Debates of Sept. 18th, 2003

Supply

[Scott Brison, Progressive Conservative, Kings—Hants, NS]

I totally agree with my colleague. That is dishonest on the part of the Department of Foreign Affairs and International Trade.

If Canadian businesses want advice in that regard they can call their tax accountants. It should not be given by the federal government.

We have to do more than simply cancel one tax treaty. We should not only be renegotiating that tax treaty, but we should also working with other countries that have tax treaties with Barbados to ensure that we are not putting our own Canadian companies at a disadvantage.

The discussion today has been about one specific group of companies, those companies connected with the member for LaSalle--Émard. However the fact is that if we look at corporate Canada and the number of Canadian companies that have relations offshore with countries like Barbados, I would argue that we would find a lot of Canadian companies. This is a very broad based issue. If we simply arbitrarily close that loophole, we could be sending some of those Canadian companies to the U.S. which has a tax treaty. Anything we do has to be multilateral. We have to work with countries like the U.S. to ensure we do not put Canadian companies at a further disadvantage.

[Pierre Paquette, Bloc, Joliette, QC]

Madam Speaker, I heard the answer given by the member to the member for Drummond. I believe we all agree that we must act multilaterally. As a matter of fact, the second part of the motion proposes that Canada play a leadership role in the elimination of tax havens.

There is something a bit odd with regard to Barbados. Not only did the former finance minister, who has since transferred his assets to his sons, have an office there, but it is the only tax haven with which Canada has a tax convention.

Some 35 countries or territories are considered tax havens, and Barbados is the only one with which Canada has a tax convention. We do not have any with the other ones, be it Bermuda, the Bahamas—to name just a couple. What is really worrisome is that we chose to have a tax convention with only one country considered a tax haven. And it just happens to be the country of choice of the big Canadian banks and a number of corporations including Canada Steamship Lines.

I would simply like to ask the member whether he agrees with the Auditor General that it is a problem, that it erodes the tax base and that, as a result, people like him and me who pay their taxes have to pay higher taxes because others are avoiding their obligations.

I would like to know what the member's thoughts are on this.

[Scott Brison, Progressive Conservative, Kings—Hants, NS]

Madam Speaker, I agree that we are robbing the Canadian tax base in our ability to pay for the social investment and also to create a more competitive tax system in other areas of Canada with a tax haven. However we have to address it, working with other industrialized countries that have a tax treaty relationship with Barbados and other tax havens.

This is an area where Canada could play a leadership role. We have a Canadian who is head of the OECD. There is a real opportunity. In fact, I believe Don Johnston was a former minister of finance in Canada or was at least a minister on the fiscal side in the Trudeau government. We have a Canadian, a former cabinet minister of Canada, heading up the OECD. What better entree for Canada to play a leadership role in helping to shape this process?

I would like to see Canada playing that role, and I agree absolutely with the intention of the hon. member to create more tax fairness for all Canadians and to make sure that all Canadian companies are paying their fair share. However if we do that and ignore the realities of what other countries do in similar circumstances, we could have the law of unintended consequences which could lead us to losing an awful lot of our Canadian companies to other jurisdictions. That would not be in the interests of any of us.

[Pauline Picard, Bloc, Drummond, QC]

Madam Speaker, it is a pleasure to rise to speak to the Bloc Quebecois motion moved by my colleague from Joliette. This motion states:

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.

The timing is good because, only yesterday, we raised the problem of these tax havens and of tax evasion during oral question period and we did not get any meaningful answer from the Minister of Finance.

The use of tax havens is mentioned in what the media called “horror stories by the Auditor General” last year. The Liberal government is losing millions of dollars by allowing large businesses to transfer their profits to tax havens. This is what the Auditor General, Sheila Fraser, is denouncing. This is why the Bloc Quebecois has decided to give parliamentarians an opportunity to express their concerns over a situation that is threatening the tax base. This is a significant issue, both ethically and economically.

Everybody pays taxes. It is not fair that the richest among us can get away with paying so little. There must be tax equity because all taxpayers have to bear the cost of tax evasion by some businesses, some banks and even some individuals.

The use of tax havens is an important phenomenon. Last year, the Canada Customs and Revenue Agency instigated an investigation on a scheme that allegedly enabled a dozen multinationals to hide $1.1 billion from the taxman. Today, I had the impression that the minister responsible for the Canada Customs and Revenue Agency, who spoke on behalf of the government, did not remember that investigation; we heard that $1.1 billion was sheltered from the tax system.

How did it work? It was brilliant. Large corporations simply put the Canadian subsidiaries into debt. The beauty of all this it that, on top of that, they obtained tax deductions from the federal government for their interest charges. The money that was borrowed was then invested in tax havens, depriving our economy of considerable revenues.

It is sad to think that 1.5 million children live in poverty in Canada, that we have no program to help them and that we allow large corporations to pocket $1.1 billion.

The money that was borrowed was immediately invested in tax havens. These corporations did not have to pay taxes. It is unbelievable. This is not an isolated case. The Auditor General is concerned about the proliferation of these types of schemes, which are very lucrative for a handful of investors at the expense of the rest of taxpayers.

What are the consequences of this little game? They are higher taxes for the rest of taxpayers or reduced public spending, which means cuts in social programs. The fact is that tax evasion is very costly for the majority of taxpayers.

I point to the findings of the Auditor General. Ottawa loses hundreds of millions of dollars in revenues because of tax evasion through tax havens. And it is not I or the Bloc Quebecois that says so, but the Auditor General.

Therefore, our fellow citizens need to know that this problem, this threat to our economy, is growing.

Canadian investments in Barbados, a tax haven that the former finance minister and would-be prime minister knows well, have jumped by 3,600% since 1988, from $628 million to $23.3 billion.

[An hon. member]

That is incredible.

[Pauline Picard, Bloc, Drummond, QC]

It is incredible. Besides “Paul the boatman” in Barbados, Canadian transfers to other tax havens such as the Netherlands, Bahamas, Bermuda and Ireland have also increased significantly since 1990, by leaps of 295 to 627%, according to figures from Ms. Fraser, the Auditor General.

Consequently, the tax convention between Canada and Barbados enables a number of businesses to avoid paying huge amounts of income tax. Barbados is a tax haven, according to the original definition by the OECD, the Organization for Economic Cooperation and Development. We are not inventing this: the OECD said it.

