Madam Speaker, God is an honest payer, but a very slow one, as the Yiddish proverb goes. It means that for all the good things we do during our life, the treasures await us in heaven, which is a very common thing many Christians believe. The National Prayer Breakfast was this morning, so I thought I would begin with a Yiddish proverb that many know.
However, it also applies to taxes, because what we expect from Canadians, Canadian corporations and those doing business in Canada is to pay their taxes honestly and not to engage in aggressive tax planning and tax avoidance schemes, which this bill proposes to make more difficult by implementing a multilateral tax treaty. In this House, I have previously called it a tax treaty for tax treaties.
Those who are listening in or those who are in the gallery may be wondering what BEPS is, because many members have mentioned it. It is base erosion and profit shifting. I am going to provide a definition and I am hoping that everybody will be able to follow along.
The definition from the OECD is an example, so it is easy to figure out. Company A, which resides in the Cayman Islands, wants to provide a licence for the use of intellectual property to company C in South Africa. South Africa, however, has not concluded a tax treaty with the Cayman Islands and would thus be entitled to apply its domestic withholding tax rate on outbound royalties.
Hopefully, everybody is getting what I am getting at here.
However, a European country has concluded a tax treaty with South Africa that reduces its withholding tax rates on royalties. This country does not itself levy a source tax on royalties. Therefore, company A establishes a letterbox company in this European country and diverts the royalty payments through the letterbox company to reduce the tax withheld by South Africa. In this example, the principal purpose of establishing this arrangement, including the letterbox company, is to obtain the lower withholding tax rate available under the tax treaty between South Africa and the European country.
This is what we call base erosion and profit shifting. It is something that very large corporations routinely engage in and have been accused of in the past. It is sometimes called “the green jersey”. I have heard it called “the single malt”, depending on the jurisdiction it comes from. Typically, it heavily impacts high tax rate countries, such as Canada, the United States and others. Low tax rate countries are impacted as well, as they lose a lot of their ability to raise taxes on behalf of their citizens, because they are not able to track the money as it moves around. The companies are not honest payers in those situations, nor will they be slow ones in the future, unlike the Yiddish proverb I mentioned. We want to ensure that large corporations, large multinationals and individuals doing business in other countries are paying their taxes honestly and that they are not slow to do so but pay them on time and when they are expected to.
This is a tax treaty for tax treaties. I support this piece of legislation, because we want to ensure that our tax system is both fair and efficient, and that we are able to collect the taxes owed to the government. We know how much difficulty the Canada Revenue Agency has had collecting that information. Hopefully, now it will be looking at what the tax gap is.
I want to draw the attention of the House to article 28 and article 29 of this tax treaty, because that is the only part of the legislation I had concerns with at committee. This tax treaty will not return to Parliament to determine whether we continue with certain reservations or not. What this tax treaty is proposing to do is take Parliament out of consideration after the bill is passed by this House and by that other place as well. What will happen in those situations, with the many reservations the Canadian government has indicated to our multilateral partners, is that if in the future cabinet were to decide that we wish to participate in them, that particular matter will not return to the House and will not be taken up for consideration.
I think that was a matter brought up by Patrick Marley at committee with respect to articles 10, 12 and 13. He mentioned that, because of that, he had some concerns that perhaps Parliament would lose its ability to impact the tax treaty choices and specific implementation provisions in the future, perhaps when some members of this House are no longer here, or I am no longer here, and the contents of the treaty would not be well known.
That is literally the only part of the treaty that I have concerns with. Outside of that, I think the generalities of it are the MLIs, ensuring that our multilateral partners are harmonizing the rules with us and that we have the same rules applied across many different countries. This would ensure that we are able to collect the taxes that are owed to the Canadian treasury. We would also be able to ensure that tax avoidance and aggressive tax planning are reduced to an absolute minimum.
There are many examples of these types of companies that engage in it. Some of the largest ones, like the one that produces the smart phones in our pockets, typically have trademark and copyright subsidiaries that simply trade in the trademark. There is no actual business being conducted in the different jurisdictions; they simply charge a royalty for its use.
Starbucks is a great example. I have used it before and I am still waiting for their lobbyists to call me and complain that I used it as an example.
Starbucks engages in this practice by charging a royalty on its logo and its name, which it puts in a different jurisdiction. Then its Canadian, American and other subsidiaries—holding companies, sometimes—pay a royalty to the other place that does not charge any taxes on the royalty. That is the type of base erosion we are trying to avoid and do away with.
Before I continue, I will mention that today, May 2, is a special day. As I do on almost every May 2, I want to wish a very happy birthday to my father-in-law and my wife, who were both born on the same day. If I did not do that, I would not want to go home tonight and could not guarantee I would return next week. I say a very happy birthday to both of them.
May 2 is also a special day for those who, like me, are of Polish heritage. Constitution Day is the day the original Polish Constitution was created. It is the founding document of many European constitutions, including the American constitution. Guaranteed rights are set out in it. The principle of “no taxation without representation” comes partially from that original document, a principle that again is found in documents like Bill C-82, the tax treaty of tax treaties. That same principle applies here as well.
We are trying to ensure that the taxes owed to the people of Canada are paid by the corporations and individuals who owe them. I simply do not see a reason that we should not be enforcing as many of the provisions as we possibly can.
Many of our OECD and G20 partners will be participating, although the United States of America will not be participating in this multinational convention. However, we have many tax treaties with our neighbours to the south that will ensure they meet their obligations to us and we meet our obligations to them. They will ensure that taxes owed in both jurisdictions are indeed paid.
We know that the partial goal of the government with this document and with budget bills is to collect the difference between what is owed and what is actually collected. Many officials at committee said their hope is that they will be able to close that tax gap and collect the taxes they have not been able to collect. It is estimated that roughly $23 billion in profits that should have been declared in tax in Canada were shifted to a lower-tax jurisdiction. That is a large sum of money, but it would not be the full $23 billion; it will be a faction of that amount. It is all part of the government's attempt to find and scrounge every single last dollar to pay down the deficit.
Kudos to the government. It is about $20.3 billion off the target it set for itself in 2015, and it will still be off its target well into 2040.
I was at a town hall yesterday, and several constituents asked me whether the Canadian government was ever intending to reduce the deficit to zero and start paying down the national debt. I had to tell them that unfortunately, no, that is not the case, that there is no such intention in any government document at this point. It simply tracks how big the deficit and the national debt will be. For the first time this year, the Government of Canada owes over $700 billion on behalf of taxpayers. If we include crown corporation debt, it goes to over $1 trillion. After the next few terms, we are expecting to see another $250 billion to $300 billion added to the national debt, and that number excludes crown corporations.
Initiatives like this try to seek justice on behalf of Canadians by trying to collect the taxes owed in other jurisdictions, an important part of closing the tax gap. I will be supporting this piece of legislation, as I did at earlier stages of the bill and at committee. My only concern, which I am putting on the record so that future parliamentarians will see it, is provisions in articles 28 and 29 that shift the responsibility from Parliament to cabinet to decide which reservations can be done away with. Those will be done by orders in council. My understanding from officials at committee is that a simple order of cabinet would do so. It is a defect in the bill, but the defect is not sufficient to cause me vote against it. I invite all members to vote in favour of it.