FINA Committee Report

SUPPLEMENTARY OPINION OF THE
LIBERAL PARTY OF CANADA

The Liberal Party applauds the Committee’s decision to conduct this study on tax evasion and build on the work undertaken during the previous Parliament. We would like to thank the many individuals and organizations who have taken the time to share their knowledge and provide recommendations to the Committee on this issue since October 2010. We would also like to thank Senator Percy Downe for his tremendous work and the leadership that he has shown on this issue.

Although we agree with many of the findings and recommendations contained in the majority report, the Liberal Party believes that stronger action is needed. Furthermore, we are concerned that the Government of Canada has failed to provide the Committee with the information it needs to offer Canadians a holistic perspective regarding overseas tax evasion.  

Calculating the Tax Gap

Throughout the study, the Government downplayed the importance of calculating and publishing estimates of how much tax revenue Canada loses to overseas tax evasion.  In the absence of Canada Revenue Agency (CRA) doing this work, Senator Downe has asked the Parliamentary Budget Officer (PBO) to calculate Canada’s tax gap.[1] However, when the PBO requested data from CRA so that he could prepare his own independent estimate of the tax gap,[2] CRA refused to provide the PBO with the information he requested.[3]

As the PBO pointed out in his response to Senator Downe, Canada is an international outlier on this matter: fourteen OECD countries, including the United States and the United Kingdom, estimate their tax gaps.[4] The majority report’s failure to recommend that CRA take this basic step in dealing with offshore tax evasion undermines its credibility.

There is no doubt that calculating a country’s tax gap is not a straightforward matter; governments and NGOs use many methods to estimate missing tax revenues and some of those methods produce more accurate results than others. Nonetheless, it is an important exercise. As a matter of accountability, honest Canadian taxpayers have the right to know how tax cheats are compromising the integrity of the tax base. Furthermore, calculating the tax gap will allow the CRA to provide sounder estimates of both the resources they need to prosecute international tax evaders and the revenue they can expect to recover through their investigations.

Cuts to the Canada Revenue Agency

According to the Government’s response to Liberal MP Sean Casey’s Order Paper Question Q-1174 on staffing cuts at CRA, the Government plans to cut 2,568 full-time equivalent (FTE) positions at CRA. Moreover, the Government’s response shows that both the International Audit Program and the Aggressive Tax Planning Program have seen consistent and substantial FTE reductions since 2009.

The Committee heard from a number of witnesses that CRA lacks the resources it needs to go after tax cheats. In fact, CRA’s own October 2010 internal audit raised concerns about the Agency’s ability to deal with complex cases of international tax evasion.[5] Noting that 84% of convictions resulting from CIP investigations involved recovery of less than $100,000, the auditors wrote that “[c]ases that could potentially represent significant criminal non-compliance can be rejected by a specific TSO enforcement group because of limited resources or other workload pressures”.[6] Today, when tax cheats have access to ever-more sophisticated tools and technology, the Government’s cuts to CRA are especially ill-timed.

The international evidence suggests that spending on offshore tax research and collection is an effective investment.  The United Kingdom’s 2009 commitment of £4 million to address the matter is set to bring in revenues of £7 billion.[7] As of February 2013, Australia’s Project Wickenby, established in 2006 with a budget of $308.8 million over seven years (increased by $122.1 million in 2008 and by $76.8 million in the 2012-2013 budget), has raised $1.59 billion in liabilities, recouped $691.9 million, and secured 35 convictions.[8] Canada’s own experience reflects those of the United Kingdom and Australia. The Government of Canada’s investment of $30 million in Budget 2005 (during the previous Liberal administration) had a fiscal impact of $2.5 billion by 2009. CRA needs smart, targeted investments, not dramatic cuts across all program areas.

International Strategy

Offshore tax evasion is a multi-jurisdictional challenge. While Tax Information Exchange Agreements (TIEAs) may be part of such a strategy, they do not necessarily include provisions for automatic exchange of information, or the sharing of best practices. Canada should ratify the Convention on Mutual Administrative Assistance in Tax Matters and work with its partners around the world to develop an international strategy for reducing the use of tax havens.  

Conclusion

Without adequate CRA resources, a detailed estimate of Canada’s tax gap, and a commitment to an effective international strategy, the Liberal Party believes it will be difficult for Canada either to reduce its own tax gap or to play a leadership role in reducing the international use of tax havens.