Debates of Sept. 18th, 2003

The House resumed consideration of the motion.

Supply

[Bryon Wilfert, Liberal, Parliamentary Secretary to the Minister of Finance]

Mr. Speaker, it is interesting to hear the Bloc talk about taxes. I guess they know a lot about it since their buddies, the PQ, created the most highly taxed jurisdiction in North America. I guess they have some experience with high taxes.

What the Bloc fails to remind the House about, and I am a bit surprised, is that the Bloc really does not seem so concerned about the public interest. Their approach is clearly inconsistent. I have said we have 79 different tax treaties around the world. We have tax treaties with Barbados. We also have tax treaties with Luxembourg, but it is interesting to note that in the case of Luxembourg, the sovereignists in fact turned to Luxembourg for inspiration at one time because they felt that it might be something they would like to do if there were an independent Quebec.

Part of their plan was to create a major overhaul of existing tax legislation. It was for the creation of an offshore for companies for non-resources. It was to deal with encouraging the creation of management centres, similar to the coordinated centres operating in Brussels, to strengthen the insurance and underwriting sector, to attract capital investment from corporations associated with major companies. I could go on, but there seems to be some inconsistency here: they do not like Barbados but they seem to be in love with Luxembourg.

I would like the member to try to explain the apparent inconsistency between Barbados and the sovereignists' love for Luxembourg, on which they wanted to model a so-called sovereign Quebec.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

Mr. Speaker, I would remind the Parliamentary Secretary to the Minister of Finance that is was not us who allowed the Department of Foreign Affairs and International Trade to publish, through CanadExport, a schedule of events where was announced a Tax Havens Conference. And the conference was not about tax treaties.

The literature dealt with tax havens. As I said, topics included the origin of tax havens, their use as a financial strategy, how to choose a tax haven that's right for you, tax havens and Canada's tax laws, and how to get the most out of your tax havens.

I have a problem with that. The Parliamentary Secretary to the Minister of Finance would do well to read the brochures published by the Department of Foreign Affairs and International Trade. It would help him understand that he is not signing tax treaties but rather doing business with tax havens.

[Loyola Hearn, Progressive Conservative, St. John's West, NL]

Mr. Speaker, I wonder if the hon. gentleman would make a comparison between the provinces or within our country when, because of the wish of government to help its own people, we create mechanisms to try to lessen the tax burden where possible, all of which benefits the people of our country, fully realizing, however, that it is through taxes we collect the money to do what has to be done in our country.

I have no problems with that. However, the other side of that is for residents of our country, because they are big business operators or international operators, to find and seek out ways of avoiding paying taxes to their own country, which in turn would benefit the country. This, I presume, is what the member is talking about trying to close down.

I would like the member to compare the honest efforts of provincial governments to help their people versus the deceiving methods of certain characters to avoid paying taxes in the country in which they live and should be contributing to.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

Mr. Speaker, I thank my hon. colleague for his brilliant question.

That is very true and that is where we have a problem. Quite often, Canadian corporations and banks belonging to us make money out of their business dealings with Quebecers and Canadians. It happens. They rake in huge profits.

The problem is that their profits increase when they do not have taxes to pay. The end result is that the chartered banks, instead of lowering their user fees and the interest rates on credit cards, pay dividends to the wealthiest people in our society.

Everything is planned so that the grassroots do not benefit from any of this. And that is where my hon. colleague is quite right.

[Bryon Wilfert, Liberal, Parliamentary Secretary to the Minister of Finance]

Mr. Speaker, it is my pleasure to speak on this issue today. It would appear that some of my colleagues on the other side need a bit of an education when it comes to the issue of Canada's tax treaty with Barbados and I am prepared to be their teacher this afternoon.

The integrity of our tax system depends on ensuring that the businesses that are involved in international activities pay a fair amount of tax and that taxes are paid to the appropriate jurisdiction.

Tax treaties signed between Canada and other countries help to facilitate trade, investment and other activities between Canada and its tax partners. They are principally aimed at achieving two main objectives: first, they aim to encourage cooperation between tax authorities in Canada and the treaty countries through the exchange of information related to taxes; and second, they set rules to prevent double taxation while limiting tax evasion, thereby providing taxpayers with more certain and equitable tax results in their cross-border dealings.

Canada and other members of the Organization of Economic Co-operation Development have long recognized the importance of relieving double taxation and protecting against fiscal evasion, and their collective efforts have resulted in the model double taxation convention prepared by the OECD.

