:
I call this meeting to order.
Welcome to meeting number 56 of the House of Commons Standing Committee on Finance.
Pursuant to Standing Order 108(2) and the motion adopted by the committee on Tuesday, April 27, 2021, the committee is meeting to study the Canada Revenue Agency's efforts to combat tax avoidance and evasion.
Today's meeting is taking place in a hybrid format, pursuant to the House order of January 25; therefore, members are attending in person in the room and remotely by using the Zoom application.
That said, I'll forgo the formalities.
We have a quick motion that we need to deal with on the project budget cost for this set of hearings. I think Mr. Ste-Marie has distributed a motion to members. To give members a heads-up, we'll deal with that during the last 15 minutes of the committee.
The budget, I believe, for this set of hearings on the study of the Canada Revenue Agency's efforts to combat tax avoidance and evasion has been sent to members. It is requesting an amount of $1,800 for this study. The costs are broken down in what has been sent to members.
Does somebody want to move adoption of that?
:
I have a point of order, Mr. Chair. I'll just take a brief moment.
I know that during the sound check some very kind words were spoken on the announcement you made yesterday. On the record, I would like to first of all recognize the fantastic job you've done as our chair. For the last six years I've been on and off this committee. It's been a delight to participate in this committee with you, Wayne.
Wayne, you're a great parliamentarian. You'll be sorely missed for your service to community, to country, and to your party, and for your great judgment. You've never let your party loyalty get in the way of fairness to other parties or get in the way of friendship or your good humour. I wish all the best to you in your retirement.
I'm really looking forward to your speech tonight. When we're done here at committee, I'll be zipping off to the chamber. I'm very keen to hear what you might have to say tonight.
Thanks, Wayne. I really appreciate your service.
Thank you for inviting me to appear before the committee today.
Several years ago, I met the journalist Laurent Laplante. He told me that you can't control what you can't see. That sums up the topic of my presentation today, which will primarily focus on KPMG's planning in the Isle of Man.
I'll make an analogy with chefs. When you want to make a recipe, you use various ingredients, which are all good. However, when put together, these ingredients can yield a surprising and sometimes disappointing result. That's exactly what happened with KPMG's tax planning.
The ingredients were the incorporation of a company in a tax haven. People donate money to a company. The company then invests the money and gives the returns back to the investors in the form of donations. The individual ingredients aren't a problem. The incorporation of a company isn't an issue, and neither are the donations. However, when you put all this together, it creates an unbelievable trick that looks like fireworks. It doesn't work.
Brian Arnold, a professor at Western University in London, Ontario, once said that KPMG's strategy was like a tax‑free savings account, or TFSA. It was a TFSA without a cap and designed exclusively for wealthy people. Professor Arnold also asked another person, with whom he was taking a walk, what they had to say about KPMG's planning.
The person had this to say about the planning:
[English]
“So let me get this straight. You give several million dollars to strangers on some island somewhere, but whenever you want some of that money, you can get it and you don't pay any Canadian tax. It seems too good to be true.”
In my experience, most things that seem too good to be true turn out to be untrue.
[Translation]
KPMG said that it set up the scheme 16 times. The firm charged a fee of at least $100,000 for each strategy, and even more, because amounts were also payable annually on the returns. Did KPMG use this strategy anywhere other than the Isle of Man? We don't know. KPMG refuses to answer this question.
In their testimony, Greg Wiebe and Lucy Iacovelli said that the firm realized back in 2003 that it had to stop using this strategy. We're now told that this strategy was used up until 2014. This strategy wasn't used up until 2010, as we thought, but up until 2014 and maybe even 2015. We even know that KPMG received fees for the strategy at least until 2008, according to a letter sent by Mark Meredith from KPMG to Cecilia Jenkins from the Canada Revenue Agency, or CRA, on January 6, 2012.
The Cooper family is the only family that challenged the notice of assessment. The Cooper family members not only went to court to challenge the notice, but they later took the bold step of making a voluntary disclosure, because they continued to use the strategy until 2015. On December 31, 2015, through their counsel, they submitted a voluntary disclosure application. The Canada Revenue Agency told them that their application was inadmissible because they were under investigation. Their counsel even submitted a request to have the Federal Court review the Canada Revenue Agency's decision. The entire Cooper family case was subsequently settled.
We've recently heard a great deal of talk about the #MeToo movement. This movement is making people aware that criminal acts aren't subject to the statute of limitations. A criminal act doesn't stop being criminal over time. The crime committed isn't any less serious after time has passed. Economic crimes must also be prosecuted, even after all these years.