In my riding, I have heard people from the anglophone community say, when referring to the hon. member for LaSalle—Émard, “His mouth is in Ottawa but his cash is in Barbados.” That says a lot about what people think of him.

Some businesses avoid their tax obligations and do not even hide the fact. Each year in their annual reports, the banks boldly state the cumulative amount of tax they have saved.

In October 2001, the seven most industrialized countries—Germany, Canada, the U.S., France, Italy, Japan and the United Kingdom—decided to take on the networks that were financing terrorist organizations. As a result, the campaign against money laundering has become the leading edge of the efforts by member states of the OECD.

In the wake of the tragic events of September 11, 2001, the U.S. President changed his tune. Initially hostile to international cooperation against tax havens, he now is singing the praises of cooperation on all fronts.

Canada must also do its part. It must terminate its own tax convention with Barbados. It must strengthen the international component of Revenue Canada in order to discourage tax evasion through the use of tax havens. It must carry out a blanket reform of Canada's tax system in order to eliminate all tax loopholes that enable companies to get out of paying their fair share of taxes, while the average taxpayer bears the brunt of this. Finally, it must deal forcefully with both tax havens and money laundering.

At the international level, Canada is not playing a leadership role or even behaving properly, far from it. In fact, some of its fiscal practices were singled out by the OECD as being unacceptable. We want a change in attitude. Canada must make amends, admit to its mistakes and do everything it can to eliminate tax havens. Instead of having the definition of tax havens revisited, Canada must condemn harmful fiscal practices. Canada must fight against dirty money and grey money. To this end, it must know the clients of the banks in order to know what is shady. Here, unfortunately, it runs into the problem of bank secrecy, the main obstacle in the fight against the circuitous movement of dirty money and grey money.

The European Union is preparing to impose greater flexibility with respect to bank secrecy, an impenetrable secret that ensures the survival of tax havens. Would Canada be prepared to take the same route? I hope so. We are giving the House the opportunity to change its attitude. So I would urge the members to vote in favour of the motion put forward by the Bloc Quebecois.

Globalization of trade and, consequently, competition among countries have led governments to make their tax systems more attractive to investors.

Quite apart from the lowering of global tax rates, a competitive environment can promote more effective public spending programs.

However, some fiscal practices and practices in related fields impede competition and can lower any gains generated by tax competition. This is the case of tax havens.

In February 2001, the Auditor General declared that the international activities of Canadian taxpayers, in particular the use of tax havens, constituted one of the most serious threats to Canada's tax base.

This statement contrasts with the fact that Canada is a signatory to a tax convention with Barbados, quite the paradise to begin with, and a tax haven too. It is strange that this convention encourages Canadians to use tax havens. In 1999, Canadian investors understood the government's message, put Barbados on their list to such an extent that it became the third most popular destination for Canadian investment abroad, after the United States and Great Britain.

In the same year, direct Canadian investments abroad totalled $257 billion, with $27.9 billion invested, so to speak, in Barbados, the Bahamas and Bermuda. This accounted for over 10% of the total of all investments Canada made abroad in 1999.

The OECD is critical of tax havens. It is recommending that its member countries terminate all tax conventions with tax havens. What is Canada's reaction? It seems reluctant to follow the OECD's recommendations.

Some may argue that in 2002 Barbados was removed from the OECD list of tax havens. It was indeed removed from the list, but that does not mean that it has changed its fiscal practices. They have remained unchanged, and Canada is encouraging these practices.

The Bloc Quebecois continues to consider Barbados as a tax haven. It will take more than a change in criteria to convince us otherwise. Try as we may to change the definition of poverty to make the figures drop, there are just as many homeless sleeping on park benches.

Since 2000, the Financial Action Task Force on Money Laundering has been publishing a black list of countries deemed uncooperative in the fight against dirty money, while calling upon them to comply with international fiscal legislation or face sanctions.

This list includes 19 countries or territories, including the Bahamas and Bermuda, two of Canadian investors' favourites.

In June 2000, the OECD published a list of 35 jurisdictions that meet the tax haven criteria, and Barbados was included. Is it fair to consider Barbados as a financial subsidiary of Canada? After signing the 1980 tax convention, Canada suggested that amendments would be made to the existing treaty. This is 2003, and nothing has been done yet.

Since 1994, we in the Bloc Quebecois have been putting forward several motions every year and asking questions to have this situation change. It will be 10 years in the fall, and nothing has changed.

Members can imagine how astonished we were when we visited the website for the Department of Foreign Affairs and International Trade and found out that it was possible to order a brochure entitled Barbados: A Guide for Canadian Exporters .

According to the brochure, the offshore sector is continuing to expand and playing an increasing role in the economy as a source of currency and employment.

This same Department of Foreign Affairs and International Trade did not hesitate to promote tax havens in 1999. In fact, in CanadExport, it published its calendar of events, which included a “Tax Havens Conference“. This conference discussed tax havens and Canadian tax laws and information on how to use them properly.

The OECD is asking member countries to terminate tax treaties signed with tax havens. This request mirrors the one formulated by my colleague, the member for Joliette. Neither the Bloc Quebecois nor the OECD have been able to influence the former Minister of Finance of Canada. Although the type of response that the current minister gave us yesterday hardly bodes well either.

The use of tax havens has been criticized by the Auditor General of Canada on numerous occasions. In 1998, he—it was a he at the time—criticized the fact that Canada was not allocating enough resources to fight tax avoidance. He alluded, among other things, to the increasing use of tax havens and to the growing number of bilateral income tax conventions. The Auditor General went even further by giving this serious warning to the government, and I quote:

Failure to take urgent action on these matters will severely limit Revenue Canada's ability to manage the risks to Canada's tax base that international transactions represent.

Canada, and particularly the Liberal government in office, are speaking from both sides of the mouth. In this issue, as in many others, the Canadian government does not hesitate to be heard on the international scene by supporting, for example, the OECD report asking that the treaties signed with tax havens be terminated. But in reality the Canadian government continues to promote and encourage the use of tax havens such as Barbados.

This debate is very timely. In a few days the Liberals will choose a new leader. By all accounts they are going to choose the former fiance minister and member for LaSalle—Émard. How can he be trusted when, until the end of August 2003, he was the owner of many companies that have been transferred to his sons and have their head office in Barbados? His companies benefit from tax havens that provide benefits such as: no tax on capital gains, no deductions at the source and no surveillance or control over exchange transactions.

