Finance committee  I would answer that by simply pointing out that tax is a very important cost of carrying on business. Business people like to know what the tax rules are. For almost two months we've had this controversy about what this actually means. The minister now seems to be saying it doesn't really mean what the March 19 statement said because somehow the elimination of the interest deduction in Canada is going to be tied to double-dipping.

Finance committee  No, I would say absolutely not. We have very extensive rules. We have all of these tax treaties. We're trying to enter into exchange of information agreements with most of the countries we don't have tax treaties with. That era of CRA not knowing what's going on is ending.

Finance committee  We have never tried to do that on the basis that it's just too uncertain, and we want to use the interest expense as an incentive.

Finance committee  There may be individual instances, but they're making huge efforts to try to ensure they know what's going on and that taxpayers in Canada are complying with all these different rules.

Finance committee  It might be easy, but it would be pretty ill-advised in the sense that the idea of so-called restricted interest expense was first put forward, I think, in the 1981 federal budget. I don't believe anybody has suggested that it is an appropriate rule in a corporate context. We don't have that principle whether Canadian corporations are investing in Canada, we don't have it whether they're investing offshore, the theory being that interest expense is a real and immediate cost.

Finance committee  Yes.

Finance committee  Sir, just to put that in its context, that is tax-rate-driven. The reason foreign multinationals dump debt into Canada is that Canada has a high corporate tax rate. They can save more money if the interest expense is parked, if you wish, in Canada rather than being in some other jurisdiction that has a lower tax rate.

Finance committee  I guess I would reply by taking what is a very good question and sort of pushing it forward, which is to say that it's not true that Barbados is a tax haven in the common-sense use of that term. They are a high-taxing jurisdiction. They have certain features of their tax system that in certain circumstances allow for low tax, just like Canada, which is a high-taxing jurisdiction, has numerous features of its tax system that allow for low tax or no tax, in certain circumstances.

Finance committee  Again, I'll take the first stab at answering that question. I think it's important to understand that the fundamental way in which the international tax system works is effectively comity, which is an international principle to the effect that we do what we want here and foreign countries do what they want to do in their own jurisdiction.

Finance committee  I would go back to my opening statement, which is to the effect that we have very extensive rules that go to determine whether the income in question is actually earned in the foreign country. So there's no issue of shifting around income in an improper way. We have very extensive rules dealing with that particular issue.

Finance committee  I'll take the first cut at that. I would have thought we'd go back to the way things used to be done, which is that we used to have a white paper process on the finance side. I would have thought that what might have been good would have been to strike a panel to consider this over some period of time.

Finance committee  Thank you, sir. I should start by saying that I've been practising as a corporate and international tax lawyer for more than 25 years, and I've been teaching corporate and international tax at the law school level for most of that time. So I've spent a fair bit of time learning and studying and practising in this particular area.