In the case of KPMG, the court must be involved. The extent of any tax evasion must be verified. I don't need to share my conclusion, which you know. However, the court must look into this matter.
A theory was created in 2012 in the Meeds v. Meeds case before the Court of Queen's Bench of Alberta. The theory is called organized pseudolegal commercial arguments, or OPCA. This theory suggests that people use arguments detached from a given reality to convince individuals that they're right.
Maybe you know the Fiscal Arbitrators. These people decided to file tax returns for clients. They would then charge them a fee. However, they created fictitious losses for them. The creator of Fiscal Arbitrators is in prison today and is serving a six‑year sentence.
Is there really a difference between the creator of Fiscal Arbitrators, who promised losses that didn't exist, and KPMG's strategy, which promised donations that didn't exist? Those donations didn't really exist.
The Meeds decision states as follows:
[English]
A court or legal professional can explicitly and clearly respond to this category of pseudolaw. However, some OPCA pseudolaw, “Otherlaw,” is entirely disconnected from “mainstream” law, and represents a “something else” category of thought, belief, and behaviour.
[Translation]
That's exactly what happened here.
In conclusion, I would say that a public inquiry must be held in the KPMG case. Subsection 231.4(1) of the Income Tax Act states that a public inquiry may be necessary to shed light on this situation.
If, in their wisdom, the courts conclude that there wasn't any tax evasion, so be it. However, people are currently outraged by this planning.
Thank you for your attention.
Thank you for inviting me to appear before the committee today.
The Association for the Taxation of Financial Transactions and Citizens' Action, or ATTAC, is an organization represented in several countries and on four continents. ATTAC‑Québec, like the other ATTACs, focuses on tax issues in particular. In our opinion, tax fairness plays a key role in achieving greater social justice, ensuring a better distribution of wealth and developing quality public services.
Since this involves an assessment of the Canada Revenue Agency's efforts to fight tax evasion and tax avoidance, we're speaking to you, members of Parliament, today. We'll be talking about your own efforts, since the agency reports to you.
First, we want to say that we're concerned about the state of Canada's public finances. The cost of dealing with the effects of COVID‑19 has been very high and will add significantly to the budget deficit. Further spending increases should be expected. The green transition, which is absolutely necessary for our economic health and for our survival as a species on this planet, will require major public investments. These investments will include major technological transformations based on energy conservation, the electrification of transportation, the transition from fossil fuels to renewable energy, and so on.
Given this situation, fiscal restraint, which has stifled us in recent years and greatly weakened our ability to respond to the pandemic, is no longer an option. This shows how much the CRA will play a fundamental role in the coming years and how much the fight against tax evasion and tax avoidance should be the focus of our collective concerns.
We're concerned about the CRA's funding, which we believe is still too low. According to the Échec aux paradis fiscaux collective, the Government of Canada has replenished the agency to the tune of $500 million since 2015. The latest federal budget added $534 million. This barely makes up for the $1 billion in cuts made by the Harper government, even though the current needs are much greater.
The recently implemented automatic exchange of information is finally providing access to a tremendous amount of data. This will make the work of investigators easier, but will mainly require a significant amount of analysis and data processing by leading experts. A substantial investment will be needed. ATTAC‑Québec is proposing that the CRA's budget be significantly increased, on top of the amounts already allocated, and that the money be spent on investigations targeting the major fraudsters, whether they're companies or individuals.
With respect to tax avoidance, we believe strongly in the effectiveness of a registry of beneficial owners, subject to the following conditions: access to the registry should be free and easy for the public at large; the information published should provide a complete picture of the identity of beneficial owners; adequate resources should be allocated to verifying the information provided; and the liability threshold should be 10% of the share of the company in question, thereby reflecting the distinction between a foreign direct investment and a portfolio investment proposed by Statistics Canada. There has never been a scientific consensus regarding the effectiveness of an overly high threshold, such as the 25% threshold in the United Kingdom.
We ultimately appreciate the G7 proposal for a global minimum tax on companies. This is a good way to fight tax avoidance and the particularly harmful strategy of transfer pricing. However, the 15% minimum tax rate seems too low and could contribute to increasing tax competition between states with good taxation systems. Moreover, this rate, which is meant for multinational companies only, makes us worry about preferential treatment for them, at the expense of SMEs and individuals. At this time, significant efforts should be made to ensure that taxation is truly progressive.