Such a tax system is regressive and totally contrary to Quebec and Canadian values.

The whole picture makes one wonder, to say the least. As an individual and investor, the Prime Minister in waiting benefits from tax havens even though he knows that such practices are harmful to the tax base in Canada and Quebec. While this may not be a conflict of interest, it can at least be said that he will have conflicting interests when he has to take action and discuss abuse of the financial system.

Finally, these organizations ask people to invest in companies or corporations whose names are strangely similar to those of well-known and well-established businesses, and they urge them to invest their money in faraway countries.

Shares are exchanged through a bogus stock market set up on the Internet. As new investors join in, the market fluctuates until it crashes.

The North American Securities Administrators Association, the oldest investor protection organization, issued a warning to investors to be especially wary of anyone encouraging them to shelter their money in tax havens.

I will conclude by reiterating the demands of the Bloc Quebecois. They have not changed. On many occasions we have demanded that Canada do as the OECD requests and terminate its tax convention with Barbados immediately.

We have demanded and are still demanding that Revenue Canada beef up its international unit in order to discourage tax avoidance through tax havens.

Since 1996, we have been calling for a comprehensive reform of Canadian taxation and we are doing so again today. This reform should eliminate all the tax loopholes which allow certain companies to avoid paying their fair share of taxes, to the detriment of the average taxpayer.

[Roy Cullen, Liberal, Etobicoke North, ON]

Madam Speaker, certainly the Bloc motion is not a motion that I will be supporting at all and for two important reasons. First, the motion says that Canada should play a lead at the international level in activities to eliminate tax havens. Of course, Canada is playing a lead in doing just that. In fact, Canada is very much a party to the OECD harmful tax competition exercise and Canada was at the forefront of this initiative.

While it is true that there is a worrisome flow of money or of funds of income around the developed world to tax havens, it is not true that Canada is not part of the exercise to combat that. In fact, the Government of Canada is playing a leadership role.

When I was Parliamentary Secretary to the Minister of Finance, I was at a number of sessions where Canada was at the forefront of putting our case forward that we needed to deal with tax evasion and funds that were finding their ways to tax havens.

The argument now has become more of increased transparency. When authorities in Europe, the United States and Canada have a suspicion that a Canadian taxpayer is evading Canadian tax, perhaps the tax haven would be more forthcoming with information so that the tax authorities can check that out. I must say that we are making progress on that front.

The second part of the motion that is faulty talks about a tax convention with Barbados. The reason for a tax convention is to avoid double taxation. We have many Canadian companies that work and operate in Barbados. If it is the case, and it is the case, that Barbados is a low tax environment, then if companies are paying low or limited taxes in Barbados, then they are not going to get much relief from that, but they are not going to be double taxed. That is the purpose of the convention.

The member for Drummond cited an example where a company would take out a loan and deduct the interest in Canada against tax payable. Of course, interest is a deductible expense in Canada and so it should be. However, if that company were to take the money and put it into a tax haven, that income would be taxable under Canadian tax laws.

In fact, that is why the government put in the reporting requirements, so that individuals and corporations would have to report world income in a more structured, cohesive and sounder way. That is why the government is pursuing that and being vigilant to ensure that Canadian taxpayers, whether they be corporations or individuals, report their world income and are taxed in Canada, irrespective of whether the income was derived in a tax haven.

I wonder why it is that the member would be concerned about a convention with Barbados when it is a low tax regime and that Canadian companies operating there would get very little relief from the taxes they pay in Barbados because they are not paying much there?

[Pauline Picard, Bloc, Drummond, QC]

Madam Speaker, I will answer the hon. member's question as follows, using information and recommendations that came from the Auditor General of Canada between 1992 and 1999, Mr. Desautels, and from the current Auditor General, Sheila Fraser. It is not me who says this. It is the auditors general who sounded the alarm over the use of tax havens by Canadian businesses and the impact of such practices on the tax burden of Canadians.

In 1998, the Auditor General returned to the problem of tax havens, pointing out that Canada was not allocating enough resources to fight tax avoidance. He alluded, among other things, to the increasing use of tax havens and to the growing number of bilateral income tax conventions.

The Auditor General gave this warning to the government:

Failure to take urgent action on these matters will severely limit Revenue Canada's ability to manage the risks to Canada's tax base that international transactions represent.

In 2001, the Auditor General, Sheila Fraser, identified Barbados in particular as a country where numerous schemes allowed tax evasion. She said:

The Agency has identified 53 examples of this scheme that have moved over $800 million in capital gains to Barbados from Canada. It is currently examining this scheme to determine if it can be challenged successfully.

Nothing has changed. In another scheme, a company residing in a tax haven owned aCanadian company. When the shares of the Canadian company were sold,any capital gain realized would be subject to Canadian income tax. Thecompany shifted its residence from the tax haven to Barbados and claimed a Canadian tax exemption on the capital gain.

Duringthis audit, the Auditor General saw one transaction that the CCRA challenged successfully,recovering over $50 million in tax, although the total owed was $800 million.

In her report, she also stated:

Tax avoidance schemes may also take advantage of other treaties.

Anumber of years ago, the CCRA identified schemes involving other taxtreaties to which Canada was signatory. The schemes allowed capital gains toescape Canadian tax under certain conditions.

The Auditor General also makes a recommendation to the minister responsible for the CCRA, stipulating that the agency shouldcontinue to be vigilant in ensuring that tax treaties are not usedinappropriately to reduce Canadian tax and, if necessary, should seeklegislative or treaty changes to protect Canada’s tax base.

The Bloc Quebecois is not the only one saying this; the auditors general do too. They are transparent and demand the same transparency from the government in order to make major changes to tax treaties and tax havens, where the wealthiest companies do not pay tax.

There are two categories. The wealthiest, who can use tax loopholes and thereby deprive Canada of income, are in one category, and the poorest who, consequently, are victims of the government, which slashes social programs, are in the other. The former are better treated. A blind eye is turned, and people are told that Canada is doing its fair share and that this is not happening. Everyone denies that this kind of problem exists.

Today, we are once again speaking out against it; we want those opposite to realize that these are serious problems, that it is a serious threat, that there is no transparency and that the future Prime Minister will not be the one to change things, because he has greatly profited and continues to profit from interest that should go to the Canadian taxpayers.

