Mr. Speaker, I welcome this opportunity to speak again, this time on third reading of Bill S-2, a bill that deals with tax conventions between Canada and Hungary, Nigeria, Zimbabwe, Argentina and the Netherlands.
I would like to take the next few minutes to repeat the reasons for our objections to Bill S-2, that is to say, the objections of the Bloc Quebecois. We do not object to these tax conventions because we object to the countries as such. In other words, the members of the Bloc Quebecois, Quebecers in general and Canadians in general as well, on whose behalf we occasionally speak as the Official Opposition, do not object to Hungary or Nigeria or Zimbabwe or Argentina or the Netherlands.
However, there are certain inconsistencies in the Canadian tax system as well as in the rules and traditions of this tax system, and we often find these inconsistencies in tax conventions of this kind.
As you know, Mr. Speaker, we support free trade, and in fact we were instrumental, and when I say we I am referring to Quebecers, in adopting two international agreements. The first one was with the United States and the second included Mexico. We also supported arrangements to improve the rules of international trade, like those that were adopted last December at the GATT talks.
We also have a tradition of international co-operation and a tradition of reaching out internationally. We remember Lester B. Pearson, whom we admire for his international involvement, and Jean Lesage in Quebec.
Therefore, it is not in that regard that the Bloc Quebecois has to show its opposition in the case of international treaties. Tax treaties are usually a good thing because they allow businesses to avoid double taxation on the benefits of their various affiliates.
Tax treaties also have the merit of creating reciprocal agreements, which allows to draw a clear line between two countries regarding taxation of the profits of companies, because to be effective, those tax treaties must call for levels of taxation that are roughly equivalent between two signatory countries.
Besides, and this will be my first negative point in assessing Bill S-2, as the auditor general mentioned several times, there are flaws in the principle underlying tax treaties and in certain agreements signed with countries that are considered as tax havens.
In some of those countries, for instance Barbados, Cyprus, Malta and Singapore, who have signed tax treaties with Canada, corporate taxation and all that pertains to income or capital gains taxation is much lower than Canadian taxation.
As the Auditor General underlined it in his 1992 report, no corrective measure was adopted, even in the last budget of this government, despite all that was said. According to the Auditor General, incomes earned in countries that are tax havens and that are designated by order may enter Canada tax free even if they have not been taxed or have been at a very low rate.
The Auditor General also said in his 1992 report: "The Department of National Revenue Taxation is aware of a number of taxpayers who have used this scheme-tax havens-to be in a position to move $500 million into Canada tax free".
This first point is already appalling enough. I must tell you that, at the present time and since 1984, middle-income taxpayers have been crippled by the Canadian tax system. Incredible sacrifices are asked of the poorest in our society since the last budget, while other taxpayers, probably those with very high incomes, because they are the only ones who can take advantage of those flaws, are allowed to move $500 million tax free from foreign countries to Canada. I find this appalling.
The second negative aspect regarding tax treaties is that the foreign revenues of Canadian corporations, which are subject to little or no tax, give the Canadian shareholders access to the same federal tax credit on their dividends as on dividends payed by a Canadian company which operates and pays taxes in Canada. How can we speak of developing the Canadian economy while this measure maintained by the tax treaties hampers our economic growth and the development of Canadian businesses?
Good Canadian corporate citizens which pay their taxes also pay for other corporations which benefit from this type of exchange, this type of deduction. And we are asked to quietly support such a bill when tax treaties as a whole should probably be reviewed to determine where are the tax havens and the tax loopholes which allow bad corporate citizens not to pay their fair share of taxes for years and years. I find it rather absurd that we are asked to support this bill when all those treaties should be reviewed.
The third negative aspect regarding tax treaties is that, according to the existing legislation, a corporation operating in Canada can deduct interest on the money it borrows to invest in a foreign subsidiary. Companies that invest in tax havens have found two ways to avoid paying taxes. First, they deduct their loan interests and then they bring back to Canada, free of tax, their profits which are subject to little or no tax in foreign countries.
