My name is Brian Ernewein, and I'm the general director of the tax policy branch at the Department of Finance.
As we understand it, we were asked to attend today to speak about the two panels that were set up and for which provision was made in the supplementary budget estimates. I would like to offer a few moments of explanation on the advisory panel for international taxation.
We're also available to answer questions you may have regarding the budget relating to the panel and its supporting secretariat.
To start off, Canada's system of international tax is one of the most complex areas of our tax system, yet these rules are of crucial importance in attracting foreign investment into Canada and supporting Canadian corporations that do business abroad.
Significant changes to our system of international tax were unveiled as part of Budget 2007 and the anti-tax-haven initiative. I had the pleasure of being here before the committee following the announcement in 2007 and the May 14 changes to the anti-tax-haven initiative.
Those changes included, among other things, the non-deductability of interest expenses incurred as part of so-called double-dip financing structures, the elimination of withholding tax on all arm's-length interest payments to non-residents, the progressive elimination of withholding tax on interest payments to non-arm's-length U.S. lenders, and the extension of the existing exemption for certain dividends received from foreign affiliates, the so-called exempt surplus system, to dividends received from foreign affiliates located in countries with which Canada has signed an agreement concerning the exchange of tax information.
Also announced as part of Budget 2007 was the government's intention to create an advisory panel to review our current system and identify ways to improve its competitiveness, efficiency, and fairness.
The advisory panel was formally established on November 30, 2007 by the Minister of Finance. I believe we provided to the clerk yesterday the copies of the press release announcing this. The panel is chaired by Mr. Peter Godsoe, former chief executive officer and chairman of the Bank of Nova Scotia, and Mr. Kevin Dancey, now president and CEO of the Canadian Institute of Chartered Accountants, who acts as its vice-chair. Other members of the panel are Mr. James Love, Mr. Guy Saint-Pierre, Mr. Nick Pantaleo, Mr. Finn Poschmann, and Ms. Cathy Williams.
The panel's mandate, which was released with the announcement, is to review and assess the existing system of international taxation, to identify issues that arise under the system, to identify and assess possible options to address these issues, and to present detailed and specific recommendations for consideration by the government. The panel is to present its analysis and recommendations in a report to be submitted to the Minister of Finance by December 1 of this year.
As shown in the supplementary estimates, the funding allocated for 2008-09 for the panel's work is $3.76 million. This figure covers a number of activities. An important aspect, obviously, of the panel's mandate is to consult with stakeholders to obtain their input as to how the current system can be enhanced.
On April 25 of this year, the panel released a consultation paper identifying a series of questions about Canada's system of international taxation. It set out some of the panel's initial views and invited public comments on how to improve the competitiveness, efficiency, and fairness of the existing system.
The panel, as we understand it, will be receiving written submissions from interested parties until July 15, 2008, and many meetings between the panel and important groups of stakeholders are also being planned for the same period.
Research and analysis are two other important components of the panel's work. About a dozen research projects will be commissioned by the panel to study specific issues and aspects of Canada's system of international taxation. The panel and its work are supported by a secretariat headed by an executive director who reports to both the chair of the panel and the senior assistant deputy minister of tax policy at the Department of Finance.
Although formally a part of Finance, the secretariat is housed at a separate location and works at arm's length from the department so as to preserve the independence of the panel from the government. Nonetheless, all government rules and guidelines, notably those applicable to contracting, continue to apply to the panel and its secretariat. The Department of Finance retains signing authority for expenses relating to the work of the panel and its secretariat, including for contracts.
Finally, members of the panel have agreed to serve on the panel on a pro bono basis. They are reimbursed only for travel and accommodation expenses relating to their work in accordance with Treasury Board approved procedures. The Department of Finance has the responsibility to ensure that reimbursements are consistent with these procedures.
My name is Serge Dupont. I am assistant deputy minister in the financial sector policy branch. I would just like to speak to you about the Expert Panel on Securities, the other group mentioned in the supplementary estimates.
In Budget 2007, the government laid out its long-term plan for improving Canada's capital markets, with a document, that I think you have received, entitled "Creating a Canadian Advantage in Global Capital Markets". A cornerstone of this plan involves establishing a common securities regulator and advancing an approach to regulation that is more principles-based, with strong enforcement.