[The Acting Speaker (Ms. Bakopanos)]

I see that several members would like to ask questions, but there is only one and a half minutes left. It is impossible to recognize all those who want to speak because the questions and the answers are long. The member for Winnipeg Centre has the floor.

[Pat Martin, NDP, Winnipeg Centre, MB]

Madam Speaker, one of the most galling things to me is that of the 1,700 expatriate companies in Canada that avoid paying their fair share of taxes in Canada, many of them are also eligible for and qualify for government contracts. In other words, the federal government patronizes these unpatriotic companies that seek to avoid paying their fair share of taxes.

Would my colleague from the Bloc agree with me that no Canadian company that takes steps to avoid paying their taxes in Canada should ever be given a public works contract, a supply contract or any contract from the federal government until they pay their fair share of taxes in this country?

[Pauline Picard, Bloc, Drummond, QC]

Madam Speaker, I thank my colleague for his suggestion.

I think that it is a very good suggestion that should be passed on to the government so that we can have tax fairness, so that these people can no longer take advantage of such loopholes and so that all taxpayers pay taxes according to their income level.

[Paul MacKlin, Liberal, Parliamentary Secretary to the Minister of Justice and Attorney General of Canada]

Madam Speaker, I welcome the opportunity to speak to the motion put forth by the hon. member for Joliette. While I commend the hon. member for bringing this matter to the attention of the House, I am unable to support the motion.

Following my remarks I am confident that hon. members may well share my views. In the time allotted to me today I want to focus on two issues. First, I want to set the record straight about the government's commitment to tax fairness and tax equity. Second, I want to review with hon. members why Canada has a network of tax treaties or tax conventions, as they are often called, in place.

Let me begin with the tax fairness and tax equity. Since the beginning of our mandate back in 1993, two of the government's ongoing priority areas continue to be sound fiscal management and fairness in our tax system. The government is fully aware that better economic performance for Canada tomorrow requires a more productive, innovative and sustainable economy today.

Our tax system plays an important role in creating a stronger, more productive economy.

An efficient tax structure can enhance incentives to work, save and invest. It can also support entrepreneurship and emergence and growth of small businesses.

In addition, a competitive tax system is critical in encouraging investment in Canada, which leads to greater economic growth and job creation. That is why, in the budget in 2000, the government introduced its five year $100 billion tax reduction plan, which is the largest tax cut in history.

The tax reduction plan is putting in place a tax advantage for business in Canada as a basic part of the strategy for fostering a strong and productive economy. With the tax cuts implemented to date, the average federal-provincial corporate tax rate in Canada is now below the average U.S. rate.

The 2003 budget builds on that tax reduction plan to further improve the tax system and enhance incentives to work, save and invest.

Hon. members will recall that Bill C-28, the Budget Implementation Act of 2003, received royal assent in June. That bill contained several measures that improve the tax system. We will soon be debating Bill C-48 which introduces a new tax structure for the resource sector to make it more internationally competitive, again a measure that stems from that 2003 budget.

I can assure hon. members opposite that the government remains committed to a fair and equitable tax system, one that is reasonable and compassionate and that we will continue to introduce measures as appropriate to ensure that this commitment is met.

This brings me to the topic of today's motion, that is the tax treaties or conventions. Our tax treaties our tax treaties are there to assure us of how Canadians will be taxed abroad. At the same time, these treaties assure our treaty partners of how their residents will be treated in Canada.

Canada, as we have already heard today, has over 70 tax treaties in place. This speaks volumes to the work behind the scenes on behalf of the government to set up this extensive network.

Canada's tax treaties are all designed with two general aims in mind: first, to remove barriers to cross-border trade and investment; and second, to prevent unintended tax results by encouraging co-operation between Canada's tax authorities and those in other countries.

International trade and investment decisions can be influenced by the existence and terms of a tax treaty and their importance in this regard should not be overlooked. Tax treaties do not impose tax nor do they generally restrict countries from taxing their own residents as they see fit under their domestic tax laws. Among other things, however, tax treaties set out the rules under which one country can tax the income of a resident of another country. This is particularly important for traders, investors and others with international dealings who are interested in doing business in Canada. It is only natural that they would want certainty as to the tax implications associated with their activities here and reassurances that they will be treated fairly.

The importance of eliminating tax impediments to international trade and investment has grown even more important now that the world economy has become so intertwined. It should not, therefore, come as any surprise that it can be advantageous to have tax treaties in place with other countries.

One of the most disconcerting things to a taxpayer is unrelieved double taxation, in other words, to have income taxed twice when the taxpayer lives in one country and earns income in another. Without a tax treaty, both countries could claim tax on the income without providing the taxpayer with any measure of relief for the tax paid in the other country.

To alleviate the potential for double taxation, tax treaties resort to two general methods. In some cases, the exclusive right to tax particular income is granted to the country where the taxpayer resides. In other cases, the taxing right is shared but the state where the taxpayer resides is obliged to eliminate double taxation by providing relief for the tax paid in the other country.

Put another way, tax treaties reduce the frequency with which taxpayers of one country are burdened with the requirements to file returns and pay tax in another country when they are not meaningful participants in the economic life of that country or where it would be a nuisance for them to do so.

Withholding taxes are also a common and important feature in international taxation. In Canada's case they were applied on certain income, for example, interest dividends and royalty payments that Canadian residents make to non-residents. Withholding taxes are levied on the gross amounts paid to non-residents and generally represent their final obligations with respect to Canadian income tax. Without tax treaties, Canada usually taxes this income at the rate of 25%, which is the rate set out in our domestic law or, more precisely, under the Income Tax Act.

Our tax treaties specify the maximum amount of withholding tax that can be levied by Canada and its treaty partners on certain income. These rates are almost always lower than the 25% rate provided for in the Income Tax Act.

I now want to turn to the second objective of tax treaties, namely that of preventing the unintended tax results by encouraging co-operation between Canadian tax authorities and those in other countries.

The most obvious unintended result from a tax administrator's perspective is that of tax evasion or avoidance. Like their predecessors, tax treaties are also designed to encourage co-operation between tax authorities in Canada and in the treaty countries to prevent tax evasion or avoidance.

Treaties are an important tool in protecting Canada's tax base as they allow for consultations and the exchange of information between our revenue authorities and their counterparts in these eight countries.

Because of tax treaties, tax authorities are able to deal directly with each other to solve international transfer pricing issues, to reach satisfactory solutions to concerns raised by taxpayers, to complete audits and to engage in other discussions aimed at improving tax administration.

But there are benefits. Many positive benefits ensue for taxpayers and businesses alike from tax treaties. For example, taxpayers benefit from knowing that a treaty rate of tax cannot be increased without substantial advance notice.

Investors and traders benefit from the atmosphere of certainty and stability that the mere existence of tax treaties will foster.

Our tax system works more effectively with the introduction of mechanisms to settle disputes. Our expanded tax treaty network generates more international activity which impacts favourably on the economy. Of course, assurances against unrelieved double taxation are always applauded by taxpayers.

In concluding my remarks, Canada's network of tax treaties with other countries is one of the most extensive of any country in the world. Canada's exports now account for about 40% of our annual GDP. Further, our economic wealth also depends on direct foreign investment as well as inflows of information, capital and technology.

Clearly the impact of tax treaties on the Canadian economy is significant. Without these international agreements, double taxation can adversely affect economic relationships between countries, mainly because tax treaties are directly related to international trade in goods and services and therefore impact directly on our domestic economic performance.

Let me reiterate: The passage of tax treaties results in many meaningful benefits for taxpayers, benefits that include a more simplified tax treaty system, a more stable environment for investors and traders and most important, the elimination of double taxation that might otherwise result in harmful international transactions.

Given the success of the existing tax treaty system and its contribution to creating fairness and equity in the tax system, I feel that the premise of today's motion is not relevant and I am unable to support it.

[Pat Martin, NDP, Winnipeg Centre, MB]

Madam Speaker, the U.S. is also seized of this issue somewhat. I think it is helpful to look at what the Americans are doing and saying.

George Bush said about six months ago when this issue was raised that Americans had to look at people who try to avoid U.S. taxes and that they had to be looked at as a problem. He started by looking at his own vice-president. I raise this as an example on which I would like the hon. member from the Liberal Party to comment.

When Vice-President Cheney was the CEO of Haliburton, the number of offshore tax shelters rose for that company from nine in 1995 to 44 in 1999. The drop in federal taxes that the company paid went from $302 million a year to a rebate of $85 million a year, in other words, minus $85 million a year. In other words Haliburton, led by CEO Cheney who is now the vice-president, undertook deliberate tax evasion to such a point where it is no longer paying any taxes in the home country. In fact it is getting a rebate every year of $85 million. At the same time it got $2.3 billion in government contracts and $1.5 billion in government loans during that period.

The same thing is happening here. I hope to have the specifics before the end of the day and the debate concludes. Of the 1,700 Canadian companies which are deliberately avoiding paying Canadian taxes by creating these tax loophole shelters off shore in the Cayman Islands, Barbados and Bermuda, many of them are getting government contracts at the same time and paying no taxes in this country.

Would the hon. member agree that it is fundamentally wrong and that the Department of Public Works, in the acquisitions or department of procured services, should review every one of those 1,700 companies? If they are avoiding Canadian taxes they should never get another contract from the government, ever, because what they are doing is economic treason and we should not be supporting them.

[Paul MacKlin, Liberal, Northumberland, ON]

Madam Speaker, needless to say, I certainly do not support any company that would evade taxes, and clearly that is so.

I think the question that is being brought forward today is whether the tax treaties that are in place are beneficial for international trade generally and Canada's role within that.

There seems to be a mixed perspective being suggested today as to the difference between lawful avoidance and unlawful evasion. Clearly, we are trying our very best to make sure that unlawful evasion of taxes does not happen.

The corporations within this country are taxed on their world income. In that process if they are in some way carrying on business through a subsidiary within a country, as is suggested here today, what the tax treaty merely does is in effect it gives either a level of comfort in terms of tax rate or in other ways may allow for us to give credit to them for the tax paid in another jurisdiction.

Clearly there is no question that we are all out to stop those who would evade paying taxes. I think that is clear and I think every Canadian supports that.

In the overall economic scheme of things, we must work together to make sure that Canada remains a viable economic force working in the international community, with positive tax treaties.

[Gurmant Grewal, Canadian Alliance, Surrey Central, BC]

Madam Speaker, I appreciate the comments made by the parliamentary secretary. Although I do not agree with everything, certainly I agree with the comment that the tax treaty rules are very complex and there are loopholes . Maybe because of that, and in addition because of unfair competition and tax havens, they undermine the Canadian economy. They have an adverse economic impact on Canada's economy.

Tax treaty rules are so complex and have so many loopholes that some people, including the leader of this country and probably the future prime minister of the country, when he and his family had a business, took advantage and probably abused the system to some extent.

We also know that the underground economy in Canada is huge. Tax evasion continues. Money laundering and other things also continue. We are all familiar with the various frauds that have been taking place with regard to the GST and other areas.

The question is not about longstanding friendship with Barbados. The question is, does the member not agree to plugging the holes that undermine Canadian tax laws and the Canadian economy?

[Paul MacKlin, Liberal, Northumberland, ON]

Madam Speaker, if the hon. member was present today and heard the minister speak to this issue, the minister clearly stated that this particular tax convention is under review and that the department continues to review tax treaties around the world on an annual basis. This is not something that goes unnoticed. As imperfections within the rules are found, there is the opportunity for the department to examine and then bring forward to the House changes that ought to be made within our tax rules.

Although today there have been suggestions that tax treaties are a means of evasion, I would suggest that they actually form the basis of a rules process where we are allowed to work within the international community.

We have seen lately with some of the other issues with our trading partners that it is so important to have rules based trading that actually makes sense and which we can rely upon. In this process I think that working with tax treaties establishes rules for inter-country exchanges, as we said for example, people who might attempt to evade taxes. A tax treaty encourages the other country to work with our country to seek out and get the information that we need in order to properly prosecute those who would evade taxes and defeat our Canadian tax system.

From a treaty point of view, I believe that they are very beneficial. I think they are positive, but yes, we must always be vigilant in order to make sure that those rules are effective.

[Pat Martin, NDP, Winnipeg Centre, MB]

Madam Speaker, I would like the hon. member's views on an aspect of this tax haven loophole system.