Your decisions on the CRA will play a key role in the coming years to ensure greater social justice and better environmental protection. Although progress has been made, it's far from sufficient. Every effort must be made to eliminate tax havens. We hope that you'll take the necessary steps to ensure that Canada becomes a world leader on these issues, rather than continuing to take the passive and wait‑and‑see approach that unfortunately has been in place for a long time.
This concludes my remarks.
Thank you for your attention.
Good afternoon, Mr. Chair and members of the committee.
It's truly a pleasure to address this committee today and to be here in a different role than in the past. As the former Comptroller General of Canada, I have worked with many of you and with many parliamentarians and senior government officials, and I'm very pleased to deliver these remarks today to the committee as the president and CEO of CPA Canada. With me today is my colleague Bruce Ball, who is the vice-president, taxation, of CPA Canada.
Before I start, would you just allow me to congratulate you, Mr. Chair, on your 28 years of service to Canada and to your own province? CPA Canada has always appreciated working with you, and we wish you the very best for the future.
CPA Canada is the national organization that represents Canada's CPA profession nationally and internationally. It supports the CPA provincial and territorial accounting organizations across Canada, which have statutory authority to regulate the profession's 220,000 members. Among its many activities, CPA Canada's mission is to act in the public interest and to contribute to economic and social development.
CPA Canada has always maintained a good working relationship with the government, including Finance Canada and the CRA. Throughout the pandemic, our collaboration with the federal government has reached new levels. We have been educating members and providing them with the tools they need to support individuals and small businesses in navigating key government support programs. We've also been providing advice and expertise on where improvements are most needed, and we've been working to find solutions so that those who are eligible for the benefits are able to receive them.
[Translation]
Chartered Professional Accountants of Canada, or CPA Canada, believes that the tax system in the country is an important policy mechanism to support Canada's economic recovery and efforts to build back better. Our organization has long called for the government to conduct a comprehensive review of Canada's complex tax system, which taxpayers need to better understand in order to comply with their obligations. This is important. Our overall standard of living can be maintained only when everyone pays their fair share of taxes.
As part of its commitment to serve the public interest, CPA Canada has consistently taken a stand against tax evasion and other financial crimes that are inherently illegal, unethical and harmful to the economy and societies worldwide.
[English]
Those are not victimless crimes. Real people are harmed. It is heart-wrenching to hear the stories of those on whom these crimes have taken a terrible toll: on their health, their well-being, their families and their life savings. Our position on financial crime is clear, and it is on the public record.
CPA Canada works with the Canadian government and international organizations to improve tax regimes, combat money laundering and strengthen financial systems to counter criminal activities. For example, CPA Canada has provided input in the OECD and the B20 and participated in the private sector consultative forum on the financial action task force. We've also appeared many times before this committee and the Senate national finance committee calling for a comprehensive tax review, and both committees have endorsed our recommendations. CPA Canada has also served on the 's underground economy advisory committee.
We work also to strengthen Canada's anti-money-laundering regime through multiple government submissions, our representation on Finance Canada's advisory committee on money laundering and terrorist financing and, most recently, our participation in the Cullen commission public inquiry in B.C.
[Translation]
CPA Canada has also actively participated in government consultations to strengthen corporate beneficial ownership transparency since the discussions began in 2018. We're pleased to see the government's commitment in the recent budget to implementing a public registry of beneficial ownership. We believe that transparency is a critical factor in the fight against financial crime. We applaud our government.
We also welcome the federal government's commitment to increasing tax compliance, strengthening the integrity of the tax system and ensuring tax fairness.
[English]
The measures set out in the 2021 budget to fund new initiatives and extend existing programs will help to crack down on tax evasion and aggressive tax avoidance and enhance the CRA's ability to collect outstanding taxes in a timely manner.
These are important steps forward, yet more action is needed from all of us. We all share this responsibility. In the fight against tax evasion, we must realize that Canada’s tax system is overly complex. We need to continue to simplify Canada’s tax system, and we encourage this committee to continue with those conversations and your recommendations. In a nutshell, simplification makes compliance much easier.
As always, CPA Canada is ready to work with parliamentarians to advance this effort.
Thank you, Mr. Chair and members of the committee. Monsieur Ball and I welcome your questions.
:
Mr. Chair, give me six minutes and 15 seconds to start with to allow me a brief moment to thank you for your many years of service to not only your constituents but your province and country.