The government has made it clear that it favours a common securities regulator, not a federal one, and that it intends to be respectful of the jurisdiction of the provinces and territories. Indeed, the government has stated that it intends to build on provincial efforts to harmonize and simplify the regulatory regime.
As promoted in the 2007 Capital Markets Plan, a common securities regulator would encompass a governance structure that is representative and responsive to regional perspectives, strengths and needs. It would have one set of principles, supplemented by one set of rules and it would levy one set of fees. Its benefits would include clearer accountability and more responsive decision-making in a rapidly evolving capital market, strengthened capacity for enforcement, and a stronger voice internationally.
Ultimately, the government's objectives are to give enterprises of all sizes better access to capital at more competitive costs, to provide investors with increased investment choices and better protections, and to create more jobs.
In pursuit of this effort, in June 2007 the Minister of Finance convened a meeting with his provincial and territorial counterparts responsible for securities regulation. Following the meeting the minister committed to form a third-party expert panel to advise ministers on the best way forward.
The government appointed the panel of experts in February of this year. It is chaired by the Honourable Tom Hockin, a former Minister of State for Finance and a former president of the Investment Funds Institute of Canada. Other panel members are Ian Bruce, CEO of Peters and Company in Alberta; Denis Desautels, the former Auditor General; Hal Kvisle, president and CEO of TransCanada Corporation; Dawn Russell, associate professor and former dean of law at Dalhousie University, also a member of the Crawford Panel; Terry Salman, who is chairman, president, and CEO of Salman Partners in B.C.; and Heather Zordel, a partner at Cassels Brock and Blackwell.
The secretariat for this panel is staffed and paid by the Department of Finance. Many of the comments that Mr. Ernewein mentioned with regard to administrative arrangements hold for this panel as well. Panel members, for example, are committing their time and expertise on a pro bono basis. The department reimburses their travel and accommodation expenses.
The panel is examining in practical ways how to enhance the effectiveness, the content, and the structure of capital markets regulation. It is building on the work accomplished by prior private sector groups, notably the Crawford Panel. It will provide a concrete proposal, a transition path, and a common model act based on advice from recognized experts. It will report to the Minister of Finance and to provincial and territorial ministers responsible for securities regulation by the end of the year.
The panel recently issued a consultation paper for comment and began a consultation process seeking views from experts across the country. In parallel, the minister is pursuing his own discussions with capital market participants and with his counterparts on an ongoing basis.
I look forward to your questions. Merci.
Thank you, Mr. Chair. Thank you, witnesses. It's nice to see so many former friends.
With respect to the common securities regulator, as you know, the Liberal Party certainly supports this initiative. I read in the newspapers that you have engaged counsel to draft a bill. I wonder whether you could comment on that. That would be number one.
Second, with respect to the legislative initiative, is the federal government prepared to go it alone if necessary, based upon their own legal analysis of their constitutional authorities?
Third, what does $2.8 million get you?
I spent part of my career, six years, as president of the Office des Professions du Québec, which is a regulatory body. So I was in a position that may be similar to those held by some of the people who are here today.
I started working in private administration when I was 30. When someone suggested a reform, I always applied the principle of consistent management by asking myself...It is in the nature of politicians and bureaucrats to suggest reforms. When in doubt, suggest reforming something.
Before going down that road, I asked myself about the "compétence" of the federal government, but "compétence" and competence are not the same thing. The words can mean different things. Earlier, my learned friend Mr. Dupont told me...
Mr. Serge Dupont: I am not a...[Editorial Note: inaudible]
Mr. Thomas Mulcair: Okay. Because of the way in which you replied, I promoted you to a lawyer. But I assume you have a degree that makes you learned, don't you? If you are learned, you can be my learned friend, even if you are not a member of the Bar.
Now, back to competence. Not the constitutional kind, which we described very well a little earlier. Just plain competence.The question still arises. What would be the federal government's role? Which problems would federal interference solve? None. It was Quebec law that put Vincent Lacroix in the slammer for 12 years.
When I look at the charges as a result of the sponsorship scandal, when the Liberals stole public money to put into their election coffers, I see that none were the result of the inquiries or of the application of federal legislation. The only charges I see were laid in Quebec, and they have resulted in people going to prison.
