Public Accounts Committee on Feb. 14th, 2007

[Sheila Fraser]

Obviously they can tell you about the kinds of activities and information provided to their people looking at international transactions. They obviously can't discuss specific cases, but we do note in the report that they have made a lot of improvements. There have been additional funds given and additional people hired to deal with international taxation, but it is a very complex area and they do need people with a lot of expertise to be able to analyze these transactions and the various tax implications as well.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

Two areas that are particularly disturbing to me in this regard are the materials and energy sectors. Big private equity firms that don't really seem to have any home and that can move around and have deep pockets, and that don't have to report publicly in the U.S. or Canada or anywhere, are taking a dominant position in these sectors.

Another area that is of concern to me is that state-owned enterprises are taking a major position in these areas too. To whom are they accountable? I don't think it's to the Canadian public or to shareholders.

So both of these areas are troubling to me, and they're certainly on the horizon. As lawmakers and so on, I think we should all be cognizant of this problem coming along, and I hope you will keep an eye on these things for us.

[Sheila Fraser]

We'll try.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Fitzpatrick.

Madame Brunelle, cinq minutes.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Good afternoon, ladies and gentlemen.

Like our chair, I am very interested in tax havens and in a host of issues which the Canada Revenue Agency is attempting to deal with. I remain astounded however by the scope of this problem.

According to your estimations, Canadian corporations conducted $1.5 trillion in transactions with related parties in foreign countries. It seems like a high figure to me.

The former Prime Minister of Canada had ships that were registered first in Liberia and then in Barbados. Is Barbados the only tax haven? Are there others?

You also said that there are 72 problems relating to trusts in Barbados. A few years ago, people were shocked to see a television report that showed a rather plain office which was being used as a company's headquarters. Clearly, it was being used for tax avoidance purposes.

This problem is only going to get worse because of globalization. First off, is Barbados the only place where there is tax evasion, or does it occur elsewhere? Apparently, some people hold bank accounts in Switzerland and in other countries throughout the world. I would like to know how we can measure the scope of this problem.

You said that last year non-residents paid over $4.9 billion in taxes on income earned. Has there been any progress? Compared with last year, did non-residents pay more or less?

[Sheila Fraser]

Mr. Chairman, I don't have the figures for last year, but that is information the Canada Revenue Agency could provide to members of the committee, if they request it.

With respect to so-called tax havens, I think there are others, but that is not something we have looked into. Moreover, the agency would have to describe the various tax treaties with the various countries, because the conditions vary.

In our report, we indicated that the agency had made satisfactory progress. Officials in the agency have been more attentive and aggressive when it comes to detecting misuse of tax treaties. We note the case of the 72 trusts that were reassessed and taxed.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

What leads you to say that these results are satisfactory?

[Sheila Fraser]

We see that they have used more staff, that they have adopted a risk assessment strategy. They have made efforts, and we are seeing concrete results, in other words there were assessments and the agency levied the taxes that were owed to Canada.

Are some missing? In my opinion, that is the question. It is possible, but that would be an issue you could look at with the agency. However, we do see that they have made efforts.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Elsewhere, you said that the agency still lacks sufficient expertise in international tax auditing. You also say that the agency is having difficulty retaining sufficient expertise, specifically in Toronto, if I recall.

Why is it that it is having difficulty recruiting and retaining qualified staff?

[Sheila Fraser]

There is indeed some difficulty in recruiting and retaining staff. Those who have expertise in international tax auditing are highly prized, by companies or advisors, law firms and accounting firms. It really is specialized expertise. They are in very high demand in areas like Toronto, and I presume the situation is probably the same in Calgary. There are offices which hire people who have expertise and have been at the agency for a number of years. We should make better use of their services for more complex and higher-risk files.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

That is a growing field for young people in training. We should tell them.

[Sheila Fraser]

I am not sure they would all want to become tax experts.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

No?

[Sheila Fraser]

It is true that there is increased demand for this type of expertise.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Thank you.

[The Chair, Liberal, Shawn Murphy]

Merci beaucoup, Madame Brunelle.

Mr. Poilievre is next, for five minutes.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

I won't be long, as many of my thoughts and comments have been covered by others.

I just want to zero in on the importance of this problem you have identified with SIN numbers. It's spelled out very clearly in your report under “Why it's important”. You have repeated that same paragraph twice in that section of the report, which I think is appropriate, because you point out that:

—the SIN was used in issuing about $12.5 billion in Employment Insurance benefits, about $53.8 billion in Old Age Security and Canada Pension Plan benefits, and more than $1.3 billion in Canada Student Loans. By law, anyone submitting income tax information to the Canada Revenue Agency must also use the SIN.

When you have enormous quantities of SIN numbers in excess of the known population, how big is the risk of fraud in the programs that I just mentioned and others?

[Sheila Fraser]

Obviously the risk is there. How big it is I think is difficult to determine.

Some of the programs track—quite well, actually—the errors, if you will, in payments that are made inappropriately or errors in payments. I think the old age security does that, or the employment insurance. They actually publish yearly what those overpayments or errors in payments are. The social insurance number, as I mentioned earlier, is not the only document used to obtain these benefits, but the social insurance number is one of these base documents or foundation documents for establishing identity, so it's very important that the controls over that be rigorous.

When the social insurance number was introduced, it was really introduced as a file identifier. We note that the usage has expanded considerably since then, both within government and outside. That's why the policy needs to be looked at, why clearer guidance needs to be given to departments on its use, and why consideration needs to be given on its use as well in the private sector.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Is there a consistent government-wide policy on the verification techniques departments must use to match with the SIN number?

[Sheila Fraser]

There is a policy on matching under the Privacy Act, so if there is to be matching, there are conditions there on how it is to be used. The policy on the social insurance number is not sufficiently clear, and we note in the report that departments are interpreting it differently. There has to be much clearer guidance given to departments on the use of the social insurance number.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Would you suggest a consistent rule of verification for all departments across the federal government?

[Sheila Fraser]

It could depend on the specific program. Because of the types of documents they would need for the various programs, I'm not sure you could have a consistent verification program across government. It should be up to the program managers to determine the most appropriate verification, but certainly the use of the social insurance number should be clear across government; there should not be the inconsistencies that we have found in our audit.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Do you think the surplus of numbers in relation to population is the result of issuance? Or where is the surplus coming from?

[Sheila Fraser]

There are probably a number of reasons for the surplus. One could be deaths, another could be people leaving the country.

As well, if we go back several years, into the seventies and previously, it was considered just a file identifier. Probably many of the people in this room got their social insurance number when they had their first summer employment and their employer applied for it. Some may even have received more than one. You would just sort of get these numbers. There wasn't a lot of control over them.

So there could be duplicate numbers in the system, and that could account for some of those dormant numbers.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Thank you.