I remember when I was first elected to the House seven and a half years ago, and we were together on the public accounts committee. You sat on the opposition side all by your lonesome as a Liberal. I remember what a statesman you were as an opposition member, and now I've gotten to enjoy you as a committee chair. I've found you to be just as much a statesman, if not even more so. You've been courteous, respectful, tolerant, and certainly you've been non-partisan in the adjudication of your position, so I thank you, Wayne. I thank you for your friendship. You've not let your job interfere with your friendships, and I thank you for that.
Now I want my six minutes to start.
Thank you to all of our witnesses here for testifying at committee. I've appreciated the input that you've given into this very important topic that we're discussing about combatting tax avoidance and evasion.
Mr. Lareau, I was particularly interested in your analysis of the KPMG situation and the tax havens that The Fifth Estate has tried to document for Canadians. Some folks have found themselves out of their life savings, and hardships have been created by the tax scheme that was entered into by many unscrupulous people with the help of KPMG, it appears.
I'm going to move past that, though. Mr. Lareau, I want to ask you a question about the more current environment that we have. The , in his 2019 mandate letter to the , instructed the minister to “seek new ways to counter tax avoidance and evasion by wealthy individuals”, “enhance our existing tax avoidance and evasion whistleblower programs”, and “look for more opportunities to invest resources that help crack down on tax evaders”.
Mr. Lareau, in your opinion, has the government taken meaningful action in accomplishing that objective?
I will begin in the same way. I think you have to get used to it, Chair. It's just one of these things. I know you're modest. You don't like the attention on you, but it's the reality.
I think we all share a level of respect for you, Wayne, that really cannot be expressed in words. You are an example for all MPs, particularly newer MPs like me. I think whenever this time in office comes to an end for me, whenever that might be, if I can look back on it and say that I was half as good an MP as Wayne Easter, then I will have achieved a great deal.
Thank you for everything you have done. It's greatly appreciated.
:
One current issue is that no one is doing anything. Each country is waiting for the other country to respond. We then end up in a sort of spiral of inaction that's ultimately counterproductive.
That's why, in our presentation, we asked Canada to become a leader in the fight against tax avoidance and tax evasion so that it can take a firm stand. There are some good models, including the Biden administration, which has become much more active in addressing the issue of tax havens.
It should be noted that the CRA's equivalent in the United States is currently much better funded. According to our calculations, it receives about 30 times more funding. When we say that more money can be invested in fighting tax fraud, I think that this is a very good example.
If the United States is doing it, why shouldn't we?
I want to extend my greetings to all the witnesses here today.
I want to thank them for being here. They provide some very valuable input that I hope will advance the work of the committee.
Before asking my questions, I'll say a few words to the chair.
Mr. Easter, you're an exemplary parliamentarian and committee chair. It's truly a pleasure to serve with you. I find you sometimes tough, but always fair. I tip my hat to you. I'm still shocked by the news that you won't be with us after the summer break. We'll certainly miss you. We'll certainly still have the opportunity to squabble, since we have a few meetings left. Thank you for everything.
My first questions are for Mr. Lareau.
Mr. Vaillancourt and Mr. St‑Jean, if you want to add anything, feel free to speak.
Mr. Lareau, in response to Mr. Falk's question, you said that it was very important not to let the matter rest in the KPMG case. If nothing were done, it would send a kind of message of impunity to companies that create these types of schemes, such as shell companies.
What do you think should be done by —you spoke about her investigative powers— by the government and by the committee?
:
Tax evasion is a crime. Yet, no matter how many provisions there are in the law to prohibit this crime, it must still be discovered, detected. We must therefore act upstream. We must discourage people who are tempted to commit economic crime. As long as the Canada Revenue Agency offers large sums to KPMG clients for voluntary disclosures, the situation will not be resolved.
This all came from the agency, which wrote this to KPMG: “We invite your clients to file voluntary disclosures.”
The Cooper family was sent notices of assessment until 2010. More recently, we learned that it was until 2015. There has been a settlement in the case. We definitely need the CRA to take much tougher action.
In the case of KPMG, particularly, there needs to be a public inquiry or, simply, criminal complaints filed, which the court can evaluate to really get to the bottom of this whole thing. KPMG is refusing to answer your questions and get to the bottom of this. If KPMG is not required by a court to come and testify, no one will know anything. Is KPMG acting elsewhere, in other countries, using the same strategy? In addition to the 16 taxpayers, are there others?
We do not know. However, we do know that Mr. Barry Philp of KPMG wrote the following in 1999:
[English]
“It is not unreasonable to expect that if Revenue Canada were fully apprised of the proposed arrangement, they would seek to have offshore companies treated as a deemed resident of Canada, in which case it would be taxable as if it were income.”