Thanks to regulatory loopholes companies can transfer profits earned in Canada to a paper company in Barbados or Luxembourg or the Cayman Islands which, through an accounting sleight of hand, allows them to transform those taxable profits into expenses they can then deduct on their Canadian tax returns because they are subject to a global view of their economic activities. What is the hon. member's view of that particular aspect of what we consider to be outrageous tax loopholes, that the companies can transfer profits earned in this country to their shell companies?

We know that CSL has nine shell companies in Barbados. Enron had 881 shell companies in Barbados. It is a common practice among corporations. This is one of the tricks that Canadians are not aware of, that companies can take profits earned here and write them off as expenses in that shell company through current loopholes that exist today.

Is the member aware of that? Does he also condone and champion that kind of cheating the Canadian public out of its tax revenues?

[Paul MacKlin, Liberal, Northumberland, ON]

Madam Speaker, without receiving the details of the transaction and being able to actually analyze what is occurring, it is extraordinarily difficult for one to give an opinion on the process that is being alleged by the hon. member.

Clearly our Canadian tax laws have been designed to minimize the possibilities of individuals defeating the system. The process of treaties is really just a process that builds upon the Canadian tax law and allows its application to be part of the international community that tries to achieve equity and fairness in the taxation of Canadian taxpayers as individuals and also as corporate entities.

With regard to the rules that the hon. member talks of, I am certain that if one examines those rules, in many cases we are permitted to have certain corporate deductions within this country, but in fact when that corporation does declare its world income, it is expected to include a full and complete declaration of all its world income. In the way that we have set up our tax system it should capture all the appropriate income for taxation within this country.

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

Madam Speaker, I am pleased to take part in this debate that was made possible by the motion brought forward by my friend and colleague from the Bloc Quebecois, the member for Joliette.

Since 1994, the Bloc Quebecois has been speaking out against those tax treaties that should not exist and not those that make sense. I was listening earlier to the minister responsible for the Canada Customs and Revenue Agency who was saying that the purpose was to avoid double taxation of profits, capital gains, etc.

We agree, but that is not what this is about. There is no problem in signing a tax agreement with a country that has essentially the same taxation level as Canada. We understand that profits made by a foreign subsidiary of a Canadian company that are taxed at a reasonable rate in the other country should not be taxed again in Canada.

Everyone understands that, but it is not where the problem lies. Where things get ridiculous, dangerous and bad for the taxpayers of Quebec and Canada is when treaties are signed with countries that are considered tax havens and have tax rates that are either non-existent or ridiculously low, for example: 2.5% or a set amount of $350 annually regardless of the individual's or company's income, as is the case in LIberia for instance. Then there is a problem.

Tax havens are a problem. We in the Bloc Quebecois are not the only ones to acknowledge this; the OECD does as well. The havens listed by it are home to about 1.2% of the world's population, yet 26% of the world's capital is found there. A population of 1.2%, yet 26% of the world's capital, attracted by harmful taxation practices that have been denounced by the international community.

In addition, 31% of the profits of multinationals are hidden in what are termed “offshore accounts”. These are accounts located in financial institutions, often branches of Canadian banks, that are located in countries considered to be tax havens.

Then there is all the secrecy surrounding how these profits are deposited. One-third of all world multinationals' profits are in such accounts. How these profits are deposited and by whom is shrouded in secrecy. The depositors are often numbered companies whose identity is known only to the institutions themselves. There is a lack of transparency surrounding these tax havens which we have been speaking out about since 1994, and others, particularly the OECD, since 1998.

One-third of the wealth of the world's wealthiest families is also in secret accounts in tax haven countries. Can you imagine what this amounts to? Some $6,000 billion. In other words, $6,000 billion in secret accounts, sheltered from taxes, has been deposited by the wealthiest families in the world, including some Canadian families—one of which we know was able to take advantage of an advance decision by Finance Canada some years ago in order to transfer two $2 billion dollar trust funds, first of all to the U.S. and then later to tax haven countries—all without paying a cent in taxes.

As mentioned before, the motion is aimed at Barbados but there are many other tax havens. There are still around 50 of them in spite of a change in their definition, and I will get back to that later on.

Direct investments in Barbados by Canadians total $23.3 billion. This is more than our direct investments in Japan, France and Mexico put together. This is really incredible. A country of 270,000 inhabitants has become some kind of big bank for the richest Canadian investors who want to avoid Canadian taxation and keep secret their financial transactions as well as transactions among subsidiaries of Canadian corporations.

Often these foreign subsidiaries, in countries considered tax havens, are what is commonly called fronts, that is empty shells with a mailing address, an office, a chair and a telephone—quite often there is not even a desk—to conduct transactions, strategies as they are called, that will benefit major Canadian corporations by allowing them to avoid paying a lot of taxes, especially to Revenue Canada.

Earlier somebody said that the tax base in Canada and Quebec was being threatened by the existence of tax havens.

The Auditor General pointed it out recently, but over the past 10 years auditors generals have consistently pointed it out and warned the government about the erosion of the tax base.

However, that is not the only problem associated with tax havens. There are others which are not so obvious. However, if one digs a bit deeper one realizes that the cause of many a woe can be found in tax havens. I will give a few examples.

In 1997-98, one of the world's worst monetary crises happened. It started in Asia. I think everybody remembers it. The Canadian dollar was no longer worth the paper it was printed on. The international monetary system was shaken to its roots.

How did it start? Very simply. A big Japanese bank, Daiwa, as well as Yamaichi Securities, at some point had dealings with a corporation using secret accounts in tax havens to hide losses on the currency market.

When the word got out, the whole system was shaken and not only Daiwa and the other Japanese company suffered, but also all of Asia, that is Thailand, Laos and Cambodia. Everything had stopped and there was a general recession that lasted almost a year and a half because of wrongdoing by two Japanese companies in the banking and financial sector.

There was a domino effect all the way to Brazil and here. The Canadian dollar was affected and was worth about 64 cents. This caused the loss of millions of jobs.

There was the Enron scandal. The same thing happened. To show an incredible bottom line, the company was hiding losses, was hiding bad investments.

How can one do this? By opening branches in countries that are considered tax havens and by hiding these losses in these branches that are empty shells. At some point, when the cat gets out of the bag, when the system is shaken enough, millions of jobs are lost and economic and financial activity is shaken. Not only the company itself, but the whole financial system suffers.

