:
I call the 57th meeting of the Standing Committee on Finance to order.
I want to welcome our guests here this morning.
We are continuing our study of tax evasion and offshore bank accounts, pursuant to Standing Order 108(2).
Colleagues, we will have committee business at the end, but for the first hour and a half we have three witnesses here.
First of all, we have Mr. Scott Bartos, senior vice-president and chief compliance officer with HSBC Bank Canada. Secondly, we have Mr. Scott Michel, president, Caplin & Drysdale. And as an individual, we have Mr. Sohmer, a shareholder with Spiegel Sohmer Incorporated.
Gentlemen, thank you all for being with us this morning. You'll have about seven to ten minutes for an opening statement, and then we'll have questions from members of the committee.
We'll start with Mr. Bartos, please.
:
Thank you, Mr. Chairman.
We appreciate the opportunity to appear today before the committee to make this statement and to answer any questions you may have about HSBC Bank Canada.
I understand that HSBC has been called today to provide some information about the use of offshore accounts by Canadians. Before providing any specific comments about this particular topic, it is important to place the issue into context. In particular, I would like to provide some background information about HSBC Bank Canada, who we are, and what we do. I also think it's important to understand how HSBC Bank Canada fits into what is known as the HSBC Group. I would also like to touch upon something that is very core to HSBC, and that is our values and how we conduct business. Finally, I will touch briefly on the use of offshore accounts by Canadians.
HSBC Bank Canada is a Canadian bank. We are incorporated here in Canada and regulated by the Office of the Superintendent of Financial Institutions. We are the seventh-largest bank overall in Canada. We were established almost 30 years ago, in 1981, and we've grown to a network of more than 140 branches here in Canada. We have over 8,000 employees. We provide a wide array of financial services to over one million Canadians. These include personal financial services, whether it be financing your house or giving you a loan. We also represent or provide financial services to a number of commercial organizations, whether they are small, medium, or large.
We are very proud to support the communities in which we operate. We have donated over $3 million in the last year to not-for-profit organizations. We have been a strong contributor to the Canadian economy over the last 30 years. In the tax year 2009, we paid over $200 million in federal and provincial income taxes.
So how does HSBC Bank Canada fit within the HSBC Group? The HSBC Group is an international network of local banks that has grown to over 8,000 offices in 86 countries. The HSBC Group has approximately 300,000 employees and over 100 million customers. We're known as “the world's local bank”.
The group is named after its founding member, which was the Hongkong and Shanghai Banking Corporation, established in 1865 to finance the growing trade between China and Europe. The HSBC Group's differentiating strategy is that we invest in faster-growing emerging markets, and use international connectivity to join those emerging markets with mature markets. It is for that reason that we have over 8,000 offices in 86 countries.
I'm going to touch briefly on the core values of HSBC. The HSBC Group is committed to complying with both the letter and the spirit of the law in all jurisdictions in which we operate. In order to achieve this high standard, the HSBC Group has established a number of mandatory policies that apply to all members around the world, including HSBC Bank Canada. These policies include standards that are designed to deter the use of our services for illegal purposes.
Let me give you some examples of the key procedures we use to deter the use of illegal services. We do not establish accounts for anonymous clients. We verify the identity of all of our customers. We know our customers and the intended purpose of their banking relationship. We periodically monitor our customers' accounts' activity to identify transactions that may appear unusual. We have escalation and investigation procedures for transactions that appear unusual.
We cooperate with authorities, including tax authorities, as permitted by law. We report suspicious transactions, as required by law, to the financial intelligence unit know as FINTRAC. We adhere to a mandatory training regime for all of our employees so they're aware of such issues as money laundering, bribery, and our code of ethics.
The HSBC Group does not condone tax evasion by its clients, nor do we participate in tax evasion.
Now I will go to the crux of the issue before the committee, which is the use of offshore accounts by Canadians.
I think it's important to first recognize that Canadians are very fortunate, in that we have the right to live, work, travel, and do business around the world. There are many reasons for Canadians to have bank accounts in other countries, whether it is to buy or maintain property in Florida or another country, or whether it is for a Canadian who is employed by a Swiss pharmaceutical company or a mining company in Latin America. It may be to support a family member who is going to school in Europe, or to support a business that operates in Asia or elsewhere. As a global organization, HSBC supports its clients' ability to do business around the globe.
As HSBC has many offices around the globe, from time to time we refer customers to other countries so they may open up accounts. Let me give you an example of how this works at HSBC.
If we had a Canadian customer who came into HSBC Bank Canada and who had been transferred to work for a Swiss pharmaceutical company, HSBC Bank Canada would not directly open up that account. Rather, we would refer the customer to one of our affiliates--in this case, HSBC Private Bank Suisse. That is a separate legal entity that carries on business in Switzerland. They are governed by the laws of Switzerland. We would refer the customer to that bank. The account would be opened up in accordance with local laws in Switzerland.
As HSBC Suisse and HSBC Bank Canada are separate legal entities, each subject to their own privacy laws, we would not share information about the client, whether the account had been opened, or what sort of account activity was ongoing.
Regardless of where the account is opened, HSBC applies high operating standards and is diligent in ensuring that it complies with applicable laws.
In conclusion, I want to stress that HSBC does not condone tax evasion by its clients, nor does it engage in tax evasion. The bank paid over $200 million in taxes last year.
We fully support the government's efforts to ensure appropriate payment of taxes by all Canadians. At the same time, we also recognize the right of Canadians to conduct business around the world.
In operating our business, we comply with both the letter and the spirit of the law. HSBC's strong commitment to its values was instrumental in permitting HSBC to withstand the recent financial turmoil without receiving any financial assistance in any of the 86 countries in which we operate. We try to adhere to a very high standard of business ethics.
Mr. Chairman, I thank you for the opportunity to provide some information about HSBC. I will welcome questions at the appropriate time.
Thank you.
:
Thank you, Mr. Chairman.
I am honoured to be a guest of your committee to share my thoughts about issues concerning offshore banking, tax enforcement, and voluntary disclosure.
I intend to very briefly shed some light on the American experience in this area over the last three years in the hope that it will assist you in considering what constitutes effective and efficient tax policy regarding this matter.
The requirements for Americans to report their foreign accounts on their tax returns and other filings have been on the books for many years, but in my 30 years of practice or so we may have seen a few cases from time to time, infrequent criminal prosecutions, occasional audits, and every now and then a voluntary disclosure, largely from an elderly American who had a foreign account and wanted to clean up his affairs before he died so his family didn't have to deal with it.
Beginning in 2007 our Internal Revenue Service and our Department of Justice's tax division began to undertake some very high-profile enforcement activity aimed at Swiss banks--for the most part, at the time, UBS--and at American taxpayers who had failed to report their accounts.
During 2008 and 2009, the U.S. government penetrated the long-standing wall of bank secrecy in Switzerland and sought indictments of Swiss bankers, American taxpayers, and others perceived by our government to have wilfully violated the reporting requirements for foreign accounts or to have assisted Americans in doing so. The media in the United States covered these events aggressively.
What happened was a substantial uptick in the number of American taxpayers who wanted to come forward and make a voluntary disclosure.
For decades the Internal Revenue Service has had on its books a voluntary disclosure policy aimed at giving non-compliant taxpayers a way to come back into the system and avoid criminal prosecution. The policy did not cover civil money penalties—financial penalties that might be imposed on such a taxpayer—but under American law, these penalties theoretically were so high that American taxpayers were discouraged from coming forward.
So a small group of practitioners—I was part of this group—approached the IRS in 2008 and urged them to adopt a settlement initiative that would provide Americans with a clear path to come back into the system and give them a reasonable degree of certainty over what financial consequences they would face for doing so. The program was announced in March 2009, it was updated with procedural and other guidance, and at its conclusion in October 2009, some 15,000 Americans had come forward to acknowledge their previously undeclared foreign accounts.
The program worked reasonably well, especially in the criminal intake phase, when the person would initiate the voluntary disclosure through the criminal investigation division of the IRS. As the cases have moved to the civil side, the program has broken down, and there have been a number of issues that the IRS has had to grapple with in administering the program and processing the cases.
Included in my material is an article that a colleague of mine and I wrote to catalogue some of these problems. We could be here all day to discuss them.
But from these events, I have developed a few thoughts over what would constitute, at least to me, an effective voluntary disclosure policy.
Number one: the policy should provide a clear path without any degree of trickery or risk for somebody to come back into the system and be reasonably assured that they will not be prosecuted for criminal tax violations. If the program does not provide for this type of risk-free approach, it will fail.
