Mr. Speaker, I am caught off guard. I expected more comments, and comments in greater depth, from my colleagues in the Canadian Alliance, particularly where taxation matters are concerned, but I can say this.
We in the Bloc Quebecois have been reflecting for years now on tax conventions and tax reform. These tax conventions and the signing of numerous conventions between Canada and a number of other countries must be incorporated into the broader framework of tax reform.
I would remind hon. members that the need for federal tax reform has been debated here since the 1993 election. As part of this reform, we have also talked about ensuring that the Canadian taxation system no longer contained loopholes allowing corporations and individuals, more specifically individuals with very high incomes, to avoid paying tax, and in fact to commit out and out fraud.
Those listening have seen our emphasis since 1994, particularly on the issue of money laundering. Since that time, the former finance minister, who is also the member for LaSalle—Émard and a candidate for the leadership of the Liberal Party of Canada and the job of prime minister, has remained silent about our demands for taxation reform to close the loopholes and to ensure the integrity of federal public finances.
Even the Auditor General joined in with us in reminding the former finance minister and the current finance minister that everything possible had to be done to ensure the safety of the federal tax base, which has been jeopardized year after year by the government's lax attitude to tax loopholes, in particular through certain tax conventions with countries considered to be tax havens.
It is the same thing for the OECD. My colleague from the Canadian Alliance mentioned this earlier. Not only did the OECD identify problems of double taxation, but it also pointed out that there were tax treaties concluded between countries and other accords, including tax conventions, that might be detrimental to the operation of the regulatory mechanisms for liberalizing international financial markets.
About two years ago, the OECD also joined in with the Bloc Quebecois in demanding—OECD members are not members of the Bloc Quebecois, but they are as able as we are to do some good analyses—that some tax conventions signed by countries considered to be tax havens, which encourage harmful tax practices, be denounced. This is a lead in to Bill S-2.
First of all, I would like to say that we will support the bill, with the reservations I mentioned earlier about tax reform. Naturally, the corporate tax rates in Kuwait, Mongolia, the United Arab Emirates, Moldova, Norway, Belgium and Italy are fairly similar to Canadian tax rates. Therefore, any tax convention signed with these countries to deal with the issue of double taxation makes a lot of sense.
Let me explain what a tax convention is. It is a set of rules which two countries adopt to ensure fair treatment of the business income of subsidiaries of Canadian corporations operating abroad, compared to how that income would have been treated in Canada.
The purpose is to prevent a Canadian business, with a subsidiary in the United States for example, operating in the United States and being taxed in the United States, from also being required to pay tax in Canada. It would be absurd. It would be totally unfair and it could jeopardize the profitability of Canadian businesses. Where the taxation and corporate tax rates are comparable, there is no tax equity problem. However, signing tax conventions with countries whose tax rates are not comparable to those in Canada does create a problem.
In such cases, there is a problem because it introduces a bias in the investments of Candian businesses abroad, favouring countries with low tax rates that have signed tax treaties with Canada.
We have condemned this situation for years now. There were, and there still are, certain tax treaties signed between Canada and the United States that have no justification, that are flagrant injustices and that bias Canadian investors' decisions abroad.
The vast majority of tax treaties are fine, because Canadian taxation rates and those of these other countries are relatively comparable. So, taxing and returning revenue from Canadian businesses abroad poses no problems in terms of fairness when compared to Canadian businesses operating in Canada.
However, if we take the example of Barbados, where the tax rates hover around 1.5% for corporate profits and capital gains, and compare it to our rate of 28% or 29%, it becomes clear that there is a flagrant imbalance.
It becomes clear that there is a bias at work that favours Canadian investment in Barbados. The tax treaty between Canada and Barbados creates both direct and indirect investment in Barbados. This is not a simple bias.
There is a total of $257 billion of direct Canadian investment abroad, approximately. Of this amount, Barbados ranks third in terms of Canadian investment abroad, with $16.8 billion in direct Canadian investment; that is more direct Canadian investment than Japan, France and Mexico combined.
When a little country such as Barbados, with 270,000 residents, ranks third in terms of direct Canadian investments abroad, it begs the question: why? We are not the only ones asking this question. The former Auditor General, Mr. Desautels, asked this question for years. The OECD has also asked why. Specifically, its Financial Action Task Force on Money Laundering, the FATF, has asked the same type of question that we have been asking for years.
What is it that promotes this bias? The tax treaty between Canada and Barbados. We need to look more closely into this type of situation. We have been asking the Minister of Finance and the government to reassess tax treaties, particularly those signed with countries that are considered tax havens for good reason. We have done so because we must ensure that when we talk about the free market, when we talk about the movement of funds, when we talk about direct and indirect Canadian investments abroad, we have to see what produces these biases, problems and barriers for these investments.
In the case of Barbados, there are no barriers; indeed, it is the exact opposite. We are encouraging Canadian investment in Barbados, which is considered to be the number one tax haven, where the tax rate is incredibly low, if not non-existent in some cases, compared to corporate taxes in Canada. We are promoting cashflow out of Canada to Barbados. We find it fair that corporate profits are taxed at 1.5% and returned to Canada, where Canadian businesses operating on Canadian soil have to pay 28%. It just does not work. It makes absolutely no sense.