[Translation]
In 2002, he added the following regarding the protection offered to the Cooper family in connection with the share capital: “This should be done in a separate agreement and not in the share capital.”
[English]
“This had the decided advantage of not being in the public domain, as are the articles.”
[Translation]
We can see that they want to hide all this. Therefore, severe sanctions must be imposed: a criminal trial against KPMG and against the actual people who devised this scheme. Of course, the agency also needs to be much more forceful. We are talking about tax evasion.
If we were talking about tax avoidance, I would say amend subsection 245(4) of the Income Tax Act, which provides for a reverse onus; the CRA, or Justice Canada, then has to prove that there was tax avoidance. It is then no longer up to the taxpayer to prove that they did not avoid paying taxes. However, this burden of proof is very difficult to establish. The reverse onus in subsection 245(4) should be removed.
:
This was in relation to advance tax planning, and KPMG got caught in this situation. KPMG and the individuals themselves were committed to stand trial. There were fines totalling $450 million as well as the possibility of jail time. I don't know if there were any, because I can't remember the full decision.
Let's compare the KPMG situation with that of Fiscal Arbitrators, which I mentioned earlier. The information I have is that there were aggravating circumstances in a tax case for which people were sent to prison; there was a high level of preparation of the fraud involving several people and the sophistication of the fraud was demonstrated by, among other things, the use of an accountant. So people were sent to prison because they had used the services of an accountant, even though they were accountants themselves.
There was also the fact that there was an attempt to evade the amount of tax, which was in excess of $1 million, the fact that public funds were put at risk, the fact that the fraud took place over a period of almost a year, and the fact that after repeated requests from Revenue Canada, the individual continued his actions, as was documented.
In short, people continued to perpetrate their crimes, and it's the same thing in the case of KPMG. We were told that it was over, when it was not. It continued until 2015.
:
Thank you very much, Mr. Chair.
I will not filibuster with respect to Mr. Easter. I had already commented on that. We will probably have a chance to talk more about it in the next few days.
I thank our witnesses for being with us today. We hope that their families and loved ones are safe in these pandemic times.
My first questions are for Mr. Lareau.
Mr. Lareau, thank you very much for being with us today.
In a few meetings a year ago, we met with representatives of the Canada Revenue Agency, and we also met with them last week. We asked them why none of the individuals and firms featured in the tax haven documents and the Panama Papers had been prosecuted. One year later, nothing has changed. There are no ongoing legal proceedings.
In 2016, you were supposed to testify before this committee, but that didn't happen and you didn't get a chance to give your opinion on the situation.
We are still wondering why there is such a lack of willingness to go after KPMG, other accounting firms and wealthy individuals who are defrauding the system.
There are two parts to my question.
First, what would you have said in 2016, had you had the opportunity to testify before the committee?
In your view, is the situation different today?
:
In 2016, we did not know that the strategy had been used after 2010. Today, we know. What I would have said in 2016, I have said to you today. I think I would have made the same argument then.
One thing is certain: the KPMG representatives told us that in 2003 they had learned their lesson and had stopped using this strategy. They implied that they didn't want to do that anymore. They seemed to acknowledge that they were wrong.
Either they decided to acknowledge that it was a crime, in which case criminals should be prosecuted, even 18 years later, or they just got caught red-handed. My theory is that they were caught red-handed and thought it wasn't worth it. So they decided to make amends and distance themselves from this a bit.
The answers they gave to the questions you asked them show that they have no willingness to co‑operate. The behaviour of this accounting firm is in no way indicative of a desire to co‑operate, to be fiscally transparent and to stop tax evasion. On the contrary, it sends you packing and simply tells you that it will not answer questions on the grounds of professional secrecy.
Yet the committee has every power to compel KPMG representatives to answer its questions. This professional secrecy does not protect accountants as they would have us believe.
:
This situation crops up often for Barbados, because we have a tax treaty with them, and in the case of the Bahamas, because we have an exchange of information agreement with that country.
Canada has tax information exchange agreements with about 20 countries. The tax information exchange agreement allows resident companies in those countries to pay tax-free dividends to Canadian parent companies.
So they pay no tax there, and the dividends come back to Canada tax-free. This is totally absurd. Under the guise of wanting to sign these information exchange agreements, Canada's power to tax corporate profits has been let go, when the objective is not being met at all.
You mentioned the Panama Papers and the tax haven documents. We can see that we didn't get the information that we should have managed to get. We can make a comparison with what the United States obtained. As our population is equivalent to 10% of the American population, we could have hoped to obtain 10% of the revenue. But that's not the case at all, we got absolutely nothing.
