Mr. Speaker, I am pleased to take part in the debate concerning Bill S-2, to implement the tax convention between Canada and the United States.
As my colleague from Saint-Jean observed, the Bloc Québécois clearly supports Bill S-2 in principle, since it will allow cross-border workers to enjoy the same tax advantages as resident workers, it will institute a bipartite board for resolving tax disputes, it provides for rules governing certain types of companies that will make it more difficult to use various tax loopholes, and it will eliminate certain provisions regarding double taxation of capital gains.
As I noted, we support this bill. However, examination of the bill in committee will allow us to clarify certain of its provisions, in particular, the proposals for eliminating withholding tax on foreign interest payments and the tax treatment of cross-border corporations.
As we know, the Bloc Québécois has always supported tax conventions between countries that have taxation levels within the normal range. There are tax conventions between Canada and certain countries that do not tax according to the standards in countries where the government plays a proper role. Those are the tax havens. It is mainly this issue that comes to my mind when I look at this bill.
So we have before us a bill concerning tax conventions between Canada and the United States. As I said, this bill contains extremely positive elements. But at the same time, how is it that the government is not asking itself about some other tax conventions, the ones it in fact denounced when it was in opposition, with countries like Barbados, Bermuda and the Bahamas, where tax rates are ridiculously low? We must not look the other way; there are companies, including Canadian companies, that establish themselves in those three jurisdictions specifically to evade their responsibilities as corporate citizens of Canada and Quebec.
I would point out that tax havens attract everyone who refuses to carry their share of the tax burden. As I said earlier, that can mean both businesses and individuals. I have always said that when it comes to tax evasion or tax avoidance, we are talking about grey money, dirty money. What is extremely disturbing is that this grey money, when we are talking about tax avoidance, and dirty money, when we are talking about tax evasion, is used in large part for money laundering. That fact is recognized internationally.
I would point out that it has been estimated that this involved $6 trillion: $5 trillion in tax avoidance, and $1 trillion that is simply fraud. Still, it is extraordinary that the Conservative government, which has been presenting us with a constant stream of bills to increase sentences for young offenders, for example, or to introduce minimum sentences in a number of areas, has so far not expressed this kind of concern by revising the tax conventions with those countries. We must recall that the money we are talking about comes from crime, drugs, prostitution, arms trafficking, corruption and terrorism.
If this government were serious about wanting to fight crime, and particularly all the crimes that involve money laundering by terrorist networks, it should have announced—yes, this bill will be sent rapidly to the Standing Committee on Finance—that it was initiating a study to review a number of tax conventions with countries that, as I said, have ridiculously low taxation rates.
There are governments, including the Canadian government, that tolerate and even encourage these tax havens. In 1999, Canadians invested $17 billion in Barbados, which is recognized internationally as Canada’s tax haven. In 2001, that figure rose to $23.3 billion.
That was an increase of more than $5 billion in two years. Barbados is the third most popular destination for Canadian direct investment. This is rather troubling, however. Barbados ranks third, after the United States and Great Britain, as a destination for direct foreign investment by Canadian individuals and companies.
I seriously wonder what sort of real economic activity has, to date, required roughly $25 billion in Canadian direct investment—or even more, since the figure has no doubt risen. We are talking about an island that is known as a nice place to live, but that still has a rather small population and where industry centres mainly around recreation and tourism.
So why are Canadians finding ways to invest in Barbados to the tune of $25 billion or $26 billion, making it the third most popular destination, after industrialized nations the size of the United States and Great Britain, if it is not because investing in Barbados makes it easier to evade taxes?
Not only is investment growing, but it is being encouraged by the tax treaties signed between Canada and Barbados. As I mentioned, besides Barbados, only seven countries that have a tax treaty with Canada are or were considered tax havens by the OECD. It is interesting to know that the OECD classified the main tax havens a few years ago but has now completely given up making that list. Barbados was not included in the most recent OECD list. We learned that Barbados was removed in large part because of pressure from Canada—and I imagine from Barbados as well—on the OECD. Once again, in my opinion, this is proof that the Government of Canada, be it Liberal or Conservative, tolerates this sort of tax loophole, whether it serves legitimate purposes or is used to launder money.
When I refer to ridiculous taxation rates, I mean that the taxation rate in Barbados varies from 1% to 2.5%. This would be astonishing in our progressive tax system, although it is true that, at present, with the successive Liberal and Conservative governments, taxes and the Canadian tax system are less and less progressive. However, the concept is still part of Canada's tax philosophy.
In Barbados, the more profit one makes, the less tax one pays. For example, companies or individuals who have made US$15 million or more pay 1% tax. It is crazy to think that this tax rate is equivalent to those in countries where the tax system actually meets the needs of the people. The strangest thing of all is that, as I said, those who make $15 million or more pay 1% tax. As profits go down, the taxes go up, and those making less than $5 million in profits are taxed at 2.5%.
According to Canada's tax treaty with Barbados, Canadian companies and individuals who pay tax in Barbados do not have to pay tax in Canada because they have already discharged their tax obligations under Barbados' ridiculous and regressive tax system. That is totally absurd. Furthermore, year after year, the government is encouraging more and more money to leave Canada for Barbados, and that applies to Bermuda and the Bahamas as well.
