Mr. Speaker, I am always pleased, even at so late an hour as this, to speak on a bill as important as Bill C-37, an act to implement tax treaties signed between Canada and Russia, South Africa, Tanzania, India and the Ukraine.
Contrary to what my colleague said earlier, it is inaccurate to say that most opposition members are opposed to the signing of tax treaties. On the contrary, we encourage the signing of tax treaties between Canada and the United States. Why? Because it is in our interest to see Quebec and Canadian businesses pay tax only once, and not twice. This is how double taxation is avoided, by signing tax treaties setting out rules for the treatment of the income of businesses, and even of individuals and of Canadian diplomats versus foreign diplomats. It is to Canada's credit that it signs these treaties.
Where it does not work, and we have always been clear on this, is when tax treaties are signed or when there is an attempt to avoid adopting rules with countries with much lower rates of taxation than Canada's. This no longer works, because by various subterfuges, by various ruses, companies with branch plants in so-called tax havens can apply the lower rates of taxation in these countries to the detriment of the taxes they would normally pay to the federal government.
As it happens, in the case of the treaties in this bill, none of the five countries has tax rates appreciably different from Canada's with respect to business profits.
Let us take the example of Russia. The Russian Federation taxes profits at around the 13 per cent level, while the federated states have rates ranging from 9 to 25 per cent. In other words, the combined rates of the federated states and the federation total between 22 and 35 per cent, which is more or less comparable to the Canadian range of 32 to 40 per cent.
Looking at South Africa, we have no recent information for business taxes, that is to say for 1996, but in 1995-as of March 31 1995, to be more precise-the corporate tax rate was 35 per cent in South Africa.
The same thing goes for India. The Indian corporate tax rate is 40 per cent, with a 15 per cent surtax if the taxable income exceeds 75,000 rupees, or $3,200. Not only is the Indian taxation rate not lower than Canada's, it is in fact higher.
Looking at Tanzania, the standard level of taxation on profits is around 30 or 35 per cent.
Finally, with respect to the tax convention signed between Canada and the Ukraine, until 1992, the last year for which figures were available, the tax on business profits in the Ukraine was 35 per cent. There has been a recent revision downward to between 20 and 28 per cent, a bit less than in Canada, but still far from the differences that sometimes occur between countries that are considered tax havens-with a rate between 2 and 3 per cent-and Canada, with a theoretical level of 40 per cent.
There is no problem in this area, then, but there is in some others. I take the opportunity provided by this analysis of Bill C-37 to remind the government that it signed in the past tax treaties with countries that are considered real tax havens and that each year hundreds of millions, if not billions of dollars go through these countries and are lost to Revenue Canada because of the ridiculously low tax rates in effect there. Furthermore, since these businesses are taxed only once on their incomes under these tax treaties, they obviously use various means to have their profits taxed at a ridiculously low rate.
They bring these profits back to Canada tax free and in so doing, save between 35 and 38 per cent on their taxes every year. Despite all the efforts made by the federal government in previous years, there are still eleven countries having signed tax treaties with Canada that are considered tax havens. The main ones are Barbados, Cyprus, Malta and even Switzerland.
Eleven other countries provide exemptions that considerably reduce their level of taxation in order to achieve certain economic and commercial objectives. With these countries, which include Barbados, Ireland, Malta and the Netherlands, Canada has to bang its fist and make it clear that, where conventions exist, they must be honoured. For conventions to be honoured, rates of taxation must continue to be comparable and not variable according to the whim of the countries signing these conventions.
The difference is considerable, and it seems to me that being in a country like ours, which is facing financial difficulties, we cannot turn our nose up at the hundreds of millions of dollars in additional tax revenues that might be created if the federal government corrected the discrepancies in the tax conventions and other agreements it has with other countries which have extremely low rates of taxation.
Let us look at three countries. First, Barbados. It taxes business profits at the rate of 2.5 per cent. This is some 36 percentage points less than the rate in Canada.
The rate in Switzerland is less than 10 per cent. We have tax conventions with both these countries. Their rate of taxation is not comparable to ours, and that is where the rub lies in tax conventions. This is not the principle of tax conventions, which is a good one. Tax treaties are both desirable and necessary.
However, they must be concluded with countries whose tax rates are comparable, otherwise a correction factor is necessary when profits are brought back after being taxed in those countries at reduced rates.
In a third country, the Bahamas, the ideal tax haven, the cream of the cream, tax rate on profits is 0 per cent. In other words, a Canadian business with subsidiaries in the Bahamas could make profits, not be taxed whatsoever there, and bring those profits back to Canada totally free of taxes.
I am still referring to a Canadian business, a business controlled by Canadian residents who normally should pay what is owing to Revenue Canada. But instead we are losing money because of the difference in tax rates between Canada and countries considered as tax havens. We are losing money and the fault is ours, in other words. For two years and a half, we have been asking the government to do something. Why did they not do it? One wonders.
Tax havens are becoming so popular that some very well known companies in Canada are taking advantage of these loopholes. Take the six major Canadian banks, for instance. Do you know that the subsidiaries of the six major Canadian banks-half the 119 subsidiaries they have outside Canada-are located in the Caribbean? Fifty-seven subsidiaries of the six major Canadian banks are located in the Caribbean, which is not known for its high population density.
It is strange that Canadian charter banks have half their subsidiaries in the Caribbean. There must be a reason. It happens that the countries considered to be the most generous tax havens in the world are in the Caribbean.
