Witnesses appearing before the Committee made a variety of statements in relation to tax collection agencies and the exchange of tax information. For example, they commented on the transparency of bank and ownership information, the U.S. Foreign Account Tax Compliance Act, tax information exchange agreements, double taxation treaties and the automatic exchange of tax information.

A. Transparency of Bank and Ownership Information

A number of the Committee’s witnesses spoke about some of the challenges faced by tax authorities when collecting information from foreign jurisdictions. The OECD, Don Johnston and Global Financial Integrity stated that certain tax havens and offshore financial centres have bank secrecy laws that make it difficult to obtain financial information that is specific to an individual. The Tax Justice Network shared the results of its study of the level of secrecy in countries around the world. In particular, it found that the top five “secrecy jurisdictions” were Switzerland, the Cayman Islands, Luxembourg, Hong Kong, and Delaware and Nevada in the United States.

Some witnesses noted that small corporations may be used to conceal income and activities from tax authorities and the public. Global Financial Integrity and the Halifax Initiative said that the government should require every corporation and trust created in Canada to provide beneficial ownership information about the true owners of the entity. The Tax Justice Network suggested that all countries should require public disclosure of the ownership of all companies and trusts created in their jurisdiction. Paul Collier advocated stricter liability for the law firms that establish such corporations, while H. David Rosenbloom — a tax lawyer with Caplin and Drysdale who appeared on his own behalf — noted that there is a long history of secrecy in relation to tax information to ensure taxpayer compliance with the law, but felt that public disclosure of tax information related to corporations and trusts could be examined.

B. U.S. Foreign Account Tax Compliance Act

In their appearance before the Committee, some witnesses discussed the U.S. Foreign Account Tax Compliance Act (FATCA), which came into force on March 18, 2010. The FATCA requires foreign banks to disclose annually, to the IRS, the names of all American account holders, or a 30% withholding tax will be applied on all U.S. income earned by the institution or by an account holder. The Canadian Bankers Association stated that, with the FATCA, the United States is trying to bypass the exchange of information between the IRS and foreign tax authorities and, instead, to get information directly from foreign financial institutions. In its view, this approach could create problems because of conflicts between Canadian privacy legislation and the FATCA.

As well, a number of witnesses said that the size of the U.S. economy and the amount of money invested in the United States by non-resident individuals has allowed the United States to have some success with reporting requirements in respect of foreign accounts. While Arthur Cockfield suggested that Canada should pursue mandatory bank account reporting requirements for foreign financial institutions operating in Canada, David Sohmer thought that this measure would be much more difficult for the Canadian government to pursue due to the relatively small size of the Canadian economy and the importance of foreign investment in Canada. Robert Kepes advocated an examination of the implementation of a FATCA-like regime for foreign financial institutions that operate in Canada, while Global Financial Integrity indicated that Canada should implement its own version of FATCA in order to prevent cross-border tax evasion by individuals. The Tax Justice Network requested a FATCA-like regime that would apply to foreign branches of Canadian banks and would require such branches to submit financial information in relation to Canadian account holders to the CRA or risk losing the right to operate in Canada. Finally, in order to promote the exchange of taxpayer information, Arthur Cockfield advocated incentives that would induce tax havens and offshore financial centres.

C. Tax Information Exchange Agreements

As noted earlier, some witnesses informed the Committee that the OECD’s Global Forum Working Group on Effective Exchange of Information has developed a model for TIEAs, with the aim of promoting international co-operation on tax matters through the exchange of information. A number of witnesses supported Canada’s involvement in negotiating, signing and ratifying TIEAs specifically and in exchanging information more generally, and some felt that the use of tax havens and offshore financial centres for illegitimate purposes is minimized when there are agreements on transparency and the exchange of information between foreign jurisdictions and Canada. Scott Michel and David Sohmer argued that TIEAs prevent “fishing expeditions” because the name of the person and the foreign account number are required. Claude Vaillancourt stated that tax authorities are hampered because of the detailed information that is required in order to pursue prosecution of tax evaders, as ownership of funds is often disguised, for example through the use of holding companies. Other witnesses indicated that it takes a long time to correlate the information obtained in the foreign jurisdiction with the identity of the Canadian taxpayer. In order to address concerns about delays and a lack of information, the Canadian Bankers Association suggested that the government should attempt to incorporate the automated non-resident reporting requirement that exists in the Canada–U.S. double taxation treaty into TIEAs. It also supported an increase in the number of signed and ratified TIEAs. Arthur Cockfield commented that countries that sign TIEAs may not co-operate and share information due to differing tax and privacy laws; in that context, he advocated a multilateral taxpayer bill of rights to ensure the existence of a “level playing field” for taxpayers and tax authorities.

