Mr. Speaker, it is with great pleasure that I rise to speak on Bill S-17, an act to implement an agreement, conventions and protocols concluded between Canada and Gabon, Ireland, Armenia, Oman and Azerbaijan for the avoidance of double taxation and the prevention of fiscal evasion. This gives me an opportunity to denounce once again a scandal, and the word is not too strong. I am talking about the tax convention between Canada and Barbados.
Obviously, where the tax system of the foreign countries involved is similar to ours, the Bloc Québécois will not oppose the principle of bills like this one. Indeed, as the parliamentary secretary indicated, it makes no sense to pay tax twice on the same income: once in the country where this income was earned, and again in Canada, because the taxpayer in question happens to be a Canadian citizen.
We are therefore totally in favour of tax conventions ensuring that income on which tax is paid in a signatory country is not taxed again in Canada.
We must remember that the principle of Bill S-17, like all the other conventions, is to not double tax taxpayers and not to prevent or spare them from paying income tax. In so doing, both countries, that is, Canada and the other country with which a tax convention was signed, must have a system where the income tax paid is for real, and not for show, and totally superficial like what we see in tax havens.
This brings me to the tax convention between Canada and Barbados. That convention allows Canadian taxpayers, Canadian citizens, be they individuals or corporations operating or appearing to operate in Barbados, to evade tax in Canada. That is not the intention of the bill before us or other tax conventions previously debated in this House.
As for Barbados, it is the only tax haven widely recognized by experts worldwide with which Canada has signed a tax convention. Barbados is known internationally as Canada's tax haven, for wealthy companies and Canadian taxpayers. In this regard, the government cannot plead ignorance.
On many occasions in the past, the Bloc Québécois and other opposition parties have denounced this situation. We are not the only ones. The auditor general and his successor, on many occasions, have also denounced this convention that allows Canadian corporations and individual taxpayers to avoid paying taxes.
Keep in mind that taxes are used to pay for the collective tools we give ourselves as a society. So every time taxpayers dodge their responsibilities by using a tax haven or any other kind of tax evasion scheme, they are not living up to their responsibility to the community. It is a very serious attack against social and moral solidarity.
Worse yet, taxpayers like you and me, who live up to their obligations and pay their taxes in full both to the federal government and the provincial government--the Quebec government in my case--are paying more taxes because those taxpayers, corporations or individuals, are not doing their fair share. As a result, the average tax burden of those who do pay their taxes is getting heavier. The middle class is left holding the bag.
It is extremely important. Indeed, as the auditor general said, it is not only eroding the tax base but also sowing the seeds of cynicism among Canadians and Quebeckers. As a result, now everybody sees nothing wrong in taking advantage of tax loopholes, one way or another and on a small scale, of course. Working for pay under the table is a case in point.
So on fiscal, ethical and social cohesion grounds, it has become urgent to close this loophole, the tax convention with Barbados.
Again, I point out that this no coincidence. The federal government, and particularly the current Prime Minister when he was Minister of Finance, arranged the income tax regulations to promote tax avoidance through Barbados, our tax haven.
The result is that, with a population of 272,000—which is the equivalent of a Montreal neighbourhood—Barbados has become the third destination for Canadian capital and direct investments abroad. It is right behind the United States—which is understandably our number one destination—and Great Britain.
Are these direct investments from Canada being made to take advantage of economic development opportunities offered by Barbados? Maybe so in some cases, but definitely not to the extent that we are talking about. When the number three foreign destination for direct investments has a population of barely a quarter of a million people, I think there is more than meets the eye.
It is easy to see that most of this money—although not all of it—comes from Canada's major banks. They use the tax convention with Barbados to avoid fulfilling their responsibilities in terms of income tax or benefits. They are taking advantage of the situation that the federal government, the current Prime Minister and former Minister of Finance, created by extending the tax convention with Barbados.