Secondly, obviously a taxpayer coming forward must pay tax, must pay interest. The significant issue is what will the penalty liability be for such a taxpayer. In my judgment, there ought to be a balance between a one-size-fits-all penalty, which is clearly very efficient to administer, and a penalty that recognizes that these cases fall across a panoply of conduct. Not everybody is a real tax cheat. There are some people who inherited accounts, who have managed them very passively, who have not benefited from their funds, and who would like an opportunity to attempt to argue for leniency when it comes to a civil penalty.
Third, there is also, at least in the United States, a class of taxpayers who live outside the country. For these people, tax compliance has not been very high. They're not criminals; they generally don't owe tax, because of applicable foreign tax credits. But in my judgment, a policy ought to take into account that there are “foot faults” in compliance that should not be penalized in the same way as real tax cheating.
Fourth, any policy ought to process these cases efficiently and rapidly. One of the things that broke down in the United States was that the IRS sought to audit every amended tax return that came in at the beginning of the program. The system quickly broke down. There was simply not enough time and not enough resources for this to happen.
In my judgment, a program can simply announce that it will spot-check amended returns. Practitioners and clients will then know that this would not be a good time for them to cheat again by filing false amended returns—this would be a foolish thing to do. The returns can be processed quickly; the cheques cashed; and the agents can move on to the next case.
Finally, and what I think to be most important, any successful voluntary disclosure policy should be accompanied by effective and public tax enforcement. I call it the velvet glove and the iron fist.
The IRS and the justice department in the United States have prosecuted maybe 25 UBS account holders; they've prosecuted people holding accounts at other banks; they have prosecuted bankers, lawyers, and investment advisers. Every time they did so, my telephone and the telephones of many of my colleagues would ring off the hook. People would come forward to make voluntary disclosures in response to this public enforcement action.
People who are considering whether to come forward should sense a real risk of what might happen if they don't. In an era where bank secrecy around the world, in my judgment, is fading away, this effective and public prosecution will continue to encourage people to come forward.
Thank you for your attention. I'm prepared to answer any questions you may have.
:
Good morning ladies and gentlemen, committee members. My name is David Sohmer, and I practise tax law in Montreal. This morning, I will discuss a topic of national interest. Since I express myself better in English, I ask you to forgive the fact that I will speak only in that language during my presentation.
[English]
Sound tax policy should be based on facts, not on fantasy or fiction, and my presentation attempts to provide the committee with facts, from the perspective of a tax lawyer who has been involved with the voluntary disclosure program since its inception.
The following are some of the more important facts contained in my brief.
Firstly, there has been a dramatic shift in the demographics of Canadians who availed themselves of the voluntary disclosure program in the last five years, from baby boomers to the parents of baby boomers. In 2003-04, the main clients were 49-year-old males. Based on an analysis of 51 clients who have engaged me in the years 2009 and 2010, the average age is 72 and the median age is 75 years; 57% are male and 43% are female; and most of the females are widows who have inherited the accounts.
The increased number of disclosures has had little to do with CRA enforcement activities. The increase is almost exclusively due to events that by happenstance occurred in the same timeframe. The first was a change in registration requirements for investment dealers and advisers by the Canadian Securities Administrators. The change was effective as of September 28, 2009, and provided an exemption for foreign banks whose Canadian clients were restricted to those with net financial assets of more than $5 million.
UBS and Crédit Suisse, as well as other foreign banks, contacted their Canadian clients and requested written certification that the clients met the threshold, failing which they would no longer provide dealer and advisory services.
The second factor was the aging of the parents of baby boomers. They have accumulated substantial wealth, and the older they get, the greater their desire to put their affairs in order before they die.
The third was a highly publicized deferred prosecution by the American IRS of UBS.
The fourth was the highly publicized theft of data from LGT Treuhand, a Liechtenstein bank, and from HSBC. The data contained the names of Canadians who held accounts with the banks.
The next important fact is that the era of banking secrecy is not over. Article 26 of the OECD model tax treaty is the international standard and is reflected in the protocol to the Canada-Swiss tax treaty signed on October 22, 2010. Canada must provide the Swiss with the name of the taxpayer and the name of the bank. Fishing expeditions are expressly prohibited. Most golden agers have not deposited or withdrawn funds for over a decade, so Canada is unlikely to know their identity, and the risk of detection is minimal.
The next important fact is that the voluntary disclosure program is being undermined by CRA policy and by the refusal of Quebec to harmonize its program with that of the CRA.
The current CRA practice provides for a predictable set of acceptable outcomes, a critical aspect of a successful voluntary disclosure program. The CRA, however, does not preach what it practices. Its official policy gives voluntary disclosure officers substantial discretion in determining which years should be included in a disclosure. This raises consistency and predictability issues, which will deter taxpayers from disclosing.
The most serious threat to the program is the refusal of Quebec to harmonize its program with that of the CRA. The Ministry of Revenue of Quebec insists on taxing the balance that was in the account six years ago as income earned in that year. This has no legislative authority, and unlike the CRA policy, Quebec refuses to allow its decision to be attacked by administrative appeals or appeals to the courts, even where there is a lack of due process or where the decision is clearly wrong on its merits.
Pursuant to an agreement between the CRA and the MRQ, the CRA provides the MRQ with information relating to disclosures made to it, so a disclosure to the CRA is effectively a disclosure to the MRQ. Since there is little risk of detection, at least in the next five to ten years, it is expected that many Quebec residents whose children reside out of the province will not disclose. Their children will probably disclose to the CRA after they inherit the accounts. The “revenue rule” is a well-recognized rule that the authorities of one state will not assist in the recovery of taxes due to another state. It is clear that the United States will not assist in the recovery of Quebec tax, and it appears that other provinces will not do so either. It is also arguable that the U.S. will not assist in the recovery of federal tax when the liability of U.S. residents' children arises under Canadian law because of an inheritance.
It is estimated that Canadians have $100 billion in offshore accounts. The stars are aligned now as they have never been and as they may never be again. There is a window of opportunity for Canada and the provinces to have tens of billions of dollars repatriated and to realize a significant increase in short-term tax revenue.
The voluntary disclosure program does not encourage non-compliance. Golden agers have not transferred funds offshore for decades, and younger tax evaders are recidivists who do not evade in contemplation of disclosing.
The U.S. and the U.K. have recognized the merits of a pragmatic approach. The American settlement initiative has been described by my fellow witness Scott Michel, a recognized authority on the U.S. voluntary disclosure program, as ranking “in the upper tier of compliance successes ever implemented”.
For bureaucratic paranoia, Quebec-Ottawa friction, and electoral politics to impede a successful voluntary disclosure program is not in the national interest; nor is it in Quebec’s interest.
I'll be happy to answer questions from the committee.
Thank you.
:
The point I wanted to make is that we still seem to be talking about the voluntary disclosure program, which is basically saying, let's deal with the problem after it has happened; let's not prevent it. Where are the deterrents?
We're doing a study on tax evasion. If we do nothing, or if we more rigorously do a better job on the voluntary disclosure program, the problem gets bigger. So let's move away from the voluntary disclosure program.
From your experience or expertise, if you have anything to offer, what deterrents, what factors are in play that we have to deal with to permit people to in fact take those steps? They don't do it as individuals. There are lawyers, accountants, consultants, banking officials, offshore officials, etc., who are all involved and who have knowledge of what's going on.
Are there any significant effective deterrents to the problem before it occurs, rather than after?
:
I might add that Canada doesn't have the muscle of the United States to have as effective a deterrent. We're a small country. They're a large country; they have much greater resources.
UBS, for example, had 28,000 employees--more employees in the United States than they had in Switzerland. In the rest of the Americas, there were about 1,100 employees. UBS assets here, in terms of its branch operation and its subsidiary, were in the nature of about $2 billion, which is a grain of sand.
Even in the United States, it was not possible for the IRS to bring UBS down after Lehman Brothers collapsed, because the world financial system would have collapsed.
This problem is international in scope. Canada has limited resources to deal with it.
:
My comments and questions are for the HSBC representatives.
I do not want to go back to the comments Mr. Mulcair and I made at the very beginning. However, you say that you are committed to following the letter and the spirit of the laws and that you represent HSBC Canada. So you should know that you have to submit bilingual documents here. I would like to thank Mr. Michel, who is an American, for respecting Canada's laws.
That being said, just as we do not choose our parents or our siblings, you seem to want to distance yourself greatly from your HSBC colleagues abroad. After boasting about the fact that you are present in 86 countries, you seem to be telling us that those 86 countries are responsible for what happens over there. In a way, you are absolving yourself of all responsibility.
Your bank is this seventh largest chartered bank in Canada. You say that you must establish and verify your customers' identity and, at the same, even though you do not participate in evasion, you say that HSBC does not open bank accounts in Switzerland and that it does not open bank accounts for the father of the family that sends his child to Paris or London. However, that is not what we were talking about. What we would like to know concerns Canadians who want to open a bank account in Panama, Belize, or the Cayman Islands.
You seem to have built up something of Chinese wall, to use a financial expression, among HSBC Canada and its branches abroad. A list came to light of almost 2,000 Canadians with an HSBC bank account in a tax haven. That must have resulted in bad publicity for you. Here's my first question: Has HSBC group conducted an investigation to determine how this information was leaked?
I have to say that my juices got flowing as I was listening to some of these testimonies. My background is that I'm a police officer on a leave of absence, so as I was listening to you, Mr. Michel, make your statements about how we might provide more leniency to those who frankly are cheating their countries out of taxes that are owed, I thought I was going to have the big one.
Voices: Oh, oh!
Mrs. Shelly Glover: But now you're saying that you do believe in aggressive enforcement, so I'm a little confused.
I thank Mr. Szabo for asking about deterrence, because essentially we believe that deterrence is an essential part of making sure that criminal behaviour, illegal behaviour, is addressed. So with the statement that you've made to begin with and the comments you're making now, it seems like you're not entirely on one side or the other. You're kind of sitting on the fence.
I'm going to provide you with some quotes from some things you've said in the past, and I want your new observations on those quotes, if you wouldn't mind.
In May 2008 you wrote an article in the International Tax Review entitled “Voluntary disclosure becomes a necessity”. In the article, you cited countries “making greater use of tax treaties and tax information exchange agreements, and engaging in more spontaneous disclosures of data from one taxing authority to another”.
Then you went on to write:
Exemplifying this trend, the US, Canada, the UK, Japan and Australia have established the Joint International Tax Shelter Information Centre (JITSIC), aimed at sharing information on tax shelters and on the professionals and financial institutions that plan and promote them.
Then again, you write:
Meanwhile, bank secrecy in tax haven jurisdictions is becoming an increasingly flimsy reed of protection. Even such formerly secret locales as Switzerland, the Isle of Man and the Jersey Isles are responding to properly-framed requests from other countries under applicable information exchange provisions, unimpeded by legal challenges from the businesses and individuals affected.
Mr. Michel, I want to ask you if you still hold this view that the ability of tax avoiders to hide money offshore is becoming more and more difficult due to steps taken by countries like Canada and its partners in the JITSIC.
:
I don't know if I agree with you, sir, and here's why. I have to side with Monsieur Paillé on this; when I hear that the interest of some of our banks is to prevent the theft of information that actually helps us, that this is their priority, that bothers me. That would say to me that bank secrecy is not going to change.
I'm open to hearing your expertise on it, and I'm going to take it into consideration; however, I have a real problem hearing all of the evidence today and trusting that this is, in fact, the track that we're on. I don't know if bank secrecy is something that is going to decrease.
Nevertheless, the CRA is a member of a number of international organizations and forums, and they work together to counter aggressive international tax planning. I just want to give you the names of some of these forums: the OECD working party on exchange of information and tax compliance; the Global Forum on Transparency and Exchange of Information for Tax Purposes; the Forum on Tax Administration; the Joint International Tax Shelter Information Centre, which we've already spoken about; and the Seven Country Working Group on Tax Havens. So the CRA is very much involved in the exchange of information and of course in the enforcement to ensure that we do target these tax havens. I believe that is a good step forward to ensuring that this is addressed. I believe some significant things have been done through the OECD, etc., to make sure that this is a priority.
I have to say, we had a witness just last week—I don't know if you saw any of the testimony--who claimed that in the last several years there's been remarkable progress here in Canada. I'd like your opinion on the progress that's been made in Canada. I know you're from the States, but surely you have some insight into the progress made here in Canada in the last five years. I'd like to hear from you on what you think are the significant actions that have been taken by Canada, the right steps in the right direction.
:
When a taxpayer comes to us to initiate a voluntary disclosure, it's important that we quickly gather their banking information so we know exactly how much previously unreported income they now need to report. And we need to identify them to the Internal Revenue Service as quickly as possible to lay down our marker that they want to come in and make a voluntary disclosure.
The system that ultimately developed in the U.S. special program, which provided an expedited way back into the system for these people, was quite effective. Basically, there was a pre-clearance process where we would provide the name of a client to the Internal Revenue Service. We would ask if a disclosure would be considered timely, and then they would check their files over a period of a week or two and get back to us and say, “Yes, it will be considered timely.”