Our tax treaties, while they are tailored to address our particular needs, are generally patterned on this OECD document and are in accord with international norms. Canada negotiates tax treaties with as many jurisdictions as possible. As a matter of fact, and as I have said over and over again, we have tax treaties in force with over 70 countries. We signed a tax treaty with Barbados in 1980.

Canadian businesses are increasingly competitive on a worldwide basis. Everyone has recognized for decades now that the success of this country's multi-national cooperation benefits all Canadians. I am sure, in fact, that if I went around asking Canadians if they want Canadian businesses to be more important players in the international market, I would hear a resounding yes.

Which brings me to this point. Sound tax policy is a key component of business success. For many years it has been part of Canada's tax policy not to subject the earnings of Canadian corporations and their subsidiaries in foreign countries to double taxation. We avoid double taxation in different ways, including by not subjecting to Canadian tax the active business earnings that a Canadian company's foreign subsidiaries earn in a country with which we have a tax treaty.

The issues surrounding the taxation of foreign affiliates are not new. Indeed, they have been dealt with in the House on a number of occasions in the past.

In 1992 the Auditor General raised questions relating to the possibility of tax avoidance by foreign affiliates of some Canadian companies. In response to these questions, the government proposed a number of amendments to its existing foreign affiliate rules. These modifications were first announced in the 1994 federal budget and affected the definition of active business income, the deduction of business losses in computing foreign accrual property income, and the list of countries where foreign subsidiaries can earn exempt active business earnings from which dividends might be received tax free in Canada.

These modifications were proposed after extensive consultations with stakeholders both in and out of government. Yet even now, almost 10 years after the fact, questions remain about whether the exemption was left in place for a particular kind of Barbados company that may enjoy a relatively favourable tax rate under Barbados law. The government has already provided a logical explanation which I am pleased to revisit.

First, it was never established that abruptly curtailing the exemption would have benefited Canada. In a world of tax planning opportunities, there is no assurance that corporate groups would not simply move the functions performed by the Barbados subsidiary to another jurisdiction where similar results could be obtained. In that eventuality, the corporations would not pay any more Canadian tax.

Indeed, forcing businesses out of Barbados could actually be counterproductive. With Barbados as a tax treaty partner, Canada's tax authorities have the ability to seek more information and assistance from Barbados than they do with many other jurisdictions.

Second, Canadian businesses are understandably interested in maintaining Canada's international competitiveness. We live in an era of globalization. Decisions that disrupt the operations of Canadian operations abroad can have severe repercussions on their competitiveness as well as on the country's economic bottom line.

As hon. members know, Canada's relations with Barbados are close, long standing and encompass banking, migration, development, cooperation, manufacturing and financial services.

The tax treaty that formed the basis of giving this exemption to corporations in Barbados has been in place since 1980, well before the majority of other tax treaties Canada enjoys with other countries.

In addition to having a double taxation agreement with Canada, Barbados also has a social security agreement and a foreign investment protection agreement with Canada.

As well, Barbados has long been a strong ally in international efforts to combat the creation of tax havens around the world. In February 2002 the Organization for Economic Cooperation and Development, OECD, concluded its consultations with Barbados and stated that the country had a transparent tax and regulatory system.

At that time Barbados agreed to increase its information sharing efforts on tax matters with other OECD members, including those with which it had not already concluded tax treaties.

Barbados is a member of the Caribbean financial action task force and has played a key role in efforts to combat money laundering and terrorist financing in the Caribbean region.

The Barbadian parliament passed anti-money laundering legislation in 1998 and updated these measures in 2000 and 2001. Under the legislation, assets from criminal activities are subject to freezing orders and financial institutions are required to report suspicious transactions and to maintain records on transactions above a certain financial level.

As well, an anti-money laundering and financial intelligence unit has been established in Barbados and it is providing active information to its counterparts around the world. Based on these actions, it is clear that the choice to leave in place the long standing exemption for income from these corporations in Barbados was, and remains, more than reasonable.

I emphasize that it does not however mean that the government is standing still. Canada is known internationally for its ongoing efforts to modernize and expand its network of tax treaties with other countries.

The government is currently reviewing both our tax treaty with Barbados and the relevant income tax regulations to ensure this still fits our tax policy goals. Changes may well be considered but let me make it clear that any changes to these regulations would be the result of careful and thorough analysis. The government will not be rushed into making hasty decisions that could be costly both for Canada and for our tax treaties.