As I mentioned earlier, Barbados is a small island of a quarter of a million people and it is the third destination for direct investments from Canada. To give an idea of the scope and extent of this phenomenon, and therefore of the urgent need to condemn this tax convention, Canada's financial transfers to Barbados went from $5.1 billion in 1994—the year the Liberals first took office—to $23.9 billion in 2002. This is an increase of close to 400% in nine years.
The government would have us believe that there are investment opportunities in Barbados that justify such an increase. We are not stupid. Canadians and Quebeckers are not fooled, as the outcome of the June 28 election indicates.
The government has an opportunity to again raise the matter of this tax convention and, as I mentioned earlier, to remedy the situation. I have another figure which will show once again how absurd the situation is. Since 1988, Canadian investments in Barbados have increased by 3,600%. Once again, it seems to me that, despite the business opportunities which this magnificent island in the Caribbean might offer, it cannot absorb these investments entirely. Therefore, it may easily be inferred that Canadian businesses and taxpayers have used this tax loophole, the tax convention between Barbados and Canada.
Since 1996, the Bloc Québécois has been asking the Canadian government to beef up its international service in order to be able to discourage tax avoidance through tax havens. As I said, Barbados is the only tax haven we have a tax treaty with. It is the only one with which we have officialized and institutionalized tax avoidance. Nevertheless, tax havens as a whole are a problem. They are a problem for Canada and also for most other jurisdictions.
Again, since 1996, The Bloc Québécois has been calling for a comprehensive reform of Canadian taxation and will continue to do so, as I am doing today. We must eliminate all tax loopholes that enable companies to get out of paying their fair share of taxes, while the average taxpayer bears the brunt of this. People who cannot use such tools end up paying the bill. This mechanism was established by the Liberal government for the benefit of wealthy businesses and individuals.
We must also look at the very close link between money in tax havens and money laundering. Studies have been done to that effect by FATF, the group that examines the issue of money laundering and finding ways to counter it. I believe that FATF is celebrating its tenth anniversary this year.
This special group made up of OECD countries has found that 25% of the money currently kept in tax havens is laundered money. In other words, the money that comes from fraudulent and illegal activities, such as drug trafficking, weapons trafficking and other such organized crime activities that, unfortunately, are being conducted throughout the world. These organized groups, especially those with warring or terrorist intentions, also use these tax havens to transfer money for carrying out their sinister plans.
There is a certain irresponsibility. As I mentioned, the Canadian government is not alone in this. The U.S. government, the British government and most western governments seem to be hypocrites. On one hand, they say they want to prevent money laundering and to fight terrorism, while on the other hand they maintain mechanisms such as the Canada-Barbados tax convention, which facilitates not only tax avoidance but the transfer of money for terrorist purposes.
If they were at least consistent and honest, if they had the political will to truly put an end to this financial pipeline provided by tax havens to terrorist groups, they would address this issue seriously.
A type of hypocrisy exists. At first, outside of FATF, other groups and governments, the U.S. and Canadian governments in particular, had shown a desire not only to prevent money laundering, but to gain real control over tax avoidance. It seems that in time, the groups working on this problem, FATF in particular, dropped the second element and dealt only with the issue of money laundering for terrorist activity purposes.
This is totally irresponsible and impossible. As long as there are tax havens, it will be impossible to stop money laundering. As long as there are tax havens, it will be impossible to prevent various groups from using them to launder money for terrorist activities. So, we must attack the very existence of these tax havens.
In her recent report on money laundering, the Auditor General says that the federal government has done very little. I am surprised that she does not make a more direct link among tax havens, money laundering and terrorism.
I want to focus on tax havens. Perhaps viewers would like to know a little about how to identify a tax haven. In 1998, the OECD gave it the following definition. First, it is a country that generally imposesno or only nominal tax on income. Second, there is noeffective exchange between countries of relevant information for tax purposes. A few years ago, Barbados announced it intended to improve the exchange of information. To my knowledge, no efforts have been made to do this.