:
First, Mr. Easter, over this time that we've been working together, I have detected a farmer's heart in you, and I'm very thankful for that. When you were going to make an announcement, I thought that maybe you were going to cross the floor and come to the good side.
Voices: Oh, oh!
Mrs. Tamara Jansen: It has been a pleasure to work with you. Thank you very much.
Now I'll go back to the matter at hand. Mr. St-Jean, we are here to evaluate the CRA's progress in regard to tackling tax evasion. I want to go back to 2015, when said that the wealthiest Canadians were using small business tax rates to reduce their tax bills. He was basically calling small business owners tax cheats.
At the time, I was one of those people out there delivering flowers to customers in the heat of the summer, sweating it away in the old Hino truck with no air conditioning, which was, according to him, nothing more than a clever tax haven. I have to say that I was really insulted, as I believe many other small business owners were.
Now here we are in 2021, and the Liberals have thrown billions of dollars at the CRA to expose these supposed small business tax cheats. I know that the CFIB said at the time that his assumptions were seriously flawed, and so far there appears to be no evidence whatsoever that he was right. Does it make any sense for the Liberals to have developed this tax policy and hired so many new staff based on those assumptions, especially when we see that the CRA makes deals with the big tax cheats but keeps going after the little guy?
:
Thank you so much, Mr. Chair, and of course I'm going to start off the same way everyone else has.
I too want to thank you so much for you leadership. You'll be extraordinarily missed. You are absolutely a noble example for all MPs. You very much set an example of the kind of MP that we strive to be—at least I do. I'm only mad that you're leaving before we could have an oyster and lobster festival, so we might have to visit you in P.E.I.
With that, I will start with my first question.
At our last session, we learned that the federal government has indeed made, over the last five or six years, significant investment in tackling and combatting tax avoidance and evasion. We've actually recouped $5 billion from that $1-billion investment.
We've also heard that globally we're ranked about nine or 10 out of 80 in terms of identifying tax and being very successful in our efforts. Of course, we could always be more effective.
We also heard a little bit about some of the encouraging signs we've seen in voluntary disclosure, which has been great. I'd like to know how we can encourage more voluntary disclosure.
I have a second question around that. We know that a lot of the complex cases are coming before our courts. It's because it's cost-effective for these big companies to pay a million or two million to avoid paying $40 million in taxes.
I wonder what more we can do to make it less attractive to engage in these types of tax court cases.
Perhaps I could start off with Mr. St-Jean and Mr. Ball. Could you respond to that?
:
Sure. Maybe I'll talk about the voluntary disclosure part first and then the court case part.
Voluntary disclosures are tough. You don't want to be too easy on the people who maybe were intentionally not complying, but at the same time you want to make sure that those who want to be compliant can come forward and do it in a reasonable way.
I haven't done much over the years, but in the few circumstances I was helping out on a voluntary disclosure, it really brought peace of mind to people. I think it's really an education point.
On court cases, I'd agree with what Charles-Antoine said. The other thing I'd add is that we, CPA Canada, have been working with the CRA in terms of the objection process. That's the step before you get to court to try to head off some issues. There are cases that make it into court that are legitimate disagreements. We've been pushing to see if we can do more of that before it goes to court and to have some way to resolve tax disputes without going to court first.
Let me come back to the question that was just raised.
If I'm not mistaken, the penalties in Quebec are 30%, while the Canada Revenue Agency imposes 0% penalties for voluntary disclosures. If we take the KPMG case in the U.S., the penalty was 50%, plus criminal prosecution, among other things.
So we can build on that, Ms. Dzerowicz.
My next question is for Mr. Lareau and Mr. Vaillancourt, but the CPA Canada representatives may also intervene.
In the Cinar, Norshield and Mount Real affair involving their executives, including Mr. Weinberg, thousands of small investors were cheated. I was very touched by the testimony of Ms. Watson, one of these defrauded investors, who came to testify before the committee. What has happened is appalling. Nearly $500 million has disappeared, most of it unaccounted for.
What can we do? What can the government do? What can the do? What needs to change so that situations like this do not happen again and we are able to find and get the money back?
The companies with the sword names are related to this. The CBC/Radio‑Canada reports make a very compelling case that KPMG is connected to these companies, because KPMG had a shell company registered at the same time that these four companies were registered. KPMG tells us that this is not the case. We have asked its representatives and they have written to us saying that they have examined their documents going back ten years. They stand by their denial.
