Figures looking into the House of Commons chamber on Parliament Hill. (Photo: BRENDAN SMIALOWSKI/AFP/Getty Images)
"I believe that we need to confront this as a political issue, not a technical one. We must take this by the horns and legislate against the tax havens, treating them as adversaries, not allies." --Alain Deneault
In 2013, the finance committee undertook a five-meeting study called "Tax Evasion and the Use of Tax Havens," initiated by a motion tabled by my former colleague NDP MP Hoang Mai.
During these 10 hours, the committee heard from 26 witnesses and addressed various angles of this issue, such as money laundering, the estimation of the tax gap (the amount of tax revenues lost to tax havens) and transfer pricing (a way for corporations to avoid taxes by buying over-priced goods or services from subsidiaries located offshore, allowing the corporation to increase their profits in a low-tax jurisdiction while decreasing their own taxable profits in Canada).
In the end, this study gave birth to a 62-page report and a mere 11 recommendations. It is now gathering dust on a shelf, and the surface of the problem has barely been scratched.
In May 2016, an NDP motion once again initiated a five-meeting study on "Canada Revenue Agency's Efforts to Combat Tax Avoidance and Evasion" that dealt solely with KPMG and the Isle of Man tax scheme. The report will be tabled this fall.
The offices of KPMG LLP, left, in the Canary Wharf business and shopping district in London, U.K. (Photo: Simon Dawson/Bloomberg via Getty Images)
Don't hold your breath for any significant insight into fighting tax havens and aggressive tax avoidance, for the following three reasons:
First, KPMG has been hiding behind attorney-client privilege (tax lawyers were involved in the scheme) to avoid answering questions.
Second, KPMG also brought about a chill effect to the committee by warning of the risk to undermine legal proceedings that are already underway (KPMG is before the Tax Court of Canada to plead the legitimacy of the scheme, and the government is trying to get the names of those who benefited from the scheme through the Federal Court of Canada).
Parliament is unable to undertake a meaningful study because it bows to outside pressures.
Third, the Canada Revenue Agency's operations are almost completely opaque, and CRA officials do not hesitate to invoke privacy issues to justify their refusal to provide answers.
It does not need to be this way. The House of Commons and its committees have tremendous powers. These powers supersede the privilege between attorneys and their clients, between doctors and their patients, as well as between clergy and the faithful. These are powers to be used with great care, but they belong to the duly elected representatives of Canadians.
Although this is a critical problem that defines our times, Parliament is unable to undertake a meaningful study because it bows to outside pressures.
What are the problems ?
First, a major challenge is the banking secrecy laws and inadequate financial records requirements from known tax havens with which we have agreements. This problem will require an international solution and political will from key actors, such as Canada.
Second, another well-known problem is double non-taxation. Canada doesn't tax corporations that operate in another jurisdiction, even if they are subsidiaries of a Canadian company. It could do away with the exemption system, where repatriated funds by the Canadian entity are at least partially taxed.
Third, another proposal that would deserve careful study -- and that would also require international negotiations -- is a system where corporate income is taxed where it is earned on a proportional basis. For example, if a corporation and all its subsidiaries earn 55 per cent of their worldwide revenues in the United States, 20 per cent in Canada, 10 per cent in Germany, 10 per cent in France and five per cent in Japan, it would pay taxes at the going rate of these countries for the same proportion of its profits.
It might be feasible, or it might not. But it is certainly worth a try. And it is certainly worthy of a meaningful, comprehensive study.
But if Parliament refuses to address the issue, who will?
Tax evasion and aggressive tax avoidance cannot solely be studied on a part-time basis at the fnance committee that is already busy during the entire parliamentary year. Five-meeting studies will lead nowhere. What is required is a meaningful, full-fledged commitment from Parliament.
The House of Commons needs to strike a special committee, with full resources and with the support of fiscal and legal advisers. This special committee will work exclusively on this problem for two or maybe three years and will produce a report whose recommendations could not be ignored by the government.
Why is a special committee is needed?
Establishing a special committee for multiple years will give parliamentarians the opportunity to undertake a full study. This study will enable them to hear from various witnesses and to come up with a series of recommendations that will force political parties to take a position on this critical issue.
A special committee will also endeavour to study the systemic fiasco that is the Canada Revenue Agency. For many years, the CRA made headlines for the wrong reasons, and it is essential -- practically mandatory -- that we look at potential reforms for the agency.
A special committee will create a unique platform where specialists such as Arthur Cockfield and Brian Arnold will have the chance to propose their own recommendations and hear from provincial representatives on how they deal with tax havens and tax avoidance.
This report will be released shortly before the 2019 federal elections, and all political parties will then be under pressure to include the solutions it propose in their electoral platform.
There is no doubt that fighting tax evasion and aggressive tax avoidance will mean confronting very powerful interests who will push back with a large arsenal of resources, from public relations to lawsuits. We, as parliamentarians, cannot be intimidated. We have the responsibility to end this two-tier system, a system that is lenient and permissive with the powerful while harsh and unforgiving for the rest of us.
Let's get to work.
Part 1 - Tax Havens and the Threat to Modern Democracy
Part 2 - KPMG, the Isle of Man and the Impotence of Parliament
Part 3 - Tax Agreements: From Double Taxation to Double Non-Taxation
Part 4 - Liechtenstein to Panama: The Era of the Leak
Part 5 - The Canada Revenue Agency: From Watchdog to Enabler
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