Third, a tax haven is defined by the lack of transparency of legislation or taxation regulations; this is the famous bank secrecy. The fourth factor is the absence of substantial activities. As we know, real activity must be conducted in one location in order to benefit from a tax treaty, under Canadian legislation. Taxpayers who, to avoid paying taxes, put their savings or dividends in a bank account in a tax haven cannot legally use tax treaties to this end.
In 1972, we rectified this situation by making a distinction between passive activity, or simply depositing money in a bank account, and active activity, a real activity in economic terms, meaning providing a service or manufacturing a good. The fourth factor used to identify a tax haven is a lack of substantial activity, meaning that the standards for determining a real activity are extremely low.
In 1998, the OECD identified 35 tax havens, based on four criteria: no taxes, no effective exchange of tax information, no transparency, and no substantial business activities. Hon. members will not be surprised that Barbados was among these. I would also point out that Canada was one of the 47 countries listed with particularly lax laws concerning tax havens.
What follows is important because of the debate prior to the June 28 election. A number of editorial writers in the Quebec press in particular serve as Liberal mouthpieces, and this is my main source of news—though I do occasionally enjoy a look at the press in English Canada. In the year 2000, the OECD changed its definition of a tax haven, focussing more on the non-cooperating aspect.
As I have already said, following on that decision by the OECD to focus differently on the tax haven situation, Barbados announced its intention to take on slightly greater transparency in passing tax data on to other countries and jurisdictions. As a result of that commitment, the OECD decided not to keep Barbados on the list of uncooperative tax havens. This does not, however, change the fact that Barbados is still a tax haven.
What we heard from the federal Liberals, from the government side, was “Just look at the OECD listing”. It is true that Barbados was on it in 1998, but not in 2000. These two lists were not the same. In 2000, the list was of tax havens according to the OECD, based on the four criteria I mentioned. The focus in 2000 was more on lack of cooperation, particularly in connection with the campaign against terrorism. So the same things are not involved. After the definition's focus was changed, nine countries were still on the list. No one is going to convince me, however, that a list of 35 countries identified as tax havens in 1998 by the OECD was suddenly transformed into a list with only 9 countries on it, with the flick of a magic wand.
As I have said, the change was due to a change of focus by the OECD. I should add it is well known behind the scenes at the OECD that Canada, the United States and Great Britain lobbied a great deal to get Barbados struck off the list of uncooperative tax havens.
I said that because the subject will certainly be coming up again. When they talk about the tax treaty between Canada and Barbados, they will tell us that Barbados is not one of the countries the OECD considers to be tax havens. Once again—and I say this for those watching at home—we must not be fooled. The OECD is no longer worried about such things. Those countries that have disappeared from the OECD's list are the ones called uncooperative tax havens. Therefore, all those that intend to cooperate, or actually do so, are not on the list, although they are still tax havens according to the four criteria I just listed.
I would like, if I might, to return to the figures on Canadian direct investments abroad, because I think they are quite extraordinary. Everyone understands why the United States is the primary destination for Canadian direct investments. Just now, I mentioned that Barbados was the third on that list. The second destination is the group of countries consisting of Barbados, the Bahamas and Bermuda, three small island countries with small populations. Canadian investment in these three little island countries was $38.71 billion in 2001. That was more than the U.K.
Although the Bloc Québécois supports Bill S-17, we must take this opportunity to speak out against this tax agreement between Canada and Barbados once again. With regard to real, legal activities, we would be in agreement, but this convention is full of holes at present.
Moreover, the company that formerly belonged to the Prime Minister has—unfortunately—profited from this. I am speaking of CSL International,which has, according to our calculations and thanks to this convention full of holes, saved nearly $103 million in income tax over the five years we examined.
I hope that by the time of the next election, the Liberals will understand what they have to do, look right into those holes, and correct this Canada-Barbados tax convention.
