International Trade Committee on Nov. 17th, 2010

[Richard Montroy]

If the question is whether we believe tax treaties are the way to go, Canada's vast network of tax treaties includes the recently amended article 26, which addresses the exchange of information. Most if not all countries are striving to achieve the OECD standards of effective exchange of information. Canada's tax treaties are led by the Department of Finance, but we assist them.

[John Cannis, Liberal, Scarborough Centre, ON]

That is one positive way.

I'll go over to Mr. Tucker for a moment because I want him to help me respond to my constituents. Do I tell my constituents that we should not get into a trade exchange, an FTA, with any country, in this case Panama, unless everything is sorted out to the satisfaction of all? Should we sit back until we get the wording right, the i's dotted, the t's crossed, no matter how long it takes? Is that what I should tell my constituent who wants to know how he'll pay for his child's education? What do I tell them?

Can you help me out?

[Todd Tucker]

Yes. The key point is that Panama, for decades, has been resisting any pressure by Canada, or from the U.S., where I'm from, to sign any kind of tax information exchange agreement. They've been dodging this move forward for a very long time.

From the U.S. perspective, and certainly with members of Congress, they've looked at this as an opportunity for leverage with Panama that might not otherwise exist. From my understanding, that's similar to Canada's posture as well, trying to use this moment of leverage before the trade agreement is signed to enact changes within the Panamanian regulatory system.

That would be my answer.

[John Cannis, Liberal, Scarborough Centre, ON]

In using that leverage, what do you tell Mr. Lavoie and his organization, and the farmer there, when some other country, which I'm not going to name, is exporting the goods they want and we're missing the boat? What do you tell these guys?

[Todd Tucker]

As the witness stated, Panama is not the most important market in the world. It's actually a very tiny market, with a few million people--

[John Cannis, Liberal, Scarborough Centre, ON]

It's in the top 15. Is that right, Mr. Lavoie? Do I have the number right?

It's in the top 15. Is that important?

[Todd Tucker]

The top 15--

[John Cannis, Liberal, Scarborough Centre, ON]

Did I quote you correctly, sir? Is it in the top 15?

[A voice]

Yes.

[Todd Tucker]

Sure, but to put that in perspective, this is a very small country representing a very small market. Panama's economy is primarily geared toward the provision of financial services and legal services to global corporations and to drug traffickers.

So if you are looking at what is going to be the largest impact--

[John Cannis, Liberal, Scarborough Centre, ON]

I have 30 seconds, and I want to conclude. You said it's a small market. We build a house one brick at a time. We build a strong economy one market at a time. I'm hearing similar responses to what I heard, for example, on the Canada-Colombia free trade agreement, or any other free trade agreement. That's why I find it very difficult to take your view and think otherwise.

Thank you, Mr. Chairman. I was good with my time, right?

[The Chair, Conservative, Lee Richardson]

I'm sure you're sorry you didn't have time for a reply to that last shot.

Monsieur Laforest.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you, Mr. Chair.

Good afternoon to everyone.

My first question is for Mr. Montroy and the representatives from the Canada Revenue Agency who are accompanying him.

The last time that we met with officials from Foreign Affairs and International Trade Canada, we talked at great length about tax havens and the fact that Panama was on the OECD grey list. We also asked questions about the fact that the Minister of International Trade had sent a letter to his Panamanian counterpart in order to establish a tax information exchange convention and that he had not yet received a response.

During the same time period, the government signed, in June 2010, tax information exchange agreements with eight countries. According to my information, two other countries have reportedly been added to the list. These countries include the Bahamas, Bermuda, Dominica, the Cayman Islands, the Turks and Caicos Islands, Saint Lucia, Saint Vincent and the Grenadines, etc.

In the July 6, 2010 edition of the newspaper La Presse, a reporter wrote the following:

In exchange for these agreements, Canada appears to give an advantage to these jurisdictions. The subsidiaries of active Canadian businesses established in these islands could repatriate, tax free, their foreign profits to Canada. Hence Bermuda, like the Bahamas and the other islands, will obtain a status that is similar to that of Barbados, the only tax haven to have such a privilege. [Translation]

Could you comment on this issue and tell us whether or not this will be the same situation with Panama should we enter into a tax information exchange agreement with this country.

[Richard Montroy]

Thank you, Mr. Chair.

It was the Department of Finance that wrote the letter to Panama. If my memory is correct, this occurred last July. The purpose of this letter was to invite Panama to negotiate a tax information exchange agreement. I do not believe that it is unusual for a country to take some time to examine the matter. We are expecting to receive a response from this government shortly.

With respect to the article that was published in La Presse, I believe that you are referring to the 2008 budget, if my memory serves me correctly. The government established incentives to encourage certain countries to enter into tax information exchange agreements with Canada.

The budget indicated that a country would have five years in which to sign such an agreement starting from the date that Canada sent an official letter proposing such a measure. Otherwise, dividends repatriated to Canada would be given a different tax treatment.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

So these companies can bring back profits tax-free as a result of Budget 2008, according to you.

[Richard Montroy]

I stand corrected; it was Budget 2007 and not 2008. I apologize.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

That is nevertheless what is happening. If we had a tax treaty similar to a tax information exchange agreement with Panama, I imagine it would apply as well, since that has not yet been changed.

[Richard Montroy]

Yes, that is correct.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

So with a free trade agreement with Panama and a tax information exchange agreement, companies will be able to bring profits back to Canada tax-free.

[Richard Montroy]

Yes.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

That means the situation will preserve Panama's status as a tax haven. Clearly that will once again be facilitated, with a free trade agreement and a tax information exchange agreement. Do you agree?

[Richard Montroy]

In 2007, the government's new policy aimed to treat dividends brought back from certain countries the same way as dividends brought back from the Bahamas, or other countries which had tax treaties with Canada. Budget 2007 simply confirmed that countries wanting to conclude tax information exchange agreements would all be dealt with the same way.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

A little earlier, you said that one of the mandates of your section was to administer the agreements, including tax information exchange agreements between Canada and other countries.

On November 3, I asked Mr. Castonguay from the Department of Foreign Affairs and International Trade how many agreements Panama needed to sign in order to be removed from the grey list established by the OECD. He answered: "to be taken off the grey list, 12 agreements are needed. Panama is currently at 10." More importantly, he also stated this: I would say that they are halfway there. It's not just a matter of going from the grey list to the white list. The country in question must show that it has not only the potential, but also the ability to exchange information under current agreements. That's something Panama should have to prove in due course when the Global Forum reviews its case more closely in a few years.

That means that even with an agreement, there is no certainty that the country will have the ability to exchange tax information. The Minister of Foreign Affairs and International Trade told us that he has written a letter to sign a tax information exchange agreement. But even with an exchange, it is uncertain whether Panama's signature will be enough. That's what an official from the Department of Foreign Affairs and International Trade said. Signing is not enough. The country must also show that it is able to do the exchange.

Are there currently any other countries that have already signed agreements and that have not proved that they were able to exchange the information?

[Richard Montroy]

Thank you, Mr. Chairman.

[The Chair, Conservative, Lee Richardson]

Very brief.