The same thing applies in the Cayman Islands, a famous tax haven: there are 28,000 businesses there, 28,000 corporations, most of them branches of Canadian, American or Japanese firms-28,000 firms for 30,000 inhabitants. It is permitted to imagine reasons for that. The 30,000 people in the Islands certainly do not hold all the shares of these 28,000 firms.
The 16,000 corporations established in Turk and Caicos Islands are also said to be held by Canadian interests.
There is a reason for that and it is the fact that Canada is signing tax conventions with various countries. It does not care about taxation levels and, when there is no convention as such, there is nothing else. Consequently, when Canadian corporations make profits in these countries, they make up for the difference between
their absurdly low taxation level and the level in Canada which is about 40 per cent.
This is quite something. People think only little amounts are involved and that this is why the government does not bother to remedy the situation, but the government knows perfectly well that these are huge amounts, tremendous amounts. But the government keeps on turning a deaf ear to our cries.
In 1990 alone, investments outside Canada amounted to $92 billion. I do mean $92 billion. These corporations, which are investing abroad, received $4.2 billion in dividends from foreign subsidiaries.
Some of this $92 billion found its way into countries considered as real tax havens. For instance, according to the auditor general, $5.2 billion was invested in Barbados at a maximum tax rate of 2.5 per cent, as I mentioned before. Barbados corporations paid Canadian corporations $400 million in dividends, probably tax exempt. We are not talking about peanuts here.
Moreover, the Auditor General points out another case, where $10.9 billion was invested in Cyprus, Ireland, Liberia, the Netherlands and Switzerland, countries which are all considered to be tax havens. Over $200 million in dividends was paid out to Canadian corporations by corporations in those countries, probably without paying anywhere close to the taxes they should have if we had had proper tax conventions with those countries.
When we brought this to the government's attention, about two and a half years ago, they said that we had to be careful because if we were too strict, too restrictive, we would be less competitive internationally. With the globalization of markets, the opening of borders, the disappearance of barriers, our planet has become a great big village and soon we will be conquering the universe. Every time we raised this issue, the government said that we had to be cautious because if we were too strict, these assets would leave Canada. If our tax conventions were too rigid or if we came to other arrangements with countries considered to be tax havens, it would be detrimental to the international competitiveness of Canada, its capacity to attract foreign investments, to keep them and to ensure there would always be direct foreign investment in plant construction and job creation in Canada. In other words, our millionaires would go elsewhere.
The United States is our main competitor in North America. The Americans implemented a tax measure a long time ago. Since they could not control inflows and outflows, as is the case in Canada, they decided to impose an American tax rate on all profits made by American corporations abroad. They chose to literally tax these profits. But they looked at the taxes these same American corporations were paying to other countries, for profits made abroad, and granted a tax exemption for these taxes.
In other words, the Americans make sure that U.S. corporations pay taxes on their profits, they check on a case-by-case basis what amount each corporation has already paid to another country and then subtract one from the other. It all seems very logical to me. As we say, you do not have to be a rocket scientist to understand these principles. You pay 2 per cent somewhere when the rate here is 40 per cent. When you bring back your profits, you will have to pay the difference, that is to say 38 per cent, because you will be allowed a 2 per cent deduction for what you paid in the other place. Therefore, you will end up paying the same as every national business.
It seems to me that it makes sense. And that is what the United States is doing. We cannot say that Americans are socialists. You cannot say that Americans treat their businesses and corporations casually. You cannot say that the United States is not a paradise for private business. We have high officials here who can influence decision makers because, on the Liberal side, they are easily influenced, by telling them that they have to watch out not to mistreat businesses because if they do, they are going to move away. Well, let us be serious. When we are in a situation like the one we are experiencing in Canada now, it seems to me that we should take advantage of every opportunity to close loopholes, and these are big loopholes.
The other way to collect what we should normally collect is to revise the tax conventions with the countries I was mentioning earlier. We know these conventions. We know that they are signed with countries which have a much lower tax rate than ours. We have to revise these conventions. It is easy. You just pick up the phone, call the representative in that country, redefine the provisions and tell him that it is not because we do not like his country, but because it is not normal, that otherwise we would have a capital drain due to the ridiculous taxation level in countries like his. Either you revise by tearing up the tax convention or you revise through a compensation mechanism which would make profits go from that country to Canada where they would be suitably assessed and where tax money would come into the government coffers.
As I was mentioning, Bill C-37 deals with income tax conventions that have been signed between Canada, Russia, South Africa, Tanzania, India and Ukraine. This is finally an example of what should be used as criteria of comparison. These are income tax conventions that have already been signed between Canada and certain countries that are considered as tax havens. Taxation rates are fairly similar or, at least there is not a major difference, as in countries such as the Bahamas, for example. The conventions, or the tax treatment given by Canada and by these countries, seem fair, unless we did not do our work well.
Finally, the offical opposition will support Bill C-37, but in hoping, as I was mentioning to you earlier, that the federal
government will review, as we have been asking it to do for two and a half years, the eleven income tax conventions that have been signed with countries that are considered as tax havens. Second, the government should think about our proposal to establish a mechanism like the one that exists in the U.S., which would allow us to compensate for future losses, like the current tax losses, because the differences among the countries that do business with Canada are too great.
As I was saying, the U.S. has done a great job on this. It taxes at the American rate and manages to give deductions to the businesses that have already paid 2 or 3 per cent in the Bahamas, Cyprus, Malta or elsewhere in the world.
This is one option we could seriously consider because, as I say on a regular basis, Canada trails behind several industrialized countries in this respect. Canada also lags behind other countries' innovative, original business tax practices. I think the time has come for the government to wake up.