Mr. Speaker, I am pleased to speak to this bill, the purpose of which is to establish tax conventions between Canada and certain countries, including Slovenia, Ecuador, Venezuela, Peru, Senegal, the Czech Republic, the Slovak Republic and Germany, for the avoidance of double taxation of companies and investors with activities in those countries.
We do not disagree with the principle of tax conventions and, moreover, our position has been totally consistent since 1993. Tax conventions must help Quebec and Canadian businesses with foreign subsidiaries—as well as the opposite, foreign companies with subsidiaries in Canada—and avoid double taxation, or having the same profits for the same industrial or financial activities taxed twice. This would also apply to services, such as transportation by ship or other means, abroad or domestically, by subsidiaries of foreign companies.
However, when speaking of tax conventions and this principle of avoiding double taxation, it must be kept in mind that these conventions must be signed between countries with more or less similar tax rates. Thus, they must not involve countries with a taxation rate half as much, or even one-tenth as much as here, the countries considered tax havens, as is often the case. When the taxation rates are compared, one can see that there may be incredible distortions in taxation rates in the countries with which tax conventions are signed.
This is where the problem lies, because a Canadian company may have a foreign subsidiary that is being taxed at 1% or 2% on the revenue earned in that country, and then its profits are brought back to Canada after being taxed at that 1% or 2% rate, and are totally exempt from federal and provincial taxes because they have already been taxed in a country with which we have a tax convention. That is the principle of tax conventions.
But this does not make sense if the convention is signed with a country where the tax rate on profits is 1% or 2%, or where profits are not taxed at all.
If we sign a tax treaty with Germany, for example, its makes sense, because our tax rates for businesses, depending on their size and the index used, whether it is a composite index of taxation on revenues, capital and so on, are essentially the same, give or take a few percentage points.
However, when we look at the tax convention between Canada and Barbados, which we have been criticizing since 1994, it no longer makes sense. The new tax conventions included in Bill S-31 give us the opportunity to reconsider the principle underlying these types of conventions.
Two or three years ago, the FATF, an OECD task force, said that it was worried about the proliferation of these tax conventions and the proliferation of agreements between industrialized countries and countries considered as tax havens.
There is even more reason to be concerned since the events of September 11, as we try to track money laundered by terrorist groups. We wonder about the proliferation of these conventions and about questionable taxation practices adopted by certain countries around the world.
Right now, there are 1,500 bilateral tax conventions signed by various countries around the world. According to most experts, including OECD experts, we have somehow lost control over the nature and content of these conventions and the taxation practices of some of these countries. The OECD, like the Bloc Quebecois, among others, has criticized the harmful taxation practices adopted by countries considered as tax havens.
There are a number of tax havens around the world. Incidentally, the auditor general, like the Bloc Quebecois, has often criticized the existence and proliferation of these conventions with countries whose taxation rates differ greatly from those of Canada. The auditor general has even said, four times since 1993—and you were there, Mr. Speaker—that these harmful practices threatened Canada's tax base.
It is quite something for the auditor general to state that throughout the world there are countries like these and that it is easy to funnel Canadian capital into them, with their harmful tax practices, with taxation rates that are vastly different from those of any of the industrialized countries in the world, thereby threatening the federal tax base. This is a sign of the severity of the situation.
Not only did the auditor general criticize the situation, but so did the OECD, through the FATF. We have criticized these tax havens and so have international specialists. However, what is cause for concern is that, until quite recently, the web sites for certain departments, including the Department of Foreign Affairs and International Trade, encouraged Canadian investors and businesses to use tax havens.
It is a pretty serious problem when government web sites and official publications encourage Canadian business and investors to practice tax avoidance by transferring their capital to countries that are considered tax havens, where there are harmful tax practices.
I have an example. The July 16, 1999 issue of CanadExport , which is the magazine published by the Department of Foreign Affairs and International Trade to promote and encourage international trade in Canada, contained an article on a “Tax Havens Conference.” The topics discussed included the origin of tax havens, their use as a financial strategy and how to choose a tax haven that's right for you. Basically, the message was, not only can one take one's capital out of the country and avoid paying taxes to the federal government, but the government will say where the best place is to do so. The fourth topic dealt with tax havens and Canada's tax laws, and how to get the most out of one's tax havens.