[Gilles-A. Perron, Bloc, Rivière-des-Mille-Îles, QC]

Mr. Speaker, I would like to read to the Parliamentary Secretary to the Minister of Finance an article that was published in the fall 2001 edition of Offshore Finance Canada . I would also point out to him that Offshore Finance Canada is not a sovereignist, independentist or separatist magazine. The article said:

Several Canadian businesses have brilliantly set up maritime divisions in Barbados that are managed from Canada, enabling them to pay no taxes on profits.

That is what the article said.

I will submit to him the following problem. I would remind him that Barbados has a taxation rate of 1% on profits in excess of $15 million U.S.—and I said U.S.—and of 2.5% on profits under $5 million U.S. It has no taxes on capital gains, no withholding tax, no surveillance or control of exchange transactions. If that is not a tax haven, I do not know what is.

If the Parliamentary Secretary to the Minister of Finance had a business and could make $15 or $20 million in profits, would he not be tempted to open subsidiaries in Barbados? I would.

[Bryon Wilfert, Liberal, Oak Ridges, ON]

Mr. Speaker, I am assuming the hon. member is suggesting the 1,700 corporations that exist in Barbados should not be there. He is suggesting that because we have a tax treaty with Barbados, and full transparency and accountability, that somehow we should ignore that.

We have it, as I said, with other states, including Luxembourg, which was a favourite of course of the Bloc. We know that the Bloc was trying to model its approach on the so-called tax havens in Luxembourg. It was okay for Luxembourg but apparently it was not okay for Barbados.

Really, the government took action in 1992 as soon as the Auditor General dealt with the issue of avoidance by foreign affiliates of Canadian companies. I outlined very clearly in my remarks the steps that the government has taken with regard to Barbados.

If the Bloc would like us to eliminate the treaty with Barbados, as I assume it does with Luxembourg and all the other states with which we have treaties, then we will have very interesting implications for Canadian corporations around the world. Maybe the Bloc does not believe in globalization. Maybe it does not believe in ensuring that Canadian jobs are here. Maybe it does not believe that things are good for this economy if we have this international competitiveness. If it does, that is probably why it has the seats that it has today.

[The Deputy Speaker]

Just before questions and comments, I wonder if I might get the attention of the hon. member who just spoke. I want to be sure that in fact there is not a division of the speaking time here because, of course, it has an impact on the amount of time for questions or comments.

The member has taken his full allotment by himself, as he is indicating now, therefore we will continue with questions or comments. The hon. member for Argenteuil—Papineau—Mirabel.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

Mr. Speaker, I would like to mention to the Parliamentary Secretary to the Minister of Finance that in 2001, the Auditor General indicated in her report that she had identified 53 cases of tax evasion schemes for a total of $800 million. This was not just after what happened in 1992 or because of the statements of the Auditor General.

They should stop claiming that the government has decided to straighten things up since 1992. In 2001, the Auditor General recommended to the Canada Customs and Revenue Agency that it remain vigilant so as to ensure that tax treaties were not being used inappropriately.

The parliamentary secretary has been talking about tax treaties for a while. Indeed, he said he was pleased with the treaty with Barbados, that it was probably useful to uncover tax dodgers. Transactions can be checked. We do not have any problem. If our five major banks are managing not to pay $2 billion in taxes, we do not have to be concerned that they are tax dodgers. They are simply taking advantage of the system. It is as simple as that. They are taking advantage of a system that was brought in by the Liberal government. That is the reality.

So, the Parliamentary Secretary to the Minister of Finance should realize we are in 2003 and listen to the recommendations of the Auditor General. When will we abolish this treaty that allows big corporations and Canadian banks to avoid paying their share of taxes at the expense of the public?

[Bryon Wilfert, Liberal, Oak Ridges, ON]

Again, Mr. Speaker, first let me reiterate to the hon. member that protecting Canada's tax base is an ongoing process and taxpayer activity is therefore very important. It is monitored. The fact is that these tax treaties are not simply dry documents; they are in fact reviewed constantly. We are doing that, not only with Barbados but with other states.

As the member would then suggest, why simply Barbados? According to the member it would seem that we should simply eliminate the issues on double taxation et cetera for everybody. Therefore, what would happen of course is that we would be at a tremendous disadvantage. There would be no benefit if, according to the member, it were closed and companies moved to another jurisdiction where they would get better treatment. It would not result in more dollars coming into this country.