What can be done to get justice in such a case and to ensure that it never happens again?
Mr. Lareau, I would like to have your comments first.
:
The current problem is that absolutely colossal sums of money are disappearing without any way of tracing them. This means that there's a basic problem, which is fundamental.
One of the solutions we see to this problem is the beneficial ownership identification regime, which would no longer allow numbered companies to exist, where the identity of the owners may be impossible to trace. In my view, such corporations are an unacceptable way of making fortunes disappear.
This system must be put in place as quickly as possible, it must be as effective as possible and, of course, it must meet the conditions I mentioned earlier, which I won't repeat.
In our opinion, this is really something fundamental that needs to be done right away.
I'd like to ask my next questions to Mr. Vaillancourt, Mr. St-Jean and Mr. Ball.
As has been pointed out, the Norshield and Cinar frauds caused massive amounts of money to be taken from Canadians, wiping out their life savings—$500 million—yet the government has done nothing to follow up on that fraud. It's really the tip of the iceberg. The Parliamentary Budget Officer has evaluated what Canadians lose every year in tax dollars at $25 billion. When we look at all the problems that Canadians are facing—lack of affordable housing, the struggle to make the transition to clean energy, the lack of safe drinking water in indigenous communities—we see that $25 billion a year could resolve so many of those issues that Canadians are having to confront.
My question is twofold. First off, what should the government be doing now to get to the bottom of the Cinar and Norshield frauds and the KPMG linkage with the Isle of Man? Second, are you in agreement that this is a massive amount—$25 billion a year—of taxpayers' money that is essentially being lost to these overseas tax havens and frauds, money that could be so important to raise the quality of life for so many Canadians?
:
I say this as a citizen because I'm not really an expert in this field.
You’re absolutely right, Mr. Julian, that we’re going to need incredible amounts of money over the next few years.
The energy transition and the green transition will be expensive, and major public investments will have to be made. We have learned that there are holes in which huge amounts of money are completely buried and that, in addition, we don't have the necessary means to go after them. In my opinion, we need to do everything we can to remedy this situation. I think that all kinds of organizations, such as the Canadians for Tax Fairness group and the Collectif Échec aux paradis fiscaux, have a series of solutions. Read their documents, read what they advocate. I don’t have time to explain it in a few minutes, but it’s all there.
You also have experts at the Canada Revenue Agency who are able to find solutions. We really need to address this problem as quickly as possible, because we have an urgent and considerable need for money. We are making a significant transition, and we need all our money to do that.
The situations you mentioned, Mr. Julian, must not happen again, and it is the responsibility of elected officials to ensure this.
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Voluntary disclosure will be done by someone who is feeling the heat.
As for international tax evasion, since the Canada Revenue Agency's record in this regard isn't very good, why would someone who has hidden their money outside the country agree to make a voluntary disclosure, when they know full well that the agency isn't going to take the necessary steps to retrieve it outside the country?
So people won't be making voluntary disclosures because they know that they won't be caught and that we won't try to find someone who has hidden money outside the country. So there is no incentive for people to make voluntary disclosures.
There have been quite significant voluntary disclosures in the past, of course. We remember Brian Mulroney, who voluntarily disclosed income several years later and paid half the taxes owing. These are sad situations, but people remember them.
It should also be remembered that the United States has had very ad hoc voluntary disclosure programs. The United States gave people three months to voluntarily disclose their income, after which it was too late to do so. Today, the United States has opened the doors much more and there is much freer voluntary disclosure.
Here in Canada, the measures are now more binding. That's good, but there still won't be voluntary disclosure until the Canada Revenue Agency is more proactive in investigating cases of international tax evasion.
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I may just make a few comments. Again, I'm not the tax expert; my colleague is.
Every year the tax code is getting more complex. You're adding pages every year. Over the last 20 years, I don't know how many pages have been added, but there have been new provisions in the Income Tax Act, so it's not getting simpler year after year. It's just getting more complex.
This problem is not going to go away. My colleague was talking about a tax review. The last time the tax review was done was in 1967, if I recall, and it took 10 years back then, so it's been more than 50 years. In the last 20 years, it just got more complex to deal with.
Those are probably the comments I would make, but maybe my colleague could add another layer.
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Well, I was just going to mention that.
I do echo the sentiments of my colleagues here and just affirm that you are someone who's able to understand and elevate humanity above the politics of this job. It's something very few people really understand. You've been able to do it successfully, as shown in the fact that here at committee, we actually get along.