How can we encourage this type of system? Even the FATF, the OECD group, compiles a list of countries considered to be tax havens and also considered to have taxation practices that are harmful to all of the world. For three of the four years that the FATF, this OECD group, has published the names of the countries at fault, Barbados has always been on the list. There are others, but Barbados has always been on the list.
Others have made improvements with regard to bank secrecy. It is no longer as strict as it used to be in several countries that previously were adamant about it, regardless of who the investors or depositors were. A degree of flexibility has been introduced first to ensure that the money laundering networks of international criminal groups and terrorist groups do not benefit from tax conventions or from these countries being recognized by the United Nations organization.
Second, some tax practices, although above board, hurt others because they introduce a great deal of bias or distortion due to the imbalance in tax rates. Such practices must be rectified. Barbados has never had to make such corrections, and yet we still have a tax convention with that country, which hurts direct foreign investment. It would appear the government sees nothing wrong with this kind of tax convention.
As I said earlier, we are not opposed to tax conventions. They are a logical thing. We cannot have double taxation because it would be damaging to Canadian companies doing business abroad. But this does not mean we should sign tax conventions with countries considered to be tax havens with damaging practices, especially countries such as Barbados which, like the OECD, we have been condemning since 1994. This does not make sense. As if it were not bad enough that we have a tax convention with Barbados, the federal government is promoting this tax haven on its website. This leaves some of my colleagues completely speechless. I invite them to visit the web site of the Department of Foreign Affairs and International Trade. They will find a rather romantic description of tax havens, particularly Barbados, and ways to avoid paying federal taxes by investing money abroad in what is called the offshore financial sector.
On the Foreign Affairs and International Trade website, in the brochure entitled “Barbados: A Guide for Canadian Exporters”, we read, and I quote:
The offshore financial sector—
—referring to tax evasion in tax havens—
continues to grow and is becoming increasingly important to the economy as a source of foreign exchange and employment. The Canadian business community and banking sector is especially active in Barbados.
By the way, the five major Canadian banks have a total of 50 branches in Barbados. I have been asking the Canadian Bankers Association since 1993 what they are doing with 50 branches in Barbados. I have been asking where their revenues come from, what their activities are, and whether they are not at risk of having a fast one pulled on them, say by being involuntarily involved in money laundering by organized crime groups, drug traffickers in particular, and terrorist groups. Since 1993, I have not managed to get an answer.
I continue quoting from the document posted on the Foreign Affairs and International Trade website:
A Double Taxation Treaty exists with Canada—
This is a tax treaty like the ones brought before us this morning through Bill S-2. I continue:
—and the two Governments have recently signed a Foreign Investment Protection Agreement.Tax treaties with Canada and the United States have been important to the development of this industry.
We are talking about offshore banking here.
And yet we have across the way a government that will come after any of us if we owe the taxman so much as a penny. The Canadian tax system literally hunts down anyone who owes it $10. It is merciless. Taxpayers must pay up.
If we owe $100, we must pay $100, or they will come after us. We face penalties, are charged interest, hunted down. However, the same government promotes foreign investments in countries that are considered to be tax havens, countries like Barbados that the OECD condemned for having tax practices detrimental to countries with regular tax systems.
The federal government promotes investments in such countries but, at the same time, it tells Canadian taxpayers that they must pay every penny that they owe in taxes. This is a rather strange way of doing things. It is shameful on the part of a government to tax people to death and to even talk about adding another tax to fund health care, when federal surpluses have totalled several billions of dollars over the past three years. The government is talking about adding a new tax to fund health care while promoting tax avoidance for Canada's richest taxpayers, through countries such as Barbados.
Is it not bad enough to ask us to tighten our belt, to keep paying over and over and, at the same time, to use federal websites for propaganda encouraging the rich not to pay taxes here, but instead to safely invest their millions and billions elsewhere? I remind those who are listening to us that Barbados is the third most popular destination abroad for direct investments by Canadians. This tax scheme encourages wealthy Canadians to avoid paying taxes to the federal government.
This raises ethical issues. I mentioned federal websites, but there is also CanadExport , a publication of the Department of Foreign Affairs and International Trade which promotes international trade, provides progress reports on that activity, includes news on the financial sector for goods and services, and so on.
In an article recently published in CanadExport , it was mentioned that the government wanted to “demystify tax havens”. Again, this is a publication from the federal government which, on the one hand, tells us that we must pay all our taxes and, on the other hand, promotes tax havens for Canada's richest taxpayers, so that they do not have to pay their due to Revenue Canada.
It does not make sense to ask those of us who stay in the country to foot the whole tax bill. It does not make sense to cut employment benefits again and again as has happened since 1995, to reduce health and education transfers and ask us to further tighten our belt because the government cannot afford to do more. On the other hand, however, the government encourages wealthy taxpayers to take their money out of Canada to avoid paying income tax to Revenue Canada. I wonder if Canadians realize or can figure out how much those rich taxpayers save in income tax by investing in Barbados, for example. Do they realize that these businesses can also save money through direct investments in Barbados and other countries considered to be tax havens? Are people aware that this money which is not coming into the federal coffers means that the federal government will have that much less to spend on health, education or the fight against poverty?