That was essentially the protection that a client needed, to know that he wouldn't be prosecuted. Once they make a timely disclosure, the rest of the disclosure is simply ensuring that it is truthful and complete, and that they pay their liability.
As an immediate step, I would suggest you give people a risk-free path into the system.
:
Good morning gentlemen. I will direct my comments first to Mr. Bartos.
To get back to what my colleague was saying earlier, you started your presentation by showing how important your company is. There is no doubt about that. Some news articles mention HSBC as an international banking giant. That's what you said as well. However, I dislike the fact that you represent your company in Canada and that, when submitting documents, you failed to recognize the fact that this country has two official languages. I am part of the French-speaking nation in Canada. That being said, I will move on to something else.
You said that, when a client wants to open a foreign account, the bank itself does not transfer the money. As someone said earlier, you sort of wash your hands of the whole thing. You refer the client to your representative in the other country. Given the fact that it is nevertheless your company which is then targeted in case of a potential tax evasion, I was wondering if you take into consideration the grey list established by the OECD. This is a list of countries with lax policies respecting the disclosure of declared income sources and paid taxes. These are countries where tax evasion is likely to occur.
In our discussions related to a bill on a free trade agreement with Panama, the Liberal members said that tax havens are legal, that it's okay and we should accept them. Perhaps tax havens are legal, but the tax evasion that could take place there is illegal and even immoral.
I would like to know whether or not you refer clients to banks in countries that are on the OECD grey list.
I think I want to follow up on the point Madam Hughes was travelling down. I'll direct the first comments to Mr. Bartos.
Certainly I think all of us recognize that Canadians do business throughout the world and have many reasons for perhaps wanting to have accounts in other countries. I'll use a personal example. My husband someday wants to perhaps be in the sun of the United States in the winter, and thought that having a U.S. account would be very helpful. I actually participated in that process as he set up that account. It was very interesting, because we sat in an environment in British Columbia and set up both a Canadian account and an American account, which I guess are separate entities. But it really felt very much part of the same thing we were doing as we set up these two accounts. Certainly we intend, of course, to be very up front in terms of what we do and how we do it.
It's a prime opportunity for an education for any client who is sitting in that room on understanding the tax implications or for having some handouts. And there is no focus on that area right now in terms of your focus with clients as they go through this process. Could you talk about that?
Then I'd ask you, Mr. Michel and Mr. Sohmer, if you think that would have any benefit or value if that happened as part of the process.
:
The primary reporting requirement in the United States is both on the tax return and on a separate form called an FBAR, a Foreign Bank Account Report. It's a special treasury department form. Until three or four years ago, very few people knew that this form existed. It had been on the books since the 1970s. There were penalties in place for not filing it, but nobody knew about it. Most accountants didn't even know about it so that they could advise their clients.
I think anything that educates the tax-paying public on what their obligations are, in terms of reporting, can only be a good thing. The question, to me, would be how that requirement can be imposed on a foreign bank, because that's where the compliance failure occurs.
A U.S. bank can tell U.S. clients, for example, that they have to pay taxes on their interest and dividends, and they have to pay taxes on their capital gains. The U.S. bank will give the client a 1099 every year, a form that says that this is how much money you have to put on your tax return. That's reported independently to the IRS. A bank in Panama or Switzerland or Hong Kong is not going to automatically, I think, say that they need to notify Americans who come in that they need to report this account on their tax returns.
Thank you to all our witnesses. I don't normally sit on this committee; I'm filling in, and it has been very interesting.
Just from listening, one issue that has come up quite often—and I heard this from Mr. Michel—concerns providing a mechanism to allow people who have cheated to come back into the system. These are people who have left. We've lost this income; it's not coming back. It almost seems that we have a demographic both in the U.S. and in Canada whereby people are getting to a point where...well, the baby boomers aging. I guess that's where it is. And their parents are.... There seems to be a new-found conscience, I guess, or their scruples are coming back to haunt them. They almost want to come clean before they die, or they want to make sure that the next generation doesn't get caught into some kind a problem that they've caused for them.