You are even-handed and you understand the role that we play as elected officials, but I also wanted to highlight that you and I have been adversaries. You were my critic when I was trade minister. Even then, on those occasions when I appeared at committee and you had to grill me, or in the House of Commons, you were always fair—always fair. You were tough, but I never felt that you were an enemy. I always felt that we were actually on the same side, in the sense that both of us were trying to promote Canada's trade interests and just needed to fine-tune some of the policies a little bit.
That really is a credit not only to your skill as a critic and as a chair of this committee, but also to your character. I just want to affirm you in that. You can go into retirement knowing you have the respect of all of your colleagues in the House of Commons.
Thank you to the presenters today. It's very interesting to listen to the wealth of experience and the knowledge you have on taxes and tax evasion.
In the economic statement in the fall of 2020, our government committed to invest $606 million over five years, starting in 2021, to expose the high-net-worth compliance gap, to strengthen technical support for high-risk audits and to enhance the criminal investigations program.
We heard today that the funding commitment by our government is still too low. I listened with real interest as I heard that the previous government, the Harper government, had made cuts to CRA's resources. I'm wondering if you could tell us—and I think Claude and André talked about the cuts—what the impact was of those cuts. If we're putting money into it and there is still not enough, what was the impact when resources were taken away? Are we still trying to play catch-up as a result? Do we not have all the technology we need because of that? Is it that we don't have enough staff, or maybe that the resources we have are inadequate to do the job?
Does somebody want to take a crack at giving me some answers to those questions?
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Maybe I could give a comment or two.
The evolution of technology in the last number of years has been extraordinary. The ability to do things is very different from what it was five years ago.
When we were talking about new tools that are needed to combat tax evasion effectively, I think I alluded to AI a bit earlier on. These are some of the tools we need to equip all of our departments with, and we also need to get the talent to be able to deploy it and use it. There is not an overabundance of this talent in Canada, as you have heard us say many times. There is a talent war. The ability to attract talent is a challenge not only for government but also for the private sector.
Getting all the people who are needed who have the talent that is needed is a problem that's not going to go away easily, but government still needs to keep trying to source the talent, the people and the technology to help this situation, because the other side is also investing and trying to find ways to beat the system. Combatting it is a never-ending battle.
Maybe I could turn to my colleague Bruce to see if he would like to complement this answer.
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I talked about this issue earlier.
I was saying that the Harper government's cuts were made in the context of an austerity policy. They have caused a lot of damage to the country. Now, with the money reinvested in the Canada Revenue Agency, we're at about the same point as before, while the needs are much greater and the situation has become very complex.
Technology has indeed changed, and we have access to much more information than we did before. It's very difficult to process that information, and it's extremely complex, whether it's tax leakage or automatic information exchange.
So that's why we're saying not only do we need to go beyond the current level and compensate for the losses, which we're doing, but we also need to go a lot further and invest a lot more money.
In my opinion, the Biden administration has realized that in the current emergency situation caused by, among other things, all the additional expenses generated by the COVID‑19 pandemic, it is time to recover that money. These funds can only be accessed by increasing the number of experts and specialists who can investigate and catch the fraudsters, who are the hardest to catch.
That's why we consider our request to be important.
I would like to thank all the witnesses.
Before I propose my motion, I would like to provide some context.
Next Thursday, we will continue the committee's study on the same subject. The purpose of the meeting is to identify the key witnesses in this case. As I understand it, so far, the six witnesses who were named in the CBC article have not accepted the invitation. One of these witnesses, who is not a Canadian citizen, has reportedly declined any offer, and the others who are the subject of the motion that will be discussed have not refused to appear. I understand that some deadlines can be tight and that, ideally, the committee could adopt a motion to invite these witnesses. However, since the committee meeting is on Thursday and after that we'll have only one meeting left with the ministers, I would move a motion to summon these witnesses.
I really want to clarify that these motions aren't about witnesses who have refused to appear before the committee. Given the tight timelines and the fact that we haven't received any responses so far, I would like to ensure that we hear from key witnesses in this important study. That is why I have forwarded a motion to you.
Here's the wording of the motion I'm proposing:
That Michael Morris, Susan Gibbons, William Maycock and Serge Bilodeau be summoned to appear before the Committee as part of the study on the Canada Revenue Agency's efforts to combat tax avoidance and evasion, during the meeting of Thursday, June 17, 2021, and that the Committee order Ian Morris to forward Michael Morris's contact information to the clerk of the Committee so that he can summon him to appear.
Thank you.