It is quite serious when we find in a government booklet of the Department of Foreign Affairs and International Trade the promotion of these tax havens, which have been condemned by the 29 OECD countries, including Canada. They have been condemned here by the Auditor General of Canada, by the Bloc Quebecois and by experts who are tired of seeing the government's inaction in the transfer of capital to foreign countries and in the fact that some people can avoid paying federal taxes in Canada. This has to do particularly with very large businesses, some financial institutions—we will have the opportunity to get back to this a little later—and with international marine transportation companies. It is quite strange that a booklet of the department is promoting these havens.
So there are two discourses. At the OECD, Canada says we must fight against harmful tax practices. Within departments, these harmful tax practices are being promoted. We cannot have it both ways. At some point, there must be some concrete action to avoid the disturbing proliferation, which has been condemned by the auditor general several times since 1993, of these harmful tax practices by some countries.
Even on its website—this is high technology—the Department of Foreign Affairs and International Trade was promoting offshore trade and investment in countries that are considered as tax havens. It said that serious investors and businesses had to examine this opportunity to avoid federal taxation by using tax havens. This is quite disturbing to see.
What is even more disturbing is that not only there is the promotion of tax havens, but there is also a tax convention between Canada and Barbados.
Barbados is considered one of the best tax havens in the world. A tax convention makes it even easier to transfer funds there in order pay nothing or next to nothing in taxes. In Barbados, the corporate tax rate for companies with assets of over $20 million U.S. is 1%. It is about 28% here, but 1% in Barbados. For mid size companies, with revenues under $20 million, it is 2%.
So, companies, subsidiaries of Canadian companies, major Canadian investors in all sectors, find themselves treated very well when they invest in Barbados, a country considered one of the world's best tax havens that Canada has signed a tax convention with to prevent double taxation. They pay tax once, 1% of their revenues and when they bring their money back here, they pay nothing more, because of the tax convention between the two countries.
If they pay nothing or next to nothing in Canadian taxes, it means that taxpayers who cannot benefit from tax havens, and tax conventions, like the one between Canada and Barbados, are at a disadvantage. They have to make up for the shortfall in taxes occasioned by this tax haven and many others, because we maintain a convention.
I recall that for three years now, the financial action task force on money laundering, which is doing analyses and taking action in connection with tax havens and harmful tax practices, has asked OECD member countries, including Canada, to denounce tax conventions or agreements with countries that divulge no information or that are unco-operative in connection with money laundering. In tax havens, there is a certain nonchalance about money laundering. I will come back to this a little later, because I have some interesting statistics. Canada was not prepared to denounce its convention with Barbados, a country on the list of tax havens with dubious tax practices and money laundering practices that are very closely guarded secrets.
It is disturbing, all the more so since the Minister of Finance recently chaired, in Toronto, a meeting of countries of the three Americas. Representatives of the finance ministers of the three Americas were meeting to discuss ways to deal with harmful tax practices. Nothing came out of the meeting.
I understand. There is no political will to settle anything; meanwhile, tax havens are being promoted. I will come back to the case of the Finance Minister later.
Nothing is being done about tax conventions. However, we have to be incredibly cautious about the choices we make when we sign such conventions with foreign countries, in order to prevent tax havens from making harmful practices worse.
I would like to give a few statistics, which speak volumes about the extent of tax havens and which show that every time we sign a tax convention, we should ask ourselves if this is really the right thing to do. We should ask ourselves if the objective of those conventions, which is to avoid double taxation, is the only possible result, or if there are not other possible undesirable results, such as harmful tax practices or money laundering.
I have here a few statistics which might enlighten the House. Since 1993, we have been asking for a review of practices under tax conventions and also of conventions signed with some countries, in order to ensure they do not contain irregularities, obvious flaws or very undesirable negative results.
Worldwide, assets worth $8 trillion U.S. are controlled by tax havens. This is mind boggling. We are not used to figures of this magnitude.
Bank deposits in offshore companies and institutions located in tax havens presently amount to $3 trillion U.S.
According to Interpol, the FATF and the experts who have been working on this issue for years, 15% of these assets may come from the worldwide drug trade. We are talking 15% of $8 trillion U.S. in tax havens. There is $3 trillion in bank deposits.
Every year, some 140,000 companies are created in tax havens. I am not saying there are 140,000 such companies now. I am saying that, every year, 140,000 new companies, which are often fronts, are created in countries deemed to be tax havens.