In Barbados, not only is the tax rate between 1% and 2.5% for corporations, as I said, but there are no taxes on capital gains and there is no monitoring, which allows criminal organizations to launder money using a system the Canadian government itself put in place.
For example, in Canada, the five largest Canadian banks are operating in 26 tax havens, many of which were blacklisted by the Financial Action Task Force on Money Laundering (FATF) and the OECD when it kept such a list. We have to wonder about this. These banks claim to be doing everything legally, which is true. However, this also means that the Government of Canada—whether Liberal or Conservative—is sanctioning such opportunities to avoid responsibilities to society. In total, 61 branches of Canadian banks are located in tax havens.
I would like to mention that, a few years ago, a citizen wrote to the banks to ask them what they were doing in tax havens, and what they were thinking when investing or transferring their assets in these tax havens. This man received some rather interesting answers. For example, the Royal Bank of Canada, the RBC, provided the following reply to Mr. Gosselin, who had made the request. I am just quoting one paragraph in the reply given by the customer relations centre: RBC Financial Group would be very adversely affected, from a competitive point of view, and its actuarial asset value would be significantly reduced if it decided unilaterally to stop its operations in any of these territories. Unless expressly prohibited to do so by the legislation, RBC Financial Group must be allowed to take advantage of business opportunities in any region, so as to provide its clients with integrated financial services at the international level.
I am just wondering if having branches in some of these 26 tax havens really benefits the vast majority of RBC Financial Group customers, or whether it is only the small minority that has access to high level accounting services that actually can take advantage of that option.
RBC Financial Group also points out that if everyone were prohibited from doing this, it would not take advantage of that opportunity, but that it does for the time being, because if it did not, it would not be competitive. In my opinion, the bank and the government are both responsible for ensuring that these businesses do not benefit from this type of tax avoidance.
A similar reply was received from the CIBC, which essentially said the same thing. The Scotiabank also provided a similar reply. So did the Bank of Montreal. I found the Scotiabank reply particularly amusing, because the bank claimed that, if it were to leave these countries, local populations would suffer from such a move. Indeed, since these poor people would have less to do with Canada, they would not benefit from jobs, from direct and indirect economic benefits. Of course, we know full well that this is not the case. When I read the Scotiabank letter, I really thought we were dealing with a modern day Robin Hood.
It is a well-known fact: tax havens are most beneficial for people who have capital and there are no spinoffs for the tax haven countries themselves. Government action is needed here, on an international scale, to put an end to these loopholes.
Who benefits from these tax havens? First of all, one must recall that a tax haven is a country where there is a kind of free zone that promotes bank secrecy, where the officials are not very inquisitive and where the taxes are light, as I pointed out.
As we all know, the former prime minister, also a former finance minister, had a company operated by his sons called Canada Steamship Lines International and that company took advantage of the provisions set out in the legislation.
This exists among many business leaders and is going too far. The very fact of it is attacking the foundations of our society. The Auditor General reiterated this. Year after year, the use of tax havens by a growing number of people—they are still a minority, a tiny minority, which is why it is important to act quickly—erodes the tax base and threatens our social foundations.
Indeed, people here in Canada are benefiting from the fact that there are collective tools. We have social programs that have unfortunately been attacked quite a lot in recent years. These programs ensured more than one form of security, as the Conservatives are seeking. They provided social calm and social cohesion. These people therefore benefit from the efforts of the entire middle class and some less fortunate members of society. In that sense, there is definitely a problem. The former Auditor General mentioned it and the current Auditor General reiterated the problem. More and more, the upper middle class is entering into that kind of casino operation, thereby jeopardizing our social cohesion, the foundation of our society.
I was also saying that tax havens have greatly benefited Canadian companies and that our banks, in particular, have profited considerably from them. I would simply like to point out, since I found my document, that 61 branches of Canadian banks are in tax havens. There are 23 Bank of Nova Scotia branches in a whole series of tax havens. The Bank of Montreal is in 5 tax havens and the Toronto-Dominion Bank is in 3. The CIBC is in 12 tax havens and Royal Bank is in 17. All of this has allowed the banks to save $2 billion in taxes. These figures are from a few years ago.
When we look at the reports of each of these banks—I had the opportunity to look at them because I was rather incredulous— we see at the bottom of the page how much money the big banks did not have to pay in taxes like everyone else. I mentioned this earlier and, in my opinion, that is what our discussion should have been about.
Although the bill before us corrects a number of inequities and problems cross-border workers have to deal with, it does not really address the problem of tax avoidance and tax evasion that is going to cause major problems in the future.
We strongly believe that all income earned in Quebec, in Canada and by all Canadian companies abroad should be taxed in Canada, even though we entirely agree that countries with similar taxation can have tax conventions to avoid double taxation. Nonetheless, Barbados, Bermuda, and the Bahamas are very clearly not in that category.
I expect the Conservative government, if it is the least bit consistent, but I doubt it, in the coming days and weeks to bring us tax conventions to review and correct once and for all in order to put an end to these heavy losses in tax dollars that are putting our social programs and our way of life at risk.
It is true for Quebec and it is true for Canada. I am calling on my colleagues to help wake the Prime Minister and the Minister of Finance out of their indifference.