I am not the only one to say so. For about three years now, the Auditor General has been saying that the tax conventions legislation is full of holes. Let me quote the Auditor General on this issue. It is always interesting to quote someone who is non-political and neutral, someone who can put his fingers on the problems linked to the Canadian tax system and the inaction of the federal government which does not seem to want to do much about the various loopholes. In his 1992 report, the Auditor General said, and I quote: "That deduction of interest reduces Canada's tax revenue and, at the same time, the related income is not necessarily subject to tax in Canada. It may be received as a tax exempt dividend and may never appear in the Canadian tax base".
So, by using such tactics, Canadian companies can avoid paying taxes first by transferring to the Canadian parent corporation the losses incurred by their foreign affiliates. In other words, the Canadian companies which report losses due to their foreign production operations can deduct these losses in Canada, which means that Canada is losing a similar amount of money in tax revenues. Second, according to the tax treaties, profits made by Canadian corporations can be redirected to foreign countries. If profits are made here, in Canada, and taxation levels are lower in the countries where the Canadian parent company has a foreign affiliate, profits can be taxed in the other country. Third, by using such tactics, Canadian companies avoid paying taxes by converting their profits in exempt income.
One element of the Canadian tax system that needs to undergo an in-depth review is all of the tax treaties and the legislation concerning the Canadian tax conventions, because that is what allows people who take advantage of all these loopholes to laugh all the way to the bank.
Among the many examples I could use, I would like to quote only one striking example the Auditor General gave us. I quote: "A Netherlands Antilles subsidiary of a Canadian company had assets of $865 million and income of $92 million. The offshore income is not taxed on entering Canada, but it carries the federal tax credit on dividends paid to Canadian shareholders". Imagine! That allowed the Canadian parent company to report a $29 million tax loss in Canada. There was no production on Canadian soil. No jobs were created. There was no investment in machinery or equipment in Quebec or in Canada. The company was engaged in a production activity in a foreign country without creating economic activity either in Quebec or in Canada, yet it was able to deduct from that foreign activity an operating loss of no less than $29 million.
If that is not exporting jobs and economic activity that are so precious to us, I do not know how else to describe this flight of capital.
The Auditor General gave us an idea of the costs related to loopholes in the legislation governing tax treaties. According to him, for 1990 only, Canadian businesses invested nearly $92 billion in non resident companies with which they have a non-arm's length relationship; $92 billion, that represents significant production activity exported elsewhere and substantial tax exemptions for production activity exported elsewhere. That also represents a lot of tax exemptions on profits from economic activities not exercised on Canadian soil; it amounted to $92 billion for 1990 alone.
Of course, some of this $92 billion has been invested by good corporate citizens. There are companies doing real trading with countries not considered as tax havens, but there are nevertheless examples that can be drawn from the current situation to show that some of these investments in countries considered as tax havens are suspicious. Take for example the investment of $5.2 billion made two years ago in companies in Barbados, a recognized tax haven. These investments generated $400 million in dividends which were tax exempt when received on Canadian soil. As another example, $10.9 billion were invested in companies in Cyprus, in Ireland, in Liberia, in the Netherlands and in Switzerland, all countries also considered as tax havens. These investments generated more than $200 million in dividends which were tax exempt once brought into Canada.
According to the Auditor General himself-who does not hold a membership card from the Bloc Quebecois, nor from the Liberal Party, nor from the Reform Party-and I quote: "It is reasonable to conclude that hundreds of millions of dollars in tax revenue have already been lost and will continue to be if nothing is done to remedy the situation". That was in 1992. The Conservatives did nothing in 1992 and 1993. Then, in 1993, there was a change of government, but to the same effect: the Liberals have done nothing in the face of a tax scandal, a flight of capital scandal, whereas Quebec and Canadian taxpayers are being bled dry. This is unacceptable. It is a disgrace.
The Auditor General recommended a comprehensive review of tax arrangements so that we can really determine which countries we should have tax arrangements with, countries that are not mere tax havens, and do not encourage massive capital exodus as well as the loss of hundreds of millions in tax revenues for Canada. This is not the time for such a waste of money. On February 23, the Minister of Finance said that cuts were in order. But instead of eliminating loopholes such as tax arrangements, he targeted unemployment insurance.
I noticed your signal, Mr. Speaker.