I also notice that my Liberal colleagues who represent strongly francophone constituencies, like Mr. Rodriguez or Mr. Coderre, are nowhere to be found when the time comes to vote on the matter. So not all Liberals are in favour of this, and they know it all too well.
So, which problems would be solved by the creation of another behemoth of bureaucracy in Ottawa?
No, I will leave him out.
The Vincent Lacroix case is indeed a feather in Quebec's cap. But you will agree that it does not deal with Canadian securities law, a matter that your predecessor as critic raised. This is a real concern with which all jurisdictions in Canada have to come to grips.
Criminal law, I am sure you will agree, is the responsibility of the Royal Canadian Mounted Police at the moment. So there is at least one role for the federal government.
I understand what you are saying about competence and "compétence". There is no army of federal public servants ready at a moment's notice to take on the challenge of running a securities regulator. Nor is there any intention to do so. That is why the distinction between a common regulator and a federal one is important. The idea of a common regulator is to use existing resources, whether in Quebec, in Ontario, in Alberta, in British Columbia, or anywhere else, using a different governance structure that brings them all together in one body. As we see it, that is the structure that would work best for Canada.
That is perhaps where the problem lies. Basically, it is all about the governance structure. How, in Canada, can we develop policies more quickly so we can become involved internationally with greater effect? Because it is there that, to an increasing extent, the major provisions for regulating capital markets are being negotiated.
We could talk about aspects of the governance structure for a long time. I will stop here to allow discussion and to catch my breath.
Rarely--in his own mind.
Some hon. members: Oh, oh!
Hon. John McKay: What's fair to say is that the business community is virtually unanimous from coast to coast to coast that Canada is in need of a common securities regulator. That's not even contestable. And it's true in Quebec as well as Alberta and a whole variety of.... There is a need for this, and that is what the driver is here, so I'm pleased to see you asserting some leadership in this area.
The other problem is that effectively the common securities regulator becomes Ontario by default, because the overwhelmingly vast number of securities get traded in Toronto. So it seems a somewhat strange idea that those who oppose a common securities regulator are prepared to defer to Toronto and let the Ontario Securities Commission, the OSC, effectively run securities regulation in this country.
If the place where far and away the most securities are traded is prepared to be onside and is a driver behind this common securities regulator, why is it that Ontario in effect is prepared to share jurisdiction with the rest of the provinces and territories and effectively cooperate with the federal government in trying to set up a common securities regulator so that the people who issue securities don't have to go to 13 separate jurisdictions to be able to do a share issue?
That's a good question. I don't have an update on the numbers, and I think you're quite right that a number of factors are at play in this chart, including Sarbanes-Oxley, and including the bursting of the dot-com bubble, which is in here as well.
I think what the chart was intended to show is, first, to draw out the fact that these various exchanges are in a competitive field; and second, to draw out the success of London, which has pursued a more principles-based approach to regulation, which we think has considerable merit. And it's still an issue for discussion, frankly. A lot of people prefer more rules-based.... But we thought it was useful to illustrate the success that London has had to this period, perhaps partly attributable to the approach to regulation, and even to be aware that the Australian exchanges are in the running as well and that this is all part of the competitive field.
Certainly the merger of the TSX and the MX was carried out precisely to unite forces and to provide a stronger platform to compete internationally. Hopefully you would see that this would help this chart over time.
Many people will perhaps say that this money should not be committed and the federal government should simply move forward. Right now, in the Senate, Senator Grafstein's private member's bill suggests simply moving ahead and doing it. But our minister prefers to see what proposals can be made to the provinces that might secure their agreement.
Second, from our perspective, there is perhaps a greater meeting of the minds than may appear to be the case. Quebec has already come out in favour of an in-depth harmonization of legislation. It is working very closely with other jurisdictions. Minister Jérôme-Forget also said that she supported a national body that would apply the law uniformly in Canada. Furthermore, if the passport system is implemented, Quebec has agreed to delegate a lot of power to other jurisdictions. For example, it is now accepted that, when a prospectus is issued, it can be done in Manitoba, in Nova Scotia or in other provinces. The delegation is done to a common regulator, not a federal one. From our point of view, no difference of opinion automatically precludes the possibility of discussion.