Have any countries out there, or has anything that you know of, caused or put something forward that would allow them to maybe disclose...? I'm not going to say a tax holiday, or a penalty-free time, but has there been anything where we say, okay, for two years they can come forward, and their past indiscretions will be recognized, but they won't get the heavy stick right away that was talking about? I mean, after that, if they still try to avoid that, they will get hit hard. There's no question. There has to be a penalty. But for a year, maybe two, maybe three...I don't know how long it would take.
Are there any examples out there where this has been implemented? And what were the results?
Mr. Sohmer, in your opening remarks, you talked about the demographics and some information about your typical client. As you've looked at them, you mentioned that they had an average age of 72, with an average offshore account of $3.7 million, or a median account of $1.2 million. The difference between male and female was pretty much the same.
One thing you didn't mention in your opening remarks, which is in your document, is that 51% of them were immigrants.
It seems, based on that number alone, that I guess a lot of new Canadians, people who have come to this country, could have perhaps opened their offshore accounts prior to coming to Canada in an effort to protect their wealth, maybe coming from a country that didn't have the same kind of assurances that we have here in Canada.
Would that be an accurate statement?
:
I think it's important, and there are some very delicate aspects to it. There are people who came here to escape from dangers to their lives and regarded money in Switzerland as being a source of security in case they had to escape again. It was something that was almost hard-wired into their brains.
The other thing that's critically important about it is that the children of immigrants are more prone to move. They'll move to the United States. People from the United States don't move to Canada; people from Canada move to the United States and to other places. That deals in a very critical manner with our ability to enforce.
There are no international norms for collection of tax. The kids of immigrants who come to Canada will go to school in the United States. One of my kids was in Columbus. One of my kids was in Cleveland. They did come back. They were doctors, by the way, and they happened to like the Canadian system.
But the fact that the demographics include a large number of immigrants is very important, and a lot of it comes from the immigrant mentality that they might have to run again. It's something that does not resonate well with functionaries, but it happens to be a fact.
Where I think Scott and I live, we're in the trenches; we smell the burning flesh. We understand the family dynamics; we're dealing with the stories. These people say they don't know when they'll have to go; that's their security.
:
I can tell you that if they were west of the Quebec border, or east of the Quebec border, given current CRA policy, I would tell them, without any compunction, “Send in your voluntary disclosure. Let's get this done quickly. The practice of the CRA now is perfectly compatible with a proper voluntary disclosure program.”
If they were in Quebec, I would explain the law to them. We have difficult ethical issues. Where somebody has already committed tax evasion, we're under no obligation to compel them, or encourage them, to confess. We cannot be complicit in future tax evasion, but we do have an ethical duty to explain the law.
So let's say they're in Quebec, and you tell them, “Quebec is going to virtually confiscate everything you have, because your portfolio has gone down in value. You have no recourse to the courts. You have kids in Toronto, and if you do nothing, there's little risk of detection. You make the decision.” It's a difficult.... It ends up being a charade. The ethics become difficult.
But to be perfectly honest, when you lay out the possibilities to them and say, “If you do nothing, nobody will catch you”...because the current protocol under the Canada-Swiss treaty does not allow Canada to obtain the information without having the name of the person and the name of the bank. They're not going to have the name of a 75-year-old using a walker who's just come into our office. So if you say to them, “When you die and your kids inherit, and your kids come clean with the CRA, and the CRA communicates the information to Quebec, Quebec will get its judgment but they can't enforce it in Toronto, so you'll save half the taxes”...and maybe they'll save even 90% of the taxes.
We can't encourage that, but I think we have an ethical duty to explain what the law is. It's something that I've discussed with Scott in terms of ethics. But if you explain the law....
I mean, one of my confreres, Dick Pound, before the Supreme Court in a case called Copthorne, happened to mention that if anybody has an IQ that's above room temperature, they know what to do--not in the context of tax evasion.
:
Okay. I'll go on to my last question.
There seems to be reluctance on the panel's part of taking what some would call draconian measures. There's a fear, I think, that if you go after people, there will be less incentive for them to come out. But they already have the voluntary disclosure program anyway. How much more generous could you possibly be?
So if you've already given them the best you can pretty well give them anyway, why wouldn't you try some more draconian measures? The U.S. has a whistle-blower type of arrangement. I don't think Canada really has anything like that.
The public education thing is not to just say, well, everybody should pay their taxes, because that's what we do to pay for our health care, etc. It's to educate them: if you decide to take care of yourself first, there are consequences.
Is that the kind of education we should have?
:
Thank you very much, Mr. Chair.
