Madam Speaker, it is a pleasure for me to take part in the debate on the motion by the Bloc Quebecois.
It is unfortunate because we could have had a very good debate about tax havens and tax evasion. These are important issues and are of concern to members of the OECD, the developed economies. There may be income that is finding its way into tax havens in these low tax or no tax jurisdictions. In some cases it constitutes tax evasion. In other cases it constitutes tax avoidance. In any case, it takes away revenues from the federal Government of Canada and other governments and that is a serious matter.
First, unfortunately the debate today has been personalized. The former finance minister has been spoken about in his absence with no opportunity to rebut.
Second, if we look at the revenue losses that the Bloc Quebecois is concerned about, all we have to do is look at the province of Quebec and the separatist policies. These policies have driven investment and economic activity out of the province of Quebec, thereby diminishing the revenue sources of the government.
Until recently we also had a government in the province of Quebec that spent beyond its means. Of course government revenues in the province of Quebec are an issue. That is why the Bloc in its usual fashion would like to lay this problem at the feet of the federal government.
While it is a serious issue and while the government I am sure is seized with tax evasion, I would hope that we could have a more constructive debate and discussion on this important topic.
Tax treaties are signed with countries. Canada has a number of tax treaties. They are designed to facilitate trade and investment. They are designed to facilitate the exchange of information. They are designed to avoid double taxation. Therefore, if we have companies and individuals of Canadian citizenship doing business in these other countries, they will not be double taxed. This is the reason for these tax treaties.
As my hon. colleague already said, Canada and the other members of the Organization for Economic Cooperation and Development, the OECD, have long been aware of the importance of eliminating instances of double taxation and protecting against tax evasion.
The model of double taxation, the convention, is designed by the OECD. Essentially all the tax treaties that Canada has negotiated, while they are designed to meet our particular needs, are in conformity with the model that was developed by the OECD.
International taxation is a highly complex matter. There are some countries, like Canada, that tax income based largely on residency. There are other countries, like the United States, that tax largely on citizenship. There are yet other countries that tax largely on source of income. That makes for quite a complex quilt. For imaginative minds, tax lawyers, tax accountants and others, it is somewhat of a smorgasbord, especially given our global economy, the amount of interrelatedness of companies around the world, and the way that they operate globally.
Tax evasion and tax avoidance are challenges. I want to clarify at least my understanding of the difference. Tax avoidance means that companies or individuals take advantage of the provisions of, let us say, the Income Tax Act of Canada, within the rules. In other words, they take advantage of rules, or perhaps loopholes, in the income tax system that Canada has evolved.
It is then incumbent upon the Government of Canada, if those activities are contrary to the spirit of the Income Tax Act, to fix those loopholes. That is an ongoing exercise. As we close loopholes, creative people think of other schemes. This will never end in any type of developed society. There will be creative tax accountants and tax lawyers who will look at how to avoid taxes and governments will look for ways to close loopholes if they are outside the spirit of the legislation.
Tax evasion is a totally different thing. This involves evading taxes that clearly are otherwise payable. Essentially there are a number of ways to do this: not to report income that should be subject to Canadian income tax, or to claim expenses against income that clearly are outside the scope of what was intended. Tax evasion is a serious problem, as is tax avoidance, but they are problems that require different types of solutions.
Canada has been at the absolute forefront of the initiative by the OECD to deal with what is referred to as harmful tax competition. It was our former finance minister in particular who was leading the charge on that. In doing so, the exercise started out initially looking at tax havens and offshore operations, where there are essentially low-tax or no-tax regimes, and looking at how the OECD countries could examine those particular jurisdictions and try to deal with them.
The second part had to do with transparency and the wish of the developed economies to entertain those situations in those tax havens or offshore banking centres where, if there was a suspicion of tax evasion, there would be cooperation and a transfer of information and a willingness to share. The Canadian tax authorities could get the information and if they felt that there was a Canadian evading tax, they could take the appropriate action. It had to do with sharing of information.