With regard to the market crash, my colleague from Trois-Rivières was telling me about pensioners. The Enron bankruptcy did not affect only the directors. In fact, they fared well, except for some who are before the courts. Hundreds of millions of dollars were lost in pension funds, precisely because a company used a tax haven, used schemes and hid its real financial situation. This shook the entire financial system.

Once again, it was the employees and pensioners who suffered from the bad decisions, from these schemes associated with tax havens. This is a serious issue. This cannot be taken lightly, one cannot be irresponsible, as we heard this morning.

The bank crash that occurred in Russia in 1998 had a similar impact. The world system was shaken up. Why, do you think? Because some crooked businessmen in Russia opened branches in countries known to be tax havens, branches that consisted of nothing more than a postal address, a chair and a desk. Money was lent to this business that only had a chair and a desk and not even a telephone. Hundreds of millions if not billions of dollars were loaned. And then suddenly the business that had set up shop in a tax haven went bankrupt and the Russian banking system was badly shaken up. What people were not told is that the branch was owned by crooked businessmen who were loaning money to a shell company set up in a tax haven, with all the attendant secrecy and lack of transparency. That is what tax havens are all about.

Let us talk about developing countries. Because of the existence of tax havens, to attract investors, developing countries now have to apply the exact same tax rates that are already in effect in better tax havens, Barbados, for instance, where the rate stands between 0 and 2.5%.

Oxfam International made an estimate of the losses incurred in Africa alone. Because of tax havens, Africa is losing $50 billion a year.

Just for the fun of it, I compared this figure to what is needed for international assistance. It is six times what developing countries, especially in Africa, need to provide elementary education programs. Six times.

It is three times the amount Africa would need to deliver basic health care to children and other people. If we take this lightly, I do not understand what we are doing here. If we claim we are protecting the public interest, we certainly have a problem with our definition of public interest.

Tax havens exist because we encourage them. We certainly do not discourage them. As we speak, there are 1,700 branches of Canadian companies in Barbados alone. This means 1,700 branches of Canadian companies which are encouraging such a system. This system deals not only with legal money, but also with the money of drug traffickers. In tax havens, it is hard to distinguish between legal money and dirty money. We have known that for a long time.

We have here a system shrouded in complete secrecy, with a total lack of transparency. These companies are just empty shells with no substance. This system could not exist without support. There are 1,700 branches of Canadian companies in Barbados alone.

What about Canadian banks? Since 1994, I have been asking Canadian bankers why they have 50 branches in the Caribbean. Just for the fun of having branches or flying the Canadian flag? Certainly not. They have branches there because they stand to benefit from it. Maybe people do not realize this, but since it is impossible to tell legal money from dirty money, these branches of Canadian banks are in a situation where they can use dirty money, launder it and put it back into the official and legal monetary circuit.

We should get that into our head. This is not a minor issue, and Canada is encouraging the existence of tax havens with these branches of banks and other Canadian companies.

That is not the only way Canada encourages the existence of tax havens. The Department of Foreign Affairs has a Web site where it invites Canadian investors to invest in tax havens. Imagine that. It invites investors to avoid taxes. And in the meantime, cuts are being made right and left. The former finance minster and future Prime Minister, the hon. member for LaSalle—Émard—we will get back to him in a few minutes—made cuts in federal-provincial transfers for education, health and social assistance. In the meantime, things like this were allowed to go on.

Speaking of Canada, besides the Web site of the foreign affairs department, there is a hypocritical attitude toward these tax havens.

I would like to quote what the former finance minister said in 1994. I was there and I heard him. This is what he said:

Certain Canadian corporations are not paying an appropriate level of tax. Accordingly, we are taking measures to prevent companies from using foreign affiliates to avoid paying Canadian taxes which are otherwise due. We are taking steps to ensure that the income of financial institutions is measured appropriately for tax purposes.

End of quote from the former finance minster and future Prime Minister, the hon. member for LaSalle—Émard.

In the meantime, he allowed the foreign affairs department to encourage tax evasion. He refused to terminate the tax convention with Barbados, although the OECD asked him to. In fact, not only has the Bloc Quebecois been asking since 1994 for the termination of the tax convention with Barbados; so has the OECD. He refused.

I remember that the hon. member for LaSalle—Émard, future prime minister and former finance minster was in Toronto with OAS finance ministers a few years ago. I asked him publicly, since they were discussing taxation practices that were harmful internationally, if he would terminate the tax convention with Barbados. He refused.

There has also been hypocrisy on the part of the government, on the part of the former finance minister and future Prime Minister, the hon. member for LaSalle—Émard. Do you know why? Because he was acting as the judge in his own case. He owns, directly or indirectly, 13 subsidiaries operating in Barbados. Why would he want to shoot himself in the foot? Why would he terminate the present situation, the tax convention with Barbados, when he benefits personally from the existence of this system?

One more point, my final one, about the hon. member for LaSalle—Émard: need I remind the House that the OECD not only listed 35 countries as tax havens, it also listed 47 other countries as having tax practices similar to those of tax havens? Canada was one of these countries.

For certain sectors. Canada's practices are considered to be similar to those of tax havens. Does anyone know what sector was singled out by the OECD? It was international shipping, the very activity in which the hon. member for LaSalle—Émard and future Prime Minister owns companies that he is supposed to transfer to his children in the next few weeks.

We cannot be naive either. When the former finance minister, the hon. member for LaSalle—Émard, says that he is transferring his companies to his children, they will remain in the family. We will not blindly believe that he will not have any influence or that he will not have an interest, if a policy relates to international shipping or any other tax matter related to shipping.

I want the hon. member for LaSalle—Émard and future Prime Minister to make public the bill of sale or transfer deed to his sons. Although it was a private transaction, it is in the public's interest to know the possible ties between the hon. member for LaSalle—Émard, future Prime Minister, and Canada Steamship Lines. He did not want to make it public on the grounds that it was private. I think that it is in the public's interest to know how this company was transferred to his sons and what ties might still exist between the future Prime Minister and Canada Steamship Lines.

Yesterday we received an amendment from the NDP about the next ethics counsellor, who will be accountable to Parliament. If the future Prime Minister does not want the transfer of Canada Steamship Line to his sons to be made public, it might be a good idea to formally ask the next ethics counsellor, who will be accountable to Parliament, to make all the documents related to these transfers public.