I would like to thank each of our witnesses for being here today.
I just want to comment on the information that was provided to us, certainly from you, Mr. Sohmer, and you, Mr. Michel, on the work that you've done, on your expertise, and certainly on the extensive lecturing that you've done in many countries, which I think supports what I've come to understand: that this is a challenging issue and one that is a huge issue around the world, and that there is a will to address this issue.
Mr. Sohmer, earlier you made a reference to Canada's inability or lack of muscle to address the issue to the degree that a country like the United States can. But we know that Canada is one of 95 jurisdictions that have agreed to the international standard for exchange of information, including providing access to bank information, as well as having an extensive network of tax treaties, one of the largest in the world, with 87 tax treaties in force. Also, budget 2007 announced measures that would encourage TIEAs. I'm just wondering if you would be willing to comment on Canada's actions to date in terms of addressing this challenging issue.
I would open that up to any of you.
:
Well, we have sent in.... Part of the material I have is an extensive brief that we sent to the Quebec authorities. I'll give you one small example.
We have clients who in 1946, after having survived the Holocaust in Hungary, moved to Mexico and in 1993, at age 73, moved to Canada. The immigration papers show “retired”.
We have no idea what he had in 1993, but we do know that in 2000 there was essentially $5 million with UBS. He died. The widow is now relying on the money. She is not necessarily compos mentis. We would like to clean it up.
We've made a deal with the federal government whereby the tax on the income only for the 10 years would be imposed, with some interest. Quebec is insisting on taxing the opening capital. When we say that from 1993 to 1999 it is absolutely impossible for a 73-year-old to have earned that money, their answer is, we don't care; we're going to tax it.
The fact is that she's relying on that money. We have no alternative but to go to court, and we will take Quebec to court. What's going to happen is that not only will we have the litigation, but people are simply going to move to Toronto, move to the United States—they'll leave it. Because of the bureaucratic position, I think the program faces a significant threat of closing down in Montreal, federally and provincially.
I might add that under the CRA—
:
Thank you, Mr. Chair. I move the following motion:
That the Honourable Michael Holcombe Wilson be summoned to appear before the committee on Thursday, February 17, 2011, at 8:45 a.m.
The motion simply aims to follow up on several discussions that have taken place. Before the holidays, we heard from a prominent lawyer from a major law firm specializing in tax law. The firm is very well-known and represents many people with political backgrounds. The lawyer in question wanted to know why we wanted Mr. Wilson to appear. The answer is very simple: we want Mr. Wilson to testify for the same reason we wanted Don Johnston, former Liberal finance minister, to testify. Mr. Johnston did appear before us.
As you can see, the UBS issue is the one we have talked about the most this morning. Mr. Wilson played a key role for UBS in Canada for several years. Mr. Wilson is too modest. He said that he has nothing to say that could help the committee. However, I believe that, on the contrary, Mr. Wilson, with his experience and expertise, could contribute greatly to our study. Nevertheless, he maintains that he does not want to meet with us. So we have to insist on his appearance. All the motion says is that we should summon him to appear. That is the only way to go about this. In light of this morning's testimony, those who vote against this motion would be saying that they may have something to hide from us.
I will not be supporting this motion to summon. We have received a letter from Mr. Wilson indicating that he understands what the study is about and he has nothing to offer the committee. We've also received that letter.
To compare Mr. Wilson with Mr. Owens is not accurate. Mr. Owens was here in his capacity when he worked, not as the minister in the Trudeau—
Some voices: You mean Mr. Johnston.
Mr. Mike Wallace: I mean Mr. Johnston; I'm sorry.
He was here because of his work with the OECD and the work he did on tax evasion and so on. That was his purpose for being here. Those were the questions we were asking.
If we want to go back and start asking for finance ministers to come, we could go back 30 years and ask Mike Wilson to come. But also, in my view, why aren't we asking the former Liberal finance minister, the Right Honourable Paul Martin, to come back to talk to us about what happened for the 13 years or so—maybe it was 12 years, since he was Prime Minister for a year or so—and ask him what they did while he was there?
I think we appropriately asked Mr. Wilson to attend; he, I think, did the very courteous thing in writing us back saying that he has nothing to offer this committee.
We've had some great testimony today; we've had great testimony before. I think this is a waste of the committee's time. I will not be supporting this motion, and if it passes, I think I'll be putting in an additional motion about other guests to come to see us.
Thank you.