This is a very complex and difficult task when one looks at tax havens and offshore centres like Switzerland, Luxembourg, the Bahamas and others where the very raison d'être is secrecy and confidentiality. This is not an easy problem to deal with but the developed economies are trying to deal with it because they realize that they are losing a lot of tax revenues because of this tax evasion.
The challenge occurs of course when looking at low-tax or no-tax regimes. There are some obvious examples like the Bahamas, like Bermuda, like Switzerland, like Luxembourg and many others where there are low-tax or no-tax regimes, especially for what is called offshore operations. Many of these countries tax income of companies that have operating income, or real income in a sense, in their own countries, but they provide exemptions for offshore companies that operate within their domain.
These operations are quite numerous and they can be very legitimate. There are a number of Canadian companies that have set up offshore operations. Those operations are managing businesses outside of Canada. They are not directed and controlled within Canada and therefore they are not subject to Canadian income tax. It is quite legitimate to do that.
In many cases we have offshore operations which I would not say they are against the rules or they are evading tax, but they certainly stretch the application of the rules in the Income Tax Act. One example is the transfer of goods or services between affiliates. The Canadian Income Tax Act says that if we are selling a product or service to what is called a non arm's length organization, such as a wholly owned subsidiary or something akin to that, we have to sell that product or service at a fair market value. However, there is a range within which it is very difficult to challenge whether or not it is fair market value.
There are some schemes, if we want to call them that, which would put most of the profit margin in those jurisdictions where there is low tax or no tax to keep the profits in the low tax or no tax regimes. Again, the Canada Customs and Revenue Agency is charged through its mandate to make sure that transactions are priced at fair market value within a range and it does a very good job of that.
There are a number of what we call captive insurance companies that are set up offshore which are insuring the assets of multinationals and are really not attached directly to any particular country. They are directed and controlled from an offshore geographical location and they have real direction and control from that particular area.
The OECD found, in my recollection, that when it is looking at low tax or no tax regimes, it is very difficult to know exactly where to stop and where to start. As I said earlier, there are some obvious examples where there are no income taxes, but then there are examples like Ireland, which has gone to a very low tax regime.
I believe the OECD countries decided that it would be a bit of a mug's game to actually try to establish what was a harmful tax regime and what was not. In fact it was really outside the scope of the OECD's interest or what it could realistically deal with. It changed the focus from looking at harmful tax regimes in the sense of the actual amount or rate of tax and it focused more on transparency and the sharing of information. That exercise is ongoing.
Barbados is the example which was brought before the House today, and we know the reasons, but in terms of looking at it substantively, it actually has a very progressive and refined tax system. It taxes local companies at reasonably high rates. It does have provisions for the offshore banking and offshore operations, but it also has a very transparent system. It cooperates with countries like Canada. If there are concerns about tax evasion, there is a lot of information sharing.
The government of Barbados has committed not only in words but in deeds to actively fight money laundering. This was a very important initiative. In fact the financial action task force of the G-7 was set up to deal with fighting money laundering. Canada again, I am very proud to say, is right at the forefront of that. In fact a senior bureaucrat at the Department of Finance is chairing the working level group of the G-7 financial action task force that is looking at how to deal with fighting money laundering. As I said earlier, Barbados has made an absolute commitment to fight money laundering. Barbados does not want dirty money and I applaud it for that.
If Canada simply cancelled the tax treaty with Barbados, first of all it would jeopardize the 1,700-odd companies that are currently in Barbados and operating very legally and very appropriately. It might subject them to double taxation.
The other reality is that there are many tax havens around the world. Companies could easily move from one jurisdiction to another. In my judgment it is better to stick with an offshore operation in Barbados where the government is committed to clean money and the government is committed to transparency. I think that is how we are going to make progress on many of these issues.
The other interesting fact is the European Union has decided also to attack what it calls harmful tax competition and also tax evasion within the European Union. There are countries, as I said earlier, like Switzerland, Luxembourg and others that are a concern to some of the other economies in Europe. Those discussions are ongoing.
