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I will call the meeting to order.
Welcome to meeting number 58 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 the hybrid format, pursuant to the House order of January 25 of this year. Therefore, members are attending in person in the room and remotely using the Zoom application. The proceedings will be made available via the House of Commons website. I think we all know here that only the person speaking shows up when we're in session.
With that, we are fortunate today to have here the Minister of National Revenue, the Honourable Diane Lebouthillier. She'll have a few opening remarks for about seven minutes, I gather.
Thank you, Minister. Not all ministers give us their remarks the night before in both official languages. We appreciate that.
With the minister is Ted Gallivan, assistant commissioner, compliance programs branch, who has been here many a time. We welcome him, as well.
We will start with the minister—
Hello to all my colleagues.
Mr. Chair, I would like to take this opportunity, before beginning my presentation, to wish you a happy birthday.
Thank you for this invitation to provide details on the Canada Revenue Agency's strategies to combat tax evasion and aggressive tax avoidance.
Let me begin by saying that the Government of Canada and the CRA are firmly committed to combatting tax evasion and aggressive tax avoidance on all fronts. And we are all committed to making things much more difficult for those who choose not to meet their tax obligations.
In fact, since 2016, the Government of Canada has made investments that have helped provide the CRA with better data, better methodology and, ultimately, better results.
In particular, these investments have enabled the agency to develop a strategy that promotes global data sharing. Let's face it, tax evasion and aggressive tax avoidance are complex global problems.
The CRA is working with international partners through various multilateral organizations, including the Organization for Economic Co‑operation and Development, or OECD, and its forum on tax administration, the FTA. I was pleased to see that Mr. Bob Hamilton, commissioner of the CRA, was appointed chair of the FTA in August 2020.
As a result of its modern and collaborative strategy, Canada is member to 93 tax treaties and 24 international tax information exchange agreements. In fact, Canada is one of more than 70 countries that exchange information through the country‑by‑country reporting system.
In addition, Canada participates in the electronic funds transfer reporting program, which is related to international electronic funds transfers over $10,000. And with the implementation of the common reporting standard in 2016, Canada, alongside nearly 100 other jurisdictions, benefits from financial institution data that identifies financial accounts held by non-resident clients for tax purposes.
With these improved resources and tools, the CRA is now able to focus on large multinationals, high net worth networks, the underground economy, cryptocurrency and real estate transactions.
The CRA is now seeing these signs of success because of the investments made by the Government of Canada.
In recent years, the CRA has assessed the equivalent of more than $12 billion each year through audits, more than 60% of which were related to tax avoidance by large multinationals and aggressive tax planning by high net worth individuals.
And I must note that these investments have generated approximately $5 billion in additional federal tax revenue, as of March 2021.
Additionally, the CRA's criminal investigations program has enhanced its ability to investigate the most serious tax crimes. It is important to note that the agency investigates complex cases in collaboration with its partners in the Department of Finance and the Department of Justice to close what may be perceived as legal loopholes. And I must remind you that the CRA has shifted its focus to more hard-hitting investigations, which result in more jail time and higher fines.
However, we must never forget that tax evasion often involves very complex domestic and international money transfer structures, which require the CRA to complete lengthy and time-consuming intelligence gathering processes.
I also want to note that we are increasingly seeing high net worth taxpayers using the court system when they are audited in order to avoid providing documents and information to the agency. And I want to emphasize that the volume of complex litigation is up significantly from previous years, with approximately 3,000 active cases considered high level in complexity.
As a result, first announced in the 2020 fall economic statement and confirmed in budget 2021, the Government of Canada has committed to invest $606 million over five years, beginning in 2021‑22, to continue this complex work.
These investments will close the compliance gap for high net worth individuals, strengthen technical support for high-risk audits, improve the CRA's ability to identify tax evasion involving trusts, improve the CRA's ability to stop fraudulent or unjustified GST/HST refunds, and, finally, improve the criminal investigations program.
In addition to the financial investments from budget 2021 legislative changes will also be put in place to strengthen the rules on transfer pricing, oral testimony, base erosion and profit shifting, and mandatory disclosure rules.
Before I conclude, I would like to wish the chair of this committee, Mr. Wayne Easter, a very happy retirement.
I want to thank you personally for your outstanding work on behalf of Canadians. We will miss you.
Mr. Chair, I am proud to say that the Government of Canada and the CRA have shown determination and innovation in creating effective and proactive approaches to identifying those who avoid paying their fair share of taxes or who are taking steps to do so.
Thank you.
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I can agree with the chair. I would certainly like to see more Liberals retire.
Thanks very much.
My question, obviously, is for the minister.
The inability to collect revenue from tax evaders—which is somewhere in the neighbourhood of $10 billion to $25 billion a year—has real consequences. Our debt now, Minister, is over a trillion dollars, the government's debt-to-GDP ratio will exceed 50% and the government has shown little, if any, ability to control spending. Despite raising taxes on many hard-working Canadians and business owners, it has shown also a very poor record of increasing revenue. In fact, it has zero record of it. No doubt that's partially due, as I mentioned, to billionaire evaders and Liberal friends avoiding taxes.
Will the minister finally come clean today and announce when the Liberals will be putting a tax on one of the few tax shelters left to middle-class Canadians—that being their homes? Otherwise, why would they be tracking the sale of principal residency, if not to eventually tax it?
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Thank you so much, Mr. Chair.
I offer a warm welcome to the minister for being here today.
Mr. Gallivan, welcome to you in returning to our committee.
There's a false narrative put forward by the opposition that our federal Liberal government has done nothing to tackle evasion and tax avoidance. We heard from Mr. Gallivan that we've actually made a significant investment since 2015 in terms of tackling tax avoidance and tax evasion. There has been $444 million invested in 2016, $523 million in 2017, $90.6 million in 2018, $150.8 million in 2019, and an additional $304 million in this year's budget.
Minister, we also heard, as you mentioned, that this significant investment of over $1 billion has resulted in over $5 billion of identified additional tax avoidance coming into our coffers.
We've also heard that there's the International Consortium of Investigative Journalists, who do a bit of a ranking. They're the ones who broke the Panama papers and they've ranked Canada nine out of 80 in the world. We're among the top in terms of actually being able to tackle these issues on a global scale. Therefore, I want to give a huge thanks to you for your leadership, and a huge thanks for the leadership at the CRA, for the extraordinary efforts and work that they have done. Thank you for that.
To truly appreciate our efforts and how far we've actually come, can you take a few moments to add a little context to our government's efforts to fund the fight against tax evasion, by describing the situation at the Canada Revenue Agency when you took over as minister in 2015, after nearly a decade of Conservative cuts?
Like the minister, I too want to wish you a happy birthday, Mr. Chair.
I am going to start with a statement. Then I will ask my questions.
Hello, Minister. Thank you very much for being here this afternoon.
The committee has already been working on the problems of tax evasion and tax avoidance for some time, in particular on the tax schemes put in place by KPMG, providing a financial vehicle to enable certain of its clients to reduce their tax payable. In light of the internal documents relating to this plan provided to the committee by KPMG on May 17, 2016, this could be a form of tax evasion, so of something illegal.
All these problems are extremely complex, as you acknowledged and pointed out in your speech. Today, for example, we can read in La Presse that data from the Canada Revenue Agency show that its recent efforts to combat tax evasion by the richest Canadians have not led to any charges or convictions. The same kind of article can be read on CTV.
Experts have appeared here to tell us that there is a feeling of impunity toward the government and the CRA, among the users of the tax havens and the tax law experts who create their schemes. We have been told that to put an end to this kind of behaviour, the United States brought out the heavy artillery to deal with KPMG: investigations by the Internal Revenue Service, threats of searches and of charges of obstructing justice, penalties, criminal charges of fraud and conspiracy against the firm and its officers, and threats to charge the firm with being a criminal organization. Here, there has been none of that. Instead, the CRA has proposed voluntary disclosures and still nothing has been resolved with the clients who did not agree.
The experts reminded us that it is not possible to control what we can't see. Unfortunately, as you said in your testimony, the Canada Revenue Agency does not have access to all the information for doing these audits. For example, KPMG keeps going to court so it doesn't have to share its information with the CRA. The experts denounce the appearance of impunity and unfairness for the rich clients and the companies that create these schemes. They conceal their information from the CRA and contest the requests in court. At the committee, it is extremely difficult to get answers to our questions, to shed light on this entire matter. There are even witnesses who refuse to appear, in spite of the summons issued by the committee. These are no jokes!
I repeat: it is important to shed light on this entire matter and get to the bottom of things. We have to be able to put in place laws, regulations, processes and guidelines to prevent any form of tax evasion. That is why I am asking you, as Minister of National Revenue, to initiate a public inquiry into the matter of the schemes created by KPMG that enabled Canadian taxpayers to collect money in the form of gifts or otherwise, money that was not included in the tax returns of the recipients, from companies in the Isle of Man or any other country, as section 231.4 of the Income Tax Act empowers you to do. I believe the committee could also adopt a motion to that effect a little later.
