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Results: 1 - 11 of 11
Lorne Shillinger
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Lorne Shillinger
2013-03-19 9:11
Thank you.
Good morning. My name is Lorne Shillinger. I am a partner and national leader of the KPMG Canada Real Estate Tax Practice. I greatly appreciate the opportunity to speak with the committee this morning on the importance of the technical tax amendments act and its significance to the real estate industry.
Bill C-48 represents a Herculean effort by the Department of Finance to catch up on a decade of outstanding tax measures. Long limbo periods are difficult. Taxpayers and their advisers need certainty of tax policy and legislation to prepare and file tax returns. Accordingly, the enactment of this legislation will be a welcome relief to the tax community. For the real estate industry, the key amendments in Bill C-48 are the changes to the tax rules governing real estate investment trusts, or REITs.
A REIT is an entity that uses the pooled capital of many investors to invest in and manage real estate rental properties. Unlike direct ownership of real estate, an investment in a publicly traded REIT is highly liquid and available to investors with limited investment capital. REITs are managed and structured to pay out regular, tax-efficient distributions to their investors. For these reasons, investments in REITs have been favoured for retirement savings. These legislative changes represent the successful culmination of six years of back-and-forth discussions.
A brief review is in order. On October 31, 2006, new rules, the SIFT rules, were announced to shut down the public income trust sector. After a reasonable transitional period, a publicly traded SIFT would be subject to tax at rates similar to corporate tax rates. REITs, however, would be exempt from the SIFT tax. This was the first time the definition of a REIT was introduced into Canadian tax legislation. Each subsequent iteration of the legislation was an improvement.
In early 2007, amendments clarified a REIT's rental revenue and property and allowed internal property management subsidiaries. In late 2007, amendments accommodated existing ownership structures and allowed foreign property ownership. In late 2010, amendments further clarified a REIT's qualifying revenue and provided a welcome, safe harbour for a limited amount of non-qualifying revenues and properties to be held by a REIT. The changes in Bill C-48 represent the fourth set of revisions to the REIT rules and complete the cycle. These further changes finally create a workable system for REITs to invest in, develop, and manage real property and to expand globally. Actually, the real estate industry would like a fifth series of amendments, especially to accommodate seniors housing and hotels to qualify as REITs.
In conclusion, we greatly appreciate this legislative process. The Department of Finance did listen. The amendments in Bill C-48 provide the necessary legislative framework for Canadian REITs to invest in and operate in Canada and abroad. Both the industry and government objectives are met. REITs can function in a commercially reasonable manner but must do so within the limitations imposed by policy. For all constituents of the REIT community, we greatly look forward to the enactment of this legislation.
Thank you.
Paul Hickey
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Paul Hickey
2013-03-07 9:28
Yes, I am. Thank you very much, and my apologies for being a bit tardy. It was out of my control, unfortunately.
I'd like to start by thanking the committee for the invitation to attend these public hearings on this massive but extremely important piece of tax legislation.
I'm Paul Hickey, national tax partner at KPMG, based in Toronto. KPMG is an audit, tax, and advisory accounting firm. We have over 1,200 tax professionals who provide tax compliance services and tax planning advice to our clients in 33 offices across the country.
Bill C-48 contains over 900 pages of detailed tax fix-up amendments, literally affecting hundreds of sections of the Income Tax Act. These tax amendments have been sought by the CRA, the Department of Finance, and taxpayers alike. They're often intended to fix unintended tax consequences, a rule that might be too harsh, too lax, or whatever. They really are fix-up amendments.
In our communications with clients, we've dubbed Bill C-48 the big “catch-up” tax bill, as in lagging behind and trying to get back to the mark, as opposed to mustard, ketchup, and other condiments for a hot dog. It brings forward a buffet of enabling legislation to enact amendments dating back to 2002. There are general tax amendments going back to 2002, touching almost every corner of the Income Tax Act: charitable donation rules, restrictive covenants, non-resident trusts and foreign investment entities, REITs. There are also remaining 2010 federal budget measures. There are also 2010 and 2011 fix-up changes in the bill. So it's a massive piece of legislation. We applaud Parliament for finally dealing with this huge backlