That, in the opinion of the House, the government should: (a) study and measure Canadian tax losses to international tax havens and tax evasion, in order to determine the Canadian federal “tax gap”; (b) order the Canada Revenue Agency (CRA) to provide the Parliamentary Budget Officer (PBO) with the information necessary to provide an independent estimate of the Canadian federal tax gap arising from tax evasion and tax avoidance through the use of tax havens; (c) mandate the Auditor General or the PBO to provide estimates of the marginal revenue of additional CRA resources (i.e. auditors) in the areas of tax evasion and tax avoidance; and (d) mandate the Auditor General to evaluate, on a regular basis, the success of the CRA in prosecuting and settling cases of tax evasion.
Mr. Speaker, today I am pleased to move in the House Motion No. 485 on combating the use of tax havens.
At a time when wealthy countries are desperately looking for revenue to reduce their deficits, tax evasion results in annual losses of 100 billion Euro in Europe, and, according to some estimates, up to $30,000 billion worldwide.
We often think of tax havens as pertaining strictly to taxes. Let us not forget, however, that they also play an essential role in business investment strategies. According to data from the United Nations conference on trade and development, a third of offshore direct investments by multinational companies are made in tax havens, a trend that has been on the rise since the 1990s.
According to a 2005 study by Statistics Canada, Canadian assets in offshore financial centres increased eight-fold between 1990 and 2003, increasing from $11 billion to $88 billion. Today, they represent more than double that, at $170 billion. The strongest growth in direct Canadian investment during that period was observed in Barbados, Ireland, Bermuda, the Cayman Islands, and the Bahamas. That 2005 study on offshore financial centres was the last of its kind conducted by Statistics Canada.
In 2009, Statistics Canada suggested that Canadian entities had invested up to $146 billion in tax havens. We learned that this represented 25% of direct investments by Canadians abroad. Among the tax havens blessed by Canadian investors we have the Cayman Islands, Ireland, Luxembourg, Bermuda, Hungary and Barbados. In 2012, Canadian business people injected $60 billion in Barbados, an 80% increase since 2007.
The first time I heard of Barbados being used as a tax haven was when we found out that former prime minister Paul Martin registered his ships there to avoid paying taxes in Canada. What a prime minister.
His example led the way for other Canadian business leaders who, like him, wanted to evade taxes. Former prime minister Paul Martin's decision in 1995 kicked off a veritable race offshore for wealthy taxpayers and Canadian businesses.
After that date, the increase in Canadian investment in Barbados was somewhere in the order of 3,600% in a few years. Nothing else can explain this interest in a small island where this is no oil or gold mines to be found. Barbados seems to have become the bridgehead that gives Canadians access to other tax havens.
How much tax revenue is Canada losing because our businesses and wealthy individuals are using tax havens? Unfortunately, there are currently no reliable studies that assess that tax gap. While Canadian families are struggling and trying to make ends meet, while small and medium-sized businesses are dealing with increased global competition, while the government is gutting social programs to bring down the deficit, rich Canadians and major Canadian companies are investing billions of dollars in tax havens, tax-free, and the government is not even making a serious attempt to determine how much tax revenue it is losing out on. According to some independent estimates, the Canadian tax system is losing between $5.3 billion and $7.8 billion in revenue per year to tax evasion.
The NDP strongly believes that the federal government has an obligation to determine, as best it possibly can, how much tax revenue Canada is losing to international tax havens and tax evasion. We need to determine how big the tax gap is. Without that kind of estimate, it is impossible to determine how serious the issue of tax erosion is or how effective the adopted corrective measures are.
Accordingly, the motion that I am moving today urges the federal government to take serious measures to determine the federal tax gap arising from the use of tax havens. In order to obtain reliable numbers on the tax gap, the motion also calls on the Canada Revenue Agency to provide the Parliamentary Budget Officer with the information necessary to provide an independent estimate.
My motion also calls on the Auditor General or the Parliamentary Budget Officer to provide estimates of the marginal revenue of additional CRA resources in the area of tax evasion.
According to an OECD report, providing additional resources is remarkably cost effective. The United Kingdom invested £4 million in the fight against tax evasion and ended up recouping £7 billion.
Lastly, my motion asks that the Auditor General be given a mandate to evaluate, on a regular basis, the success of the CRA in prosecuting and settling cases of tax evasion. Canadians are entitled to wonder whether the Conservative government really wants to pull out all the stops to combat tax evasion and aggressive tax avoidance.
Let us take a look at some numbers. First, since 2011, the Conservatives have cut $220 million from the Canada Revenue Agency's budget, and they will cut the equivalent of 3,000 full-time positions by 2015. The government's actions do not indicate that it is taking this issue seriously.
According to Le Devoir, in May 2003, 422 employees were responsible for the international audit program. Even though that number has risen slightly over the past three or four years, it is still lower than the 512 employees in the program in 2008. Since then, the use of offshore accounts has skyrocketed. In 2012, the Canada Revenue Agency estimated, conservatively, that it failed to collect $4 billion worth of tax on funds hidden in tax havens.