Do you want to initiate a public inquiry, Minister, please?
Thank you.
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Thank you very much, Mr. Chair.
I also want to wish you a happy birthday. Someday we will celebrate together, I'm sure.
I would like to welcome the minister and Mr. Gallivan.
I'm going to continue in the same vein as Mr. Ste‑Marie.
We are talking about thousands of Canadians, victims who have lost all their life savings. We know very well that in the frauds committed by Norshield and Mount Real, there are thousands of Canadians who lost everything. The system has never got justice for them.
Minister, you have been the minister for six years. What do you say to the victims, like Janet Watson who appeared before the committee, who say that the government has done absolutely nothing to protect them or to bring the guilty parties to justice?
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That means that there have been no charges or convictions concerning the Isle of Man; no convictions relating to the Panama Papers; none in connection with the Bahama Leaks; and none concerning the Paradise Papers.
There have therefore been no convictions in six years.
[English]
You said in this committee in 2016 that we were talking about measures taken to get information about electronic funds transfers. Regarding the CRA's audits of electronic funds transfers in excess of $10,000, how many files are now subject to criminal prosecution? How many convictions are there?
We see Cinar, and we see the lack of action with the Isle of Man scam. We see that there have been absolutely no charges ever levied in all of these very clear violations of our tax code. I remind the minister, of course, of the comments made by Brigitte Unger, professor of economics, who said that this is effectively stealing money from public coffers, yet we see no action at all.
When it comes to electronic funds transfers, how many files are now subject to criminal prosecution?
Welcome, Minister. It's a pleasure to have you here today and to see you.
This topic is obviously a very important topic. Mr. Chair, as you know, in our first session of Parliament—I believe Mr. Kelly was with us a well—we put together a report called “Confronting Money Laundering and Terrorist Financing: Moving Canada Forward”, a beautiful report, 90 pages, that we got to do. That was a good introduction in terms of tax evasion, money laundering and so forth. Our government has done a lot. We did a lot as a finance committee a few years ago. It's great to see also, with base erosion and profit shifting, the resources that the government has put into CRA to be able to undertake this aspect.
Mr. Gallivan, I have a question for you. You were able to briefly touch upon the Income Tax Act and any sort of idea of a public inquiry. Could you expand on those comments that you briefly commented on earlier, please?
I'll frame it in terms of the question about the additional billion dollars a year not making a dent, because I think it's true that the billion dollars a year is a tactical outcome. It's about the type of files that we're taking forward and the jurisprudence we're creating. That's what really has the strategic value. It's true that with an objective to find $5 billion over six years, we're already at $5.3 billion, but that's very operational.
I would again talk about the four cases at the Supreme Court, the many cases at the Federal Court of Appeal and the thousands of cases at the Tax Court, which is kind of trying to redraw the line of what acceptable tax planning is in this country. It's the reason why budget 2021 is now focused on additional lawyers and litigators for the Department of Justice.
Strategically, I think you see increased pressure on a sophisticated tax planning industry, and I think you see increased activism by the Department of Finance to close the loopholes that were surfacing, so in that way, the fight is really, I think, now before the courts, and in terms of the legislation as opposed to the audit floor.
If we want to get to the bottom of the tale of the shell companies set up by KPMG, if we want to get to the bottom of the tale of the thousands of small investors like Ms. Watson who were swindled, the only solution, according to the experts, is a public inquiry. Tax law expert André Lareau is one of the people saying that.
The role of requesting an inquiry has been assigned to you, Minister, and no one else. I also want to remind you that it was thanks to a whistle-blower inside the CRA that we got wind of the deals that were offered to the Isle of Man fraudsters. The reason the CRA's investigators are unhappy is that the order came from higher up. It takes a public inquiry.
Are you going to call a public inquiry, as you are given the authority to do by section 231.4 of the Income Tax Act, yes or no?
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The first number I gave previously is the one I focus on, which is roughly a $6-billion tax gap for multinational enterprises. That involves a small group in Canada, and we have the resources to audit and litigate with them. The second number, the $800 million to $3 billion, involves a population that is a little bit more difficult to define, high-net-worth individuals.