To this day, four million corporations have been set up in tax havens. That is right, four million. We do not know who the owners are. We do not know where the money comes from, since there is some laxness regarding the money coming in and out. These tax havens—at least some of them, which were clearly identified recently by the FATF—launder every day about $1 billion U.S. generated by the drug trade at the world level.
This problem is not a simple one. It must not be taken lightly, as the government has been doing since 1993, and as it recently did when the issue of a free trade area of the Americas was discussed.
We have repeatedly asked the government to take action, to reconcile the two different views, that is the one expressed at the OECD, which says that we must fight harmful taxation practices, and the one presented here, which consists in signing tax conventions with various countries without asking too many questions, or in maintaining existing ones such as the convention with Barbados, knowing full well that Barbados is one of the worst countries for harmful taxation practices and for the laundering of money generated by all sorts of illegal activities.
In the list of countries deemed to be tax havens, which was recently released by the FATF, 10 of these tax havens are in countries with which we will create a free trade area of the Americas. These countries are Barbados—as we mentioned—the Bahamas, Antigua and Barbuda, Belize, Dominica, Grenada, Panama, St. Kitts and Nevis, St. Vincent and the Grenadines and St. Lucia. These countries are located in the free trade area that we propose to establish with the countries of the three Americas.
I am not saying we should not sign such an agreement. On the contrary, we should. However, at the same time, we should ask ourselves some questions. Will we ever get people who can think on the other side? Before signing an agreement concerning a free trade area of the Americas, one must stop to ponder the issue.
They say that the service industry will be included in the FTAA. Therefore, financial services will also be included. That will bring about a huge tax treaty between countries of the three Americas. Could we stop for a second and think about the impact of such an agreement on financial services, given the fact that several countries of the free trade area—I just mentioned 10—have some very harmful tax practices? These countries have tax levels totally alien to reality, they grant incredible tax holidays, they are against any disclosure of information on the origin of the funds in bank accounts or other types of assets. They are also closed to the idea of revealing the names of business owners, those people who own the 140,000 corporations I was talking about earlier. Some are created every year in those 10 countries in the area of the Americas.
Could we not ask ourselves if maybe we should examine the tax levels and practices in those countries and their attitude towards transparency and disclosure of information on the source of funds, the capital outflow, and on who owns these corporations?
It seems to me that it might be appropriate to kill two birds with one stone, or in other words sign a free trade area agreement with these countries and, at the same time, require a review after a certain number of years of their harmful tax practices.
A number of businesses are already benefiting from the existence of tax havens, among them the banks, of course, but Canadian banks, not foreign ones. The parliamentary secretary must be aware of this, given his background as chief economist of a major bank.
I have often raised these matters with the Canadian Bankers Association, but have never received any answer as to why the five major Canadian banks have more than 50 branches in the Caribbean. Why are there 50 bank branches in a region of several million inhabitants? How much banking activity can there be in those region?
Moreover, a visit to the Barbados website will find it stating “Barbados has an international business centre”. I will read, if I may, a few rather interesting excerpts concerning Canadian banking institutions:
“Major international accounting firms continue to provide professional services on the island for many years, as have the commercial banks, including: Barclays Bank, Royal Bank of Canada”--the bank of provenance of the parliamentary secretary--“the Bank of Nova Scotia and CIBC Caribbean Limited. Barbados is the only international business centre which offers all of the following features in a single location: offshore banks, ship registration, double taxation treaties with seven countries including the U.S.A., Canada and the United Kingdom; tax holidays and other incentives; and no capital gains taxes”.
Some of the businesses mentioned are not specified, but we can identify some of them here. They include branches of Canadian banks on which information is not all that forthcoming concerning what type of activities they might be carrying out in centres such as Barbados and other countries that are considered tax havens, with their dubious practices of accepting deposits without question, which are then recycled through other dummy companies.
It is a serious matter to find ourselves in a situation like this, with no information forthcoming on the international activities of Canadian banks, and to see Canadian banks being promoted abroad as a means of Canadian tax evasion. The fact that the Canadian government asks no questions of Canadian banks concerning their activities abroad, whereas these come under federal jurisdiction, is a serious matter, as is the fact that the subsidiaries of Canadian banks are not subject to the new legislation that has just been passed concerning money laundering.