In commenting on the effectiveness of TIEAs, a number of witnesses indicated that they do not have any measures by which effectiveness can be assessed. Due to the difficulty in processing information requests, H. David Rosenbloom was not certain that TIEAs are effective in obtaining information from foreign jurisdictions, and the Halifax Initiative noted that recent double taxation treaties — including the treaty between the United Kingdom and Switzerland — impose a withholding tax rather than a requirement to exchange the identity of the taxpayer. Gilles Larin suggested that a regular review mechanism designed to examine the effectiveness of TIEAs is needed, and said that the government should establish key indicators of success; these indicators could be modelled on existing indicators developed by the European Union and could be part of memoranda of understanding between signatory jurisdictions once a TIEA has been ratified.

D. Double Taxation Treaties

In speaking to the Committee, Gilles Larin stated that changes in domestic law and international standards require the establishment of amendment mechanisms for double taxation treaties. In particular, he noted that changes to these treaties can occur through the negotiation of a new treaty between countries, an amendment to an existing treaty — which is known as a “protocol” — or the establishment of an agreement between tax authorities. In his view, Canada should undertake a review of all double taxation treaties currently in force in order to identify treaties with obsolete information exchange provisions; Canada should repudiate those treaties if a new treaty, protocol or agreement is not concluded. The Quebec Association for the Taxation of Financial Transactions for the Aid of Citizens suggested that Canada should not negotiate tax treaties under the OECD’s current model, and should instead review the current agreements to ensure that they prevent “tax leakage.”

Gilles Larin spoke about the tax convention between Canada and Switzerland, noting that — unlike the majority of Canada’s tax conventions currently in force — the prevention of tax fraud or tax evasion is not a stated goal of the recent protocol to amend the convention. As well, according to him, Switzerland will not assist a foreign tax authority when the tax information request is based on information obtained from informants or whistleblowers. In February 2011, the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes decided that TIEAs signed by Switzerland to that date had not conformed to the OECD’s TIEA standard. As a result, in that month, Switzerland reduced the amount of documentation required for a tax information request by another tax authority and now allows taxpayers to be identified without using their name; as well, it permits the financial institution to remain unknown. All of Switzerland’s tax conventions and amending protocols signed prior to these changes, including with Canada, will need to be changed.

In commenting on improved sharing of information, an official from the Department of Finance noted that Canada has signed amending protocols with Austria, Barbados, Luxembourg and Switzerland, and has begun negotiations on protocols with Malaysia and Belgium.

E. Automatic Exchange of Tax Information

A number of the Committee’s witnesses spoke about the possibility of automatic exchange of tax information between tax authorities to aid in the taxation of offshore income and to prevent tax evasion. In noting that TIEAs that involve the exchange of information upon request by a tax authority may be ineffective, the Halifax Initiative and Canadians for Tax Fairness advocated the creation of a multilateral framework for the automatic exchange of information between tax authorities and for the collection of financial information related to transfers made by financial institutions to non-resident individuals, corporations and trusts. The Canadian Bankers Association and a number of Canadian banks, such as Scotiabank, BMO Bank of Montreal, the Canadian Imperial Bank of Commerce, HSBC Bank Canada, RBC Royal Bank and TD Bank Financial Group, supported a multilateral approach so that rules would be harmonized among countries. However, an official from the Department of Finance said that the automatic exchange of information would only be effective among countries that have similar tax systems and that collect similar information.

Global Financial Integrity highlighted the success of the multilateral EU Savings Taxation Directive, which requires the automatic exchange of financial information between a financial institution and the domestic tax authority of the taxpayer receiving a payment from that institution; it advocated a similar system for OECD member countries. The Tax Justice Network noted that the automatic exchange of the identity of the recipient of the payment — and not the amount of the payment — would be required. In speaking about the exchange of information in relation to taxpayer identity, Arthur Cockfield mentioned that taxpayers could be identified by a unique number so that countries could trace and track a taxpayer’s income.