As I said, we agree that there are still billions more to get, but whether we're getting half or two-thirds of it, we feel we are making progress. We also feel that by taking the challenge to the courts, a strong message of deterrence is being sent, and also it sets up the finance department to close the loopholes.
In terms of main street, under the audit function that I lead, which involves roughly 11,000 of the CRA's employees, we do very few audits of people who earn less than $100K. Our audits are increasingly risk-based. The average audit conducted by my shop involves $170,000 in discrepancies identified or gross tax. That's twice as much as it was in the past.
I would say, given the data and analytics, that more and more of our results come from high-net-worth individuals and multinationals. Roughly 2,000 multinationals and 16,000 high-net-work individuals make up 60% of the audit billings we give a year. The two million other businesses and the 26 million other Canadians represent the other 40%.
I think we're increasingly focused on the upper end. That is really where I think, from a fairness perspective and a deterrence perspective, we're trying to stay, but as noted the results are slow because these people have pushed back through the courts. That's why we have, for instance, cases before the Supreme Court. That's why we have so many cases in the Federal Court of Appeal. I have one file in which the taxpayer has 53 pieces of litigation related to the audit. We haven't even finished the audit, and there are 53 distinct pieces of litigation they've thrown at us to throw sand in the gears.
I would describe a situation in which I think we're with this committee in being focused on the sophisticated actors. There's obviously a difference of opinion on the pace of progress, but we're definitely not focused on main street and we are increasingly using data to be more selective when we have to.
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She wanted to congratulate you before leaving the meeting.
I have a point of order regarding Mr. Gallivan's interpretation of the minister's power of inquiry under subsection 231.4(1).
Obviously, I do not entirely agree with his interpretation and I would point out that when Mr. Lareau, one of the leading Canadian tax law specialists, appeared, he asked us to ask the minister to initiate a public inquiry under that subsection.
I would like to read the paragraph, which is only a few lines long, but speaks volumes. I would like to point out that the power of inquiry given by subsection 231.4(1) has been confirmed by a decision of the Supreme Court of Canada. It went that high. So that everyone understands, I am going to read it.
231.4 (1) The Minister may, for any purpose related to the administration or enforcement of this Act, authorize any person, whether or not the person is an officer of the Canada Revenue Agency, to make such inquiry as the person may deem necessary with reference to anything relating to the administration or enforcement of this Act.
The minister absolutely has the power to initiate an inquiry under that subsection. That is what we were told by Mr. Lareau, the expert who testified at the committee, and it has been confirmed by the Supreme Court of Canada.
I would just like that to be quite clear. That concludes my point of order.
Thank you, Mr. Chair.
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Thanks very much, Mr. Chair.
I think we probably have about 45 minutes. I believe that Mr. Ste-Marie wants to come back to an issue as well.
I've already circulated the motion and I'll read it for the record and then add an amendment just to facilitate things. This is following discussions with Mr. Sorbara. I move:
That the Committee request that the government initiate a public inquiry under the Income Tax Act—
I would add “or the Inquiries Act”.
—to investigate tax planning by KPMG, or any of its subsidiaries, in the Isle of Man, the possible involvement of the sword companies Shashqua, Katar, Sceax, Spatha and Parrhesia corporations, and to investigate tax fraud in the Cinar, Norshield and Mount Real cases and any possible links with the KPMG Isle of Man tax planning and/or Isle of Man's sword companies, and that this be reported to the House.
I'm adding “or the Inquiries Act” because that gives the government the scope to use either tool, and since there is some dispute around the use of the Income Tax Act, my interpretation—and I would certainly agree with Mr. Ste-Marie and Mr. Lareau on that—is that it gives the government a broader scope to use the tool that is most appropriate.
The most important thing here is that we know from the testimony we had from Janet Watson, from the really important journalism we've seen both with Enquête on Radio-Canada and also from The Fifth Estate on CBC that thousands of Canadians were defrauded. That money was taken overseas. We have a responsibility and we've undertaken to get to the bottom of it as much as we can, but to date, we have asked KPMG many questions and have received often evasive or incorrect responses or no responses at all.
Therefore, I believe that given what we know and that we all share an interest in getting to the bottom of this and we all share an interest in seeking justice for the victims of these colossal frauds—half a billion dollars, and people losing their life's savings. You can only imagine somebody who saved up, like Janet Watson did, $68,000 of her life savings and lost it all due to this fraud.
I believe we have a responsibility to pass this motion. Ultimately, it is a request, but it does seek justice for the victims, and I believe that's what every member of this committee wants to see as well.