The fact is that we work very closely with other countries to make sure that transparency and openness are there. We do that to protect Canadian taxpayers and that is what we are concerned about, whether they live in the province of Quebec, British Columbia, Newfoundland or anywhere else.

I think it is very important to again emphasize that this is an ongoing issue and that we also are dealing with the OECD in terms of scrutiny. We are following all the international rules. As I said in question period, we have revisited this issue at least five times and have again updated. As far as the Auditor General is concerned, we are continuing to look at all these issues. But we will respond appropriately. We will not rush into things. We will do it in a manner which in fact will be done right.

[Charlie Penson, Canadian Alliance, Peace River, AB]

Mr. Speaker, the parliamentary secretary talked about the fact that they are going to take time to look at these issues. I note, though, that the Minister of Finance, when he was asked here over a year ago about progress, basically stonewalled the House. Maybe the parliamentary secretary could tell us what kind of progress is being made, especially on the dividend scheme, which essentially meant that in the year 2000 there was $1.5 billion of money returned to Canada from corporations that was subject to no Canadian tax at all on dividends with the scheme that has been developed.

If there is a review, why is it taking so long before we get some action on it? He will note that two auditors general have asked serious questions about this. The Minister of Finance said he is going to consider it, but several years later there is still no action.

[Bryon Wilfert, Liberal, Oak Ridges, ON]

First, Mr. Speaker, I would reject the characterization that the Minister of Finance was stonewalling anyone.

Second, it is not customary, at least not for this government, to negotiate in public, so as for the details which the hon. member suggests, when we are negotiating, particularly with other countries, I am not likely to divulge them here.

Third, as for the auditors general, the previous one and the current one, we responded on several occasions, as I said, in 1995, 1996, 1997 and 2002. The departmental officials and others are currently reviewing.

We would rather get it right than simply rush in. I know the Alliance likes to do a lot of rushing. Unfortunately, the problem is that is not how we get it done. We get it done by being very methodical. We make sure that all the i's are dotted and all the t's are crossed.

The member will get his answer in due course and I am sure the member will be very interested to hear that answer.

[Bernard Bigras, Bloc, Rosemont—Petite-Patrie, QC]

Mr. Speaker, I take great pleasure in speaking in today's debate. As I begin, I would like to inform you that I will be sharing my time with the hon. member for Trois-Rivières.

I am please to take part in this debate whose purpose is to shed some light on a number of facts I think are important if we believe Canada's tax system should be transparent.

The motion brought forward by the hon. member for Joliette reads as follows:

That, in the opinion of this House, in order to ensure tax equity, the government should terminate Canada's tax convention with Barbados, a tax haven, which enables wealthy Canadian taxpayers and companies to avoid their tax obligations, and should play a leadership role at the international level in activities to eliminate tax havens.

In my opinion, this debate, initiated by the hon. member for Joliette on behalf of the Bloc Quebecois, should be seen as part of a pattern demonstrating that we believe that social solidarity is an important value in a country that calls itself democratic and in a society where people believe in fair taxation. Such a society ought not to have a regressive tax system.

What is more normal than making corporations pay their taxes on Canadian and foreign profits. What is more fundamental, in a fair and just society, than making corporations abide by tax regulations as strictly as Quebeckers and Canadians must.

We have always believed in the need to take a stand against tax evasion by Quebeckers and Canadians. Why are we continuing to implement a tax system with double standards? Whether it is a big company, a bank or a shipping company, why do we adopt tax regulations and a tax system, through tax treaties, as with Barbados, that impose taxes of 2% on profits and avoid double taxation? On the flip side, individuals earning $30,000, $40,000 and $50,000 annually are treated quite differently.

In my opinion, this debate must be held in terms of social solidarity, fiscal equity and a fair tax equity policy.

Everyone agrees that the Canadian tax base must be preserved in order to provide public services. In our particular social context, the Canadian health and education system needs additional financial resources. Through these tax treaties and their endorsement, we are creating a tax invasion or rather evasion that is unacceptable to the public.

[Jocelyne Girard-Bujold, Bloc, Jonquière, QC]

This is not Les Invasions barbares .

[Bernard Bigras, Bloc, Rosemont—Petite-Patrie, QC]

No, this is not Les Invasions barbares , but it sure seems like it. The barbarian invasion might seem like an evasion in Barbados. There is an interesting play on the words barbarian invasion and evasion in Barbados.