The 2010 audit conducted by the agency's own management confirmed that the agency is unable to track complex files involving multi-million-dollar bank accounts in tax havens. According to a leaked internal document, it would rather take aim at easy targets, such as small businesses, self-employed workers, the corner hairdresser and the small restaurant owner. When it comes to billions of dollars, the agency is afraid to take on the big guys.
The Conservative government tried to convince people of its supposed intent to combat tax havens. The government likes to talk about how it has implemented 75 measures to combat tax evasion since 2006, yet only 44 people were convicted of tax evasion between 2006 and 2012.
These numbers are truly fascinating. Thanks to the Access to Information Act, CBC recently obtained the names of 25 people who were convicted. Of those 25, only eight were found guilty of hiding income or assets in a tax haven. Of those eight, two were found not by the Canada Revenue Agency, but by Project Colisée, which identified Rizzuto as one of the people who had an account in a tax haven.
From 2006 to 2012, CRA managed to lay charges in six cases. That number seems rather low to me. That means one case per year. However, since 2007, CRA has received a lot of information thanks to major leaks of offshore financial data. That is how it was able to get the names of many Canadians who hold foreign accounts.
In 2007, Canada Revenue Agency got its hands on a list of 106 Canadians who had accounts with the LGT bank in Liechtenstein, and another list of 1,785 Canadians who had accounts with HSBC in Switzerland. In 2010, an international leak revealed the names of 2,000 Canadians once again associated with HSBC. Lastly, in April 2013, recently, the International Consortium of Investigative Journalists identified 450 Canadians linked to firms or trusts established in countries known for their low tax rates and lack of transparency.
Many countries, such as Germany and the United States, have agreed in recent years to pay compensation to informants who allow them to recover money. It seems that this government is now willing to pay for information. As someone else said, “it is about time”.
If I do the math, by adding up the 106 names from 2007, the 1,785 names from 2000, the 2,000 names from 2010 and the 450 names obtained recently, in April 2013, that adds up to 4,341 names of people who have accounts in tax havens.
The Canada Revenue Agency has the names of 4,341 people. How many have been charged and found guilty? Six. I would say that more effort is required.
I will go back to Barbados, which is a textbook case. The Government of Canada, during Joe Clark's short Conservative reign, signed a controversial agreement to prevent double taxation. This made it possible for Canadians to register their assets in Barbados and pay virtually no taxes, and then transfer the assets to Canada without being taxed.
Repealing the agreement between this Caribbean island and Canada would put an end to this problem. Today, the opposite is happening. As of 2012, business people had invested $60 billion in Barbados.
Instead of repealing this agreement, the Conservatives are looking to sign similar agreements, called tax information exchange agreements, with other tax havens, which is even more hypocritical. In June 2010, Canada signed this type of agreement with eight other countries: Bahamas, Bermuda, Dominica, the Cayman Islands, Turks and Caicos, St. Lucia, and St. Vincent and the Grenadines. The government then presented them as agreements to obtain information about Canadian taxpayers who are hiding their money from the tax man.
Today, there are 19 countries or tax havens on this list. Aruba, Antigua, Costa Rica, Uruguay, Guernsey and others were added to the list.
I will quote Professor Alain Deneault:
...The agreements exist in principle to allow tax authorities of the countries involved to investigate potential fraudsters in the countries that have signed the agreements, under certain conditions. However, compared to other international agreements in effect, the Canadian TIEA has a distinct feature. The [Conservative] government's 2007 budget inserted a clause to the effect that Canadian investors who place their assets in one of the tax havens signatory to an agreement with Canada can repatriate their assets as dividends without having to pay taxes....
At the same time that it was signing tax information exchange agreements with tax havens, the Conservative government made legislative changes that watered down these agreements. They no longer cover just the exchange of information; they also exempt subsidiaries located in the countries concerned from paying income tax.
This is what accounting firm Deloitte had to say:
...the Income Tax Regulations were amended in 2008 to extend to countries with which Canada has a TIEA certain favourable corporate tax provisions that had previously only been available to countries with which Canada has concluded a tax treaty. These incentives provide that if a jurisdiction enters into a TIEA with Canada, active business income earned by a foreign affiliate of a Canadian corporation that is resident in that jurisdiction and carrying on business there will be included in “exempt surplus” and, consequently, dividends paid to the Canadian corporation from the affiliate will not be subject to Canadian tax.
We need to do away with duplicity in Canada. Other measures could be put in place to put an end to this. The Canada Revenue Agency could require Canadian corporations, including their subsidiaries, to disclose all taxes paid abroad, broken down by country, to provide increased transparency of the activities of Canadian companies that use tax havens. It could require that the government create an effective system to identify the people who facilitate tax evasion, including accountants, lawyers and other professionals. It could require that the government conduct a quantitative re-assessment of whether the bilateral model of those famous information exchange agreements is effective. It could require that the federal government focus more on multilateral co-operation. It could require that the Standing Committee on Finance study the issue of transfer pricing by multinationals, including a study of the international best practices in this field.
I am prepared to answer questions.