Rest assured that my colleagues and I are going to ask the next ethics counsellor to monitor the future Prime Minister very closely in his decisions and his involvement in discussions that could directly or indirectly affect international shipping companies.

Again, we implore the government to stop turning a blind eye to the existence of tax havens and to terminate the tax treaty with Barbados. We have been asking this for years, but now it is urgent. Corporate taxation also needs to be changed to plug all the loopholes that have been detected over the years and to keep Canada's tax base intact.

Like my hon. colleagues from Joliette and Drummond, I believe it would be a great idea if, as part of the negotiation of the Free Trade Area of the Americas, all the countries involved condemned all harmful fiscal practices in either developed or developing countries. The time has come to stop turning a blind eye to tax havens and their huge impact on the economy and the tax base, as taxpayers have to make up the shortfall in the tax base year after year.

It is incredible that, while he has cut $45 billion in transfers to the provinces for education, health and social assistance since taking office, the former Minister of Finance and future Prime Minister has turned a blind eye to such tax conventions and refused to terminate them, and also to conduct a special investigation into family trusts.

That is another matter. He has allowed the wealthiest family in Canada to transfer two family trusts totalling $2 billion without paying any income tax. How many more of these trusts are there? How many times did the government turn a blind eye to similar situations, which jeopardize Canada's tax base?

We must urge the government to act now. I also believe that Canada should assume international leadership to put an end to such international practices as tax havens.

[The Acting Speaker (Ms. Bakopanos)]

Since the hon. member for Champlain has been trying over and over again to ask a question, I will give him the floor. We will be slightly short on time, but we will resume after question period.

[Marcel Gagnon, Bloc, Champlain, QC]

Madam Speaker, just like you, I am listening today to a captivating debate on tax havens. We are learning some very interesting, albeit sometimes distressing things.

For example, we have learned from the members for Joliette, Saint-Hyacinthe—Bagot and Drummond that, while some of the richest families in the country are sending their fortunes to tax havens, here in Canada, 1.5 million children are living in poverty.

I would like to ask those members if there is a link between, for example, the tax dodging of the former finance minister with his corporations in Barbados and the $45 billion taken from the employment insurance fund and being used to run the country, and the $3 billion taken from seniors who did not receive the guaranteed income supplement they were entitled to?

We must also add to that the fact that a large shipping company like Canada Steamship Lines is contributing to the destruction of the shores of the St. Lawrence and is refusing to repair the damage, when the shores have been damaged because of its operations. Meanwhile, instead of paying taxes as it should, it is sending its profits to tax havens.

I would like to hear what the hon. member for Saint-Hyacinthe—Bagot has to say about this.

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

Mr. Speaker, I thank my colleague for his broad question. I will try to give him an answer that is more limited in scope.

It is obvious that the government tolerates quasi fraudulent practices such as these and just turns a blind eye.

This morning I heard the Minister of National Revenue, who is responsible for the Canada Customs and Revenue Agency, say that is was legal. Of course it is legal; it is this government that makes the laws allowing this kind of tax evasion. It is this government that does not amend our laws, allowing these harmful fiscal practices to go on. Yes, it is legal. This government makes laws promoting tax evasion. Not only does it promote tax evasion, but it encourages investors, through the Department of Foreign Affairs website, to use tax havens. These are harmful practices that have been denounced by the OECD.

The level of hypocrisy is such that Canada has signed the OECD report on the need to eliminate fraudulent fiscal practices on an international scale, saying that tax havens are unacceptable, but it still refuses to terminate a tax agreement with Barbados, the worst tax haven.

My colleagues have referred to the change in the definition of tax havens, which consisted in removing one criterion. Countries were listed as tax havens if they had little or no taxation, an absence of transparency, and an acceptance of shell companies that were merely fronts with a mailing address. That last criterion was removed, reportedly in response to pressure from Canada and 12 other countries. Its existence worked against Canadian investors or Canadian corporations with branch operations which were nothing but fronts and made these kinds of questionable transaction possible.

Once this criterion is removed, obviously only five or six tax havens are left, but in reality the number is closer to fifty. They are all still there. The definition was just changed to please countries that in fact benefited from the existence of tax havens.

Reference has been made to Canadian banks but there are 1,700 companies, branches of Canadian companies, in Barbados and other countries considered tax havens.

By allowing capital to escape in this way, by turning a blind eye to these strategies, which allow major corporations and multinationals with numerous foreign subsidiaries to make transfers, we are depriving ourselves of tax revenue. This money could be invested in education, health, social assistance, highways, or used to help seniors.

Is it not shameful to owe $3 billion to seniors for the last five years and refuse to pay it, to have kept it from them that they might be eligible for the guaranteed income supplement, while we watch hundreds of millions, if not billions, of dollars going off to countries considered tax havens? It is scandalous.

[The Acting Speaker (Ms. Bakopanos)]

There will be five minutes and thirty-two seconds left after oral question period, at which time we will resume the debate with questions and comments.

Simone Santerre

[Raymonde Folco, Liberal, Laval West, QC]

Madam Speaker, after more than 24 years defending the rights of the most disadvantaged members of our community, Simone Santerre, who has been with the legal aid office since first becoming a lawyer in 1979, is about to retire.

With her strong commitment to social causes, Ms. Santerre has made it possible for those who lacked funds, and even sometimes those who lacked intellectual abilities, to have their rights recognized and respected.

I join with all residents of Laval in congratulating this big-hearted woman and thanking her for her many years of loyal service to our community.

Government of Canada

[Larry Spencer, Canadian Alliance, Regina—Lumsden—Lake Centre, SK]

Madam Speaker, one of the basic ingredients required in a civil society is the element of trust. One must place a certain degree of trust in the driver of an oncoming car to stay on the right side of the road or to stop at a red light. We place a certain trust in our neighbours. We place an even greater trust in our families and in our spouses.

Canadians trusted the Liberals in the 2000 election when in 1999 they voted to preserve the traditional definition of marriage. Their refusal to uphold this commitment betrays the trust of Canadians. The Liberals cannot be trusted.

Canadians trusted the wannabe Prime Minister when he promised to scrap the GST. He broke his promise. The Liberals cannot be trusted.

Canadians trusted the former finance minister with their EI funds. That minister used their money to pay his bills. The Liberals cannot be trusted.

The Canadian people have been betrayed. Liberals cannot be trusted.