This government endorsed it and on three occasions refused to believe it, despite the Auditor General's guidelines and statements. The rules of social solidarity must apply. If this is not a barbarian invasion, then it is certainly an evasion in Barbados or Bermuda.

What are tax havens? As my hon. colleague from Jonquière said, it is important to understand this.

We, in this House, have a mandate to educate. We are not indulging in demagogy, but simply trying to tell the public about the shell games some business people might be playing to erode Canada's tax base, which can only lead to a reduction in services being provided to the public.

Tax havens are nothing more than countries where the tax rate is low or nonexistent. Also, since there is total secrecy surrounding the financial sector in several of these countries, it is hard to put an exact figure on the amounts involved.

Back in 1998, the OECD set four criteria to identify tax havens. These include first, levying little or no income tax; second, refusing to exchange information concerning taxation; third, lack of transparency in their legislation; and fourth, lack of substantial activities. At the time, the OECD had identified 35 countries meeting these criteria.

Since the motion deals with tax treaties, it is important to define what they are. Let us take as an example the treaty Canada signed with Barbados.

Basically, the purpose of tax treaties, like the one Canada signed with Barbados, is to avoid double taxation. Barbados then becomes a very telling example, one that the former finance minister knows quite well. In fact, when I went over the organization chart of the Canada Steamship Lines and the assets of the hon. member for LaSalle—Émard, I identified close to 10 businesses that have set up their headquarters in one tax haven alone, Barbados.

Let us forget about all the other tax havens. He has ten businesses in Barbados alone.

[An hon. member]

There is Bermuda.

[Bernard Bigras, Bloc, Rosemont—Petite-Patrie, QC]

Yes, we could add Bermuda. However, let us stick to the tax treaty. In a very shameless, irresponsible and surreptitious way, the former finance minister used the terms of this agreement to circumvent social solidarity. One cannot preach about social solidarity to anyone who is ready to listen and then try to erode Canada's tax base in a roundabout way.

Social solidarity is—

[The Deputy Speaker]

The hon. Parliamentary Secretary to the Minister of the Environment, on a point of order.

[Alan Tonks, Liberal, York South—Weston, ON]

Mr. Speaker, with great respect, I rise on a point of order. I have been listening not only to this speaker but to previous speakers and it seems to me that they cross the boundary of fairness. Natural justice demands that when people are talking about someone in an incriminating fashion that person has the right to defend themselves. What we have--

[Some hon. members]

Oh, oh.

[The Deputy Speaker]

Order. First let me respond by reminding members that when the Chair occupant, the Speaker, whoever that might be at any given time, rises in his or her place here, other members who have the floor would do well to sit down because, first and foremost, when the Speaker rises all other microphones are closed. I have listened to the extent that I am satisfied the hon. parliamentary secretary was engaging in debate and there was not a point of order consistent with the rules and practices of the House.

[Bernard Bigras, Bloc, Rosemont—Petite-Patrie, QC]

Mr. Speaker, as I said, these tax conventions with Barbados are inconsistent with the principles of social solidarity to which I am sure we, on this side of the House, all adhere.

It is fascinating to know about the workings of the Barbadian tax system, of which big corporations like Canada Steamship Lines and the major Canadian banks take advantage. These corporations and banks operate and do business within a tax system with a rate of between 1% and 2.5%, no withholding tax, and no financial surveillance or control of exchange transactions.

One cannot claim to be a good corporate citizen and at the same time shamelessly take advantage of these tax systems, which ultimately have an impact on people's daily life. There is hardly any leeway. As far as I am concerned, these major banks and big corporations have a duty to act responsibly.

When it realizes that these businesses are not acting like good corporate citizens, the government has a duty to step in. It must make it clear that fiscal responsibility cannot be demanded of average citizens while big corporations play under a different set of rules.

I hope the government will support the motion put forward by my colleague from Joliette.

[Roy Cullen, Liberal, Etobicoke North, ON]

Mr. Speaker, I recently saw the excellent movie by filmmaker Denys Arcand, Les Invasions barbares . It may well have been about the Bloc's barbarian invasions.

I listened to the hypocrisy of the member opposite, especially the part where he talked about the special tax treatment for banks. I find it ironic that the OECD, in its review of all the OECD countries--

[The Deputy Speaker]

The hon. member for Verchères—Les-Patriotes.