned, over $1 trillion. Given globalization, one can only expect that they will be increasing, so the amounts of tax are significant.

We do mention in the report—in 7.52—that the agency had been quite aggressive in going after some trusts. In 2005 they identified 72 trusts with capital gains of over $600 million that were created to avoid Canadian tax, and they reassessed them.

So we're easily talking about hundreds of millions of dollars.

[Peggy Nash, NDP, Parkdale—High Park, ON]

In terms of measures to assist with this, obviously there is the matter of getting the professionals trained to deal with reviewing this. What factors would these auditors look for? Would this be all corporations doing business outside the country? What would draw one's attention to a particular situation?

[Sheila Fraser]

The agency would be better able to give you that information, but I would presume that most of the transactions would be through corporations.

As we mentioned here, though, there are the questions of the trusts that are established offshore. There can also be, of course, non-residents who are working and earning income in Canada and who are not paying their fair share of taxes here as well.

The tax auditors have to be well-versed not only in international taxation, but also in industry specifics. I know they are working quite closely, in fact, with other countries—the U.S. and some of the European countries as well—to identify some of these tax issues and some of the more aggressive tax planning measures that people may be putting in place.

[Peggy Nash, NDP, Parkdale—High Park, ON]

I am not a tax expert by any means--I get help with my income tax--but obviously there are legitimate tax avoidance measures that corporations will take that are absolutely sound, and that's why they pay their accountants hefty salaries, to find those measures.

[Sheila Fraser]

Absolutely.

[Peggy Nash, NDP, Parkdale—High Park, ON]

But would it be fair to say that there is likely a fair number of corporations that may not be paying their full share, or is it a case of particular bad apples that need extra scrutiny?

[Sheila Fraser]

I can give you one example that is becoming increasingly complex. It's what we call transfer pricing. If you have a corporation that owns a company in Canada and owns a company in the U.S., and they do business between those two corporations, say, one sells part of the product to the other one, at what price do you establish that? What price do you charge? Corporations will try to ensure that the profits go to the jurisdiction that has the lowest tax rate. That is I think a given. Anybody will tell you that, and it's not because they're trying to do something illegal. It's good business to do that.

If the tax rates are lower in the U.S. jurisdiction, there could be an incentive to keep the price low from Canada to the U.S., so when it's ultimately sold in the U.S., the profits are larger in the U.S. The Canadian tax experts have to look at that and ask whether the price being charged is a fair one. Often there will not be market comparators to deal with, because if you're an interrelated company, if you're selling wood to a paper company or widgets or components of widgets to the ultimate distributor, you may not have a market comparator for that. They have to really know the industry. They have to know all the transfer pricing roles, and not only will they be arguing, if you will, with the corporation, but they will be arguing in that case with the U.S. tax authorities as well.

It becomes very complex and requires a lot of economists. That was an issue we raised previously, that we didn't think they had enough economic expertise. They've brought on more economists to help them do this type of work, but you really need a very high level of expertise to deal with these costs.

[Peggy Nash, NDP, Parkdale—High Park, ON]

It's complicated work but it could be something that generates a fair bit of revenue ultimately for the government, so it's something for us to follow up on.

Do I have another minute or so?

[The Chair, Liberal, Diane Marleau]

Yes, another minute.

[Peggy Nash, NDP, Parkdale—High Park, ON]

On the heritage buildings, we had Minister Fortier before our committee last week. There has been a lot of publicity about some federal buildings that are being sold. He said that there were no heritage buildings amongst the 40 buildings that they are looking at selling. There is always the balancing act for the government between owning and leasing buildings and wanting to protect heritage properties for the federal government and for all Canadians.

Minister Fortier said that in the past there had not been enough money devoted to maintenance, really a contingency fund to keep federal properties adequately maintained, and I know you've commented on this before.

Do you think the government is wise to begin looking at leasing back some properties rather than investing the money in the refurbishing of buildings?

[Sheila Fraser]

We haven't specifically studied that question. When we did the whole question of office accommodation, the point that we were making there was that they need to do a really good analysis of what the costs of leasing are as opposed to owning, purchasing, and obviously paying the related maintenance costs. If you recall from that audit, we found that they were not always picking the option that resulted in the least costs, mainly because of the funding issues.

There could be other issues and policies that government wants to adopt, but I think as Auditor General we would certainly encourage that they look at the option that is the least costly to the Government of Canada.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you.

[The Chair, Liberal, Diane Marleau]

I just want to make one little correction. There are some heritage buildings in the 40 that were listed on the website. There is a website with the 40 buildings, and I think there were four of the top level and then there were some of the second level.

[Peggy Nash, NDP, Parkdale—High Park, ON]

My mistake, as I thought the minister said that none of the 40 were—

[The Chair, Liberal, Diane Marleau]

There were some. I don't think he had the listing with him.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Okay.

[The Chair, Liberal, Diane Marleau]

There were some.