It is interesting that the European Union decided also to include manufacturing subsidies. It wants to avoid the kind of tax competition between European countries where they end up with a rush to the bottom. Unfortunately we are seeing some of this in North America. We are seeing some of this in some of the enormous subsidies that are available in the United States at the state level and the municipal level for manufacturing operations.
I can speak from personal experience. If we go to a U.S. state, Tennessee, Kentucky or wherever it might be, the state governor and local officials will absolutely line up to give out the sales tax abatements, property tax relief, cheap industrial land, cogeneration agreements and so on. Unfortunately this is causing some difficulty for us here in Canada because at the provincial and municipal levels we do not seem to have that same flexibility. Besides, our government has taken the position, I think with some wisdom, that we are not going to rush to the bottom. We are going to work on our natural competitive strengths and we are not going to be writing out cheques.
I have been a bit vocal in saying that we need to look at that seriously because we are in danger of losing a lot of investments. If we look at the automobile industry, I saw a report that was done not too long ago that there were 13 additions or new automotive plants in the United States within the last four to five years where the subsidies at the state and municipal levels were absolutely staggering. We have lost out on a few of those.
The one that piqued my interest was one in Georgia not too long ago. There was a $1.3 billion automotive plant investment. The subsidies that were attached to that were close to 58%. That is very difficult for us to compete with.
The reason I raise this is if we are going to look at harmful tax competition, we need to look at it holistically. It is not just harmful tax competition if it relates to offshore financial services. We have harmful tax competition right here in North America.
I think that medium to long term we need to sit down with our major trading partner and say that this is a rush to the bottom and we are all losing out. I know that the U.S. position at the federal level is that it does not have any control over what the states or local governments do. I think that is a bit of a cop-out. I think it is a little too easy to say that. We need to address this issue.
We also need to be mindful, if we are looking at countries like Barbados, Bahamas, Bermuda, the Seychelles and so on, of how these countries compete for manufacturing jobs and manufacturing investments. First of all in some cases they are constrained by their land mass. Bermuda is 22 square miles. I worked there as a young chartered accountant for two years and I would bump into the same people three or four times a day. Other countries have more space. Barbados in terms of geographic resources is more plentiful.
However these countries have gone into offshore banking and offshore financial services. It is a way for them to get some economic activity going into those jurisdictions because they do not have the land mass and perhaps the technical or workhorse experience or capabilities, at this point in any case, to attract the kind of manufacturing facilities that are always up for bid and for grab.
Is it appropriate to shelter income that evades taxes in other developed economies? No. I think that is wrong. I think we would find that most of these countries are prepared to deal with tax evasion. Some are not and they are on the OECD list of non-co-operating countries, which is quite a short list, but Barbados is not on that list because it is prepared to co-operate.
This is when we get into the fine point about tax avoidance versus tax evasion. They are two different things. Some creative people and companies have set up some tax avoidance schemes but that requires a different solution than tax evasion.
We have heard the example of shipowners and we know why that has been chosen as a target. I have had some experience with this in my business life. International shipping companies are all organized offshore. Whether we like it or not, whether we think that the better solution would be for these companies to be onshore and subject to the labour codes of countries like Canada, that is not the way it is. If companies want to be competitive internationally they simply have to organize offshore, and that is the way it is. Without that, those jobs, or even the ancillary jobs back at head office, would not be there because the company would not be able to compete at all.
I talked earlier about the international banking centres in Montreal and Vancouver. A number of us in the GTA tried to resuscitate the international banking centre concept for Toronto. We were rebuffed again because of the Montreal banking centre, which, unfortunately, Montreal has not done much with, and the one in Vancouver which was provided to give it a bit of a leg up in the very competitive world of international banking and finance.
We need to be better able to deal with countries that are committed to fighting money laundering and committed to transparency. Let us deal with tax evasion and banking centres that are illegitimate in a very aggressive way.