When the government says that it is putting in place a centre and a new piece of legislation so that any suspicious transaction of $10,000 and over made by company representatives or whomever else may be reported, these transactions analyzed in a central office, and cross referencing done to determine whether this money is not dirty money related to drug trafficking or other illegal practices, and that this legislation applies only to companies located in Canada, and not to subsidiaries of Canadian companies operating in other regions considered tax havens and, by some, money laundering havens, it is not surprising that nothing was found in the bank accounts when people began to go after al-Qaeda.
The government offered to help the American FBI track down Osama bin Laden's money but, apart from a few hundred thousands here, almost none of it was found.
That leaves the question of whether foreign subsidiaries of Canadian companies, including subsidiaries of banks, do not also have some little activities which we cannot investigate, because the new federal legislation does not apply to them.
These are questions which need to be asked. We have a responsibility, not just nationally, but internationally as well. Why does the Canadian government not equip itself to manage its treaties with these countries and to monitor the activities of these companies abroad, in countries with suspicious tax practices and say, at the same time, that it is making a positive and really serious contribution to the fight against drug traffickers, who launder money in these countries, or against the terrorists?
I think that one must wonder when we how the Canadian government deals with tax treaties, tax conventions, and the absence of questions about the very likely existence of suspicious practices in these countries.
The fact that there is double talk from the OECD, the Department of Foreign Affairs and International Trade, that the Minister of Finance is saying “Yes, we are going to do something about harmful tax practices” and, at the same time, he heads up a meeting of ministers of finance from all countries in the three Americas which produces nothing at all, although according to Canada's Minister of Finance, it was held to discuss these dubious tax practices, worries me just a little.
I do not mean to accuse the Minister of Finance, but I feel that there is a lack of resolve. I wonder if this is not due to the fact that the Minister of Finance himself carries out activities in these countries that are considered tax havens.
The Minister of Finance is also a shipowner. He owns 11 companies in the Caribbean and down south. He owns eight companies in Barbados. I could list all of the companies the Minister of Finance owns, I have them here: CSL International Barbados, etc. Our Minister of Finance owns eight maritime transport companies in Barbados.
Could this explain why he is not in any hurry to criticize this tax convention that exists between Canada and Barbados? Could this be the reason?
I get tired of hearing the comments expressing outrage from members on the other side of the House, as though the Minister of Finance were in the same situation as a poor widow with an orphan child. There is a limit laughing at us.
The Minister of Finance owns eleven shipping lines, this is a fact. He owns eight in Barbados and three in Bermuda, countries that are considered tax havens. Barbados is considered one of the worst countries in the world, in terms of tax havens, according to the OECD group I mentioned earlier. Could there be a link between this ownership and his lack of political will to proceed with major reforms? We have the right to ask the question and I think that taxpayers have the right to know. They have the right to know this information.
We bring this up not to run a smear campaign, but because these are the facts. It is not my fault if he acquired these ships, if he has eight companies in Barbados and if there is a tax convention between Canada and Barbados that has been denounced by the OECD. These are the facts.
If the government is going to talk about fighting harmful tax practices, about satisfying the requirements set out by the OECD, about making a real contribution to eliminate harmful tax practices and trying to reduce the money laundering that goes on in some of these countries, then it is going to have to put its money where its mouth is.
It is not possible to condemn and support at the same time. When things are white, they are not black. For the past five or six years, we have been hearing comments internationally to the effect that Canada is not carrying its weight in this regard.
I would like to conclude by saying that we will support this tax convention. We have gone over the tax practices of each country with a fine-toothed comb. There is no problem, as there might be in the case of a convention such as we have with Barbados, which we have always condemned. The OECD has been doing the same thing recently.
We will support it, but encourage the government to change things. If the Minister of Finance is in conflict of interest, he should move over, as when ships are involved. But, good grief, could the government be seriously analyzing the situation and taking specific action and saying black on the one hand and white on the other, supporting tax havens on one hand and fighting them on the other? That will not work.
Is the government assuming its responsibilities? It should go a notch above what it has put in place to fight money laundering. It should denounce its convention with Barbados, subject Canadian subsidiaries abroad to rigorous control of their activities and require them to report any dubious transactions. That is what we are calling for.
If the government wants to maintain its past reputation for integrity, there are things it must do, especially since the events of September 11. It says it is joining with its allies to fight international terrorism. We must take specific action to show we mean business. I think it would be a good idea for the government to wake up.
