Public Accounts Committee on Dec. 11th, 2014

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

I can even make the case that the American government had to confront these kinds of problems in the UBS cases, the Union des banques suisses and the Société de banque Suisse, where the same system was being used. The American policy was to sanction those two banks severely, to the point of threatening to block their access to American soil.

Could you tell me which way you are going internationally in order to prevent the kind of abuse that you prohibit in Canada?

[The Chair, NDP, David Christopherson]

Go ahead, please, if you would.

[Brian Ernewein]

Thank you, Chair.

I have two comments. First, again trying to stay clear of any discussion of any particular taxpayer's circumstances, I think there is a world of difference between the type of situation that the honourable member raised abstractly in his initial question, and the UBS example he identified near the end. One, as far as we were given to understand, was a matter of clear evasion and it was treated as such. The other was a situation of, or seems to contemplate, an examination of Canadian tax rules in respect of dividends being paid back to Canada from foreign companies operating in countries with which Canada has a tax treaty.

Parliament enacted rules to exempt dividends from active business income from Canadian tax when paid by a foreign subsidiary of a Canadian multinational, and if the question is whether that was the right decision or not, it's a question to return to Parliament. That question is very separate from the challenge of taxpayers who seek to evade taxes in cases such as what we understand the UBS-type case to be.

[The Chair, NDP, David Christopherson]

Okay. That's fair game.

Monsieur Giguère, you still have 20 seconds if you can be really quick.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

An international cooperation and development organization has indicated that one of the problems with aggressive tax planning has to do with the tax agreements between countries that are designed as a way to avoid double taxation. I am not just talking about those four, but about the entire picture that tax planners are updating daily.

There are some countries with which we cannot conduct transactions, like Iran or Cuba. So why are we making financial agreements with tax havens whose sole activity is tax avoidance?

[The Chair, NDP, David Christopherson]

Go ahead briefly, please.

[Brian Ernewein]

Very briefly, I'll make two points again. It seems I always have two points. One is that there is a concern with the terms of the tax burden borne through international transactions, and the OECD, of which Canada is a part, is trying to see if something can be done to minimize tax minimization through cross-border transactions.

Actually, I'll leave it at that.

Thank you.

[The Chair, NDP, David Christopherson]

Fair enough. Thank you.

We will move along to our last speaking spot.

Mr. Falk, you have the floor, sir.

[Ted Falk, Conservative, Provencher, MB]

I think you guys work in an exciting environment. You must actually admire some of the creativity and ingenuity you see in people who are trying to avoid tax.

In the tech industry, they hire hackers to teach them. One of the recommendations in the Auditor General's report involved the gap in the learning path and also the education of some tax auditors. Do you ever retain the services of the people who are so creative in devising some of these schemes to educate you?

[Ted Gallivan]

There are at least two ways in which the CRA gets that kind of insight. The first is our offshore tax informant program line. The people who are contacting us through that line are insiders. They are people who have direct access to offshore transactions and non-compliance; they kind of have a front row seat. When we approach that, we don't just try to deal with that one taxpayer on a transactional basis. We try to mine that scenario.

The second source is our voluntary disclosure program. When taxpayers come forward for whatever reason and make a voluntary disclosure to correct their tax affairs, again we don't handle that transactionally. We also try to mine that as a scenario and push that back through the rest of the taxpayer database.

I won't make any comments about hiring people, mid-career professionals, from other organizations, and I won't talk about our attendance at various seminars and other events where these matters are discussed, because I don't want to give offence to anybody. But we do have an active business intelligence function as well while we're out in the community of practitioners.

[Ted Falk, Conservative, Provencher, MB]

I guess the important thing from the audit perspective is that you document it.

Our government, in the last couple of budgets, has tried to address some of the loopholes in aggressive tax avoidance practices and schemes that people have developed. Can you talk a little bit about some of the measures in the last few budgets that have given you the tools you need to collect the taxes that are due?

[Ted Gallivan]

I don't want to belabour the offshore compliance directorate, a directorate that is distinct from Lisa's, but that organization has 70 people in it. The $30 million over five years that we have invested, I believe, has given us really effective measures.

The government has also made changes to the T1135. That has increased the burden on taxpayers and practitioners. The T1135 is the reporting of foreign-held assets. We believe that kind of extra insight helps us target which taxpayers we need to look at and also tells us which taxpayers we don't need to disturb with an audit.

Those are a couple that I would mention specifically.

[Ted Falk, Conservative, Provencher, MB]

Okay.

I'm good, sir, unless I can share my time.

[The Chair, NDP, David Christopherson]

You may.

Mr. Carmichael, by all means.

[John Carmichael, Conservative, Don Valley West, ON]

Thank you, Mr. Chair.

Just as a follow-up, Mr. Gallivan, you mentioned the voluntary disclosure program. Media reports were suggesting that since 2006 we've seen good growth in that area, with taxpayers coming forward with disclosure of errors or whatever. I wonder if you could comment on that program and some of the benefits we are seeing from the voluntary disclosure program today.

[Ted Gallivan]

The overall disclosures are up 80%, a fairly significant increase in both numbers and dollars. They're not small-dollar cases. We also broke out the international transactions, the international element. That is up 400%. Again, that's in terms of both number and volume. Just on the international front, in the last seven years roughly $2 billion in additional income has been reported just through that program. As I alluded to earlier, we take those scenarios and we push them through the data we have to identify other taxpayers involved.

The other benefit is that these taxpayers are normalizing their tax affairs, minimizing the amount of penalties and interest they have to pay, and we can only expect future compliance from those taxpayers. It's not just the dollar value. I think those are businesses that are probably correcting their affairs, and that's probably healthy for them from an economic perspective as well.

[John Carmichael, Conservative, Don Valley West, ON]

To your point about the voluntary disclosure program, we've talked about tax avoidance and tax evasion. We've talked about the aggressive side of this world. On the voluntary disclosure program, you have regular taxpayers, for lack of a better term, coming forward, paying their taxes, paying their past interest, and doing what they have to do to ensure that they're on a level playing field with CRA and doing what's right. Is that correct?

[Ted Gallivan]

It is, and in fact we've seized the opportunity to promote it. Whenever we have a chance to communicate that message, we try to get the message out. We also point to the January introduction of FINTRAC data and kind of put that message together to encourage people to come forward with VDP, because eligibility for the program ceases once we do begin an audit.

[The Chair, NDP, David Christopherson]

Thank you.

I have one quick question that I want to ask. It's not a controversial one; I'm just curious. I assume that this is the case, and I'd just like to know if it isn't. The Auditor General personally has to file income tax like everybody else, as does the Prime Minister, as does the Governor General. I assume that their files are handled in exactly the same way as anyone else's. Or, because of reasons, are their files dealt with on a different path and go to different people?

Perhaps you could answer that for me.

[Ted Gallivan]

I can confirm that they are handled in exactly the same manner.

[The Chair, NDP, David Christopherson]

That's what I wanted to hear. I was hoping to hear that. That's very good.

With that, on behalf of the committee, I will thank you for being here. We appreciate it. We've had very good discussions and very good, clear answers.

Thank you very much to the government side.

Auditor General, as always, we appreciate everything you do.

I wish all of you who are here, our staff and everybody else a merry Christmas, a happy Hanukkah, happy holidays or whatever warms your spirit. I wish all of you a very safe time. We look forward to seeing you back here again and to having more fun in the new year.

To my colleagues, it's the same message, and here is the best thing you could hear from me right now: the meeting is adjourned.