We would not need new taxes, as proposed by senators in the other place. They are talking about a special $5 billion tax. If the federal government did not encourage people to invest their money abroad to avoid income tax, it would have enough money in its coffers to provide adequate funding for health, education and social assistance. This is absolutely clear.
How can the government pawn such nonsense and inequities off on us? How can there be two classes of citizens in this country? One which is crushed by income tax and poverty and the other which is spared taxes and is encouraged by the federal government, through numerous brochures and its website, to invest its money abroad?
The brilliant analyses of senior Department of Finance officials also facilitates this. “Want to know how to invest in Barbados? To save tax money? No problem. We will explain the whole tax haven situation. Want to jeopardize the entire federal tax base? No problem. We, federal public servants that we are, will help you invest your millions, even billions, of dollars in other countries so as to jeopardize the entire federal tax base”.
The Auditor General has been speaking out against these practices for years. The Auditor General has also criticized the lack of specialized staff at the Canada Customs and Revenue Agency and the Department of Finance to keep an eye on these tax conventions and the exodus of rich Canadians' assets to other countries. There is no control over this.
Hon. members will recall the transfer to the United States, several years ago, of two family trusts worth over $2 billion. This wealthy Canadian family was told it could make this transfer without paying any taxes to Canada. Remember?
There have certainly been other similar instances. There have probably been a number of cases of preferential treatment for wealthy taxpayers. There is something called a Department of Finance advance ruling that enables the wealthy to seek the opinion of senior departmental officials and then to invest, or carry out certain other operations, in another country without paying a cent of income tax.
There have likely been dozens of such instances of federal taxes evasion resulting in lost federal revenues, and thus the slashes to federal contributions to health and education carried out by the former Minister of Finance, the hon. member for LaSalle—Émard, and Prime Ministerial hopeful. These cuts might have been a little less drastic if his wealthy friends had paid what they should have to Revenue Canada.
While we are on the subject of the transfer of those family trusts worth $2 billion, is there anyone at the Department of Finance or the CCRA who can tell me what has become of them? The ten year term for these family trusts ended last year, I believe. Up until last year, the trustees did not have the right to cash in their trusts, in other words, sell their assets for profit, without paying tax to the CCRA, even if they were in the United States.
Is there currently any sufficiently specialized public official who has followed these two family trusts that were transferred to the United States and who could tell me if the trustees sold off their assets for a profit? Is it possible to find out if the trustee sold these assets off last year, after the deadline, or before the date that allowed the CCRA to collect its share of the capital in the form of taxes? Can anyone provide this information?
No, there is no such person. Do hon. members know why? Because, as the Auditor General has pointed out for years now, there is a lack of specialized resources at the Department of Finance and the CCRA to track the movement of capital from Canadian investors.
We no longer have enough specialists to properly manage the countless tax treaties and advance rulings handed down by senior officials when it comes to the investment of Canadian capital abroad.
I will conclude on the other aspect of the issue. Since 1994, we have been asking the Minister of Finance and the government to review these tax treaties and any practices that could be harmful in terms of the flight of Canadian capital abroad. The government keeps turning a deaf ear.
On occasion, as I asked questions to the former Minister of Finance and member for LaSalle—Émard, who wants to become the leader of the Liberal Party of Canada and Prime Minister to boot, about the fact that he was not taking any action on tax reform or on the termination of certain tax treaties, I could not help but wonder if he was not both judge and defendant in such instances and if it will not be even worse when he is the Prime Minister.
The former Minister of Finance and member for LaSalle—Émard also owns a shipping company that operates in waters bordering countries recognized as tax havens, like Barbados. I think that it would be very difficult for someone wanting to become the Prime Minister, let alone once he has become the Prime Minister, not to respond to our criticism of the tax treaty between Canada and Barbados, which the OECD also condemns.
Will the next Prime Minister have more courage than the former Minister of Finance, even if he has interests in boundary waters in the Caribbean, in Barbados in particular? Will he have the courage to terminate the tax treaty between Canada and Barbados? Will the future Prime Minister and member for LaSalle—Émard stop looking out for his own personal interests and start looking out for those of all taxpayers in Canada and Quebec instead?
Can we get from this future Prime Minister the formal commitment that he will not consider the expansion of Canada Steamship Lines as the fundamental basis for his decisions as Prime Minister, but that he will consider the interests of all taxpayers? Concerning tax conventions that impact negatively on the federal tax base, that are a source of inequity for the other taxpayers who pay huge amounts in taxes every year and who are tracked down, as if they were thieves, when they owe as little as a single cent to Revenue Canada, he has to rectify the situation and to listen very carefully. We hope that he will do so even though he has remained silent for several years about our demands to denounce tax conventions, such as the one with Barbados, which impact negatively on the federal tax base.
We will see what happens, but I hope that the future Prime Minister will listen more carefully, will have a better sense of equity and justice and will not consider merely his personal benefits, but also those of taxpayers in general when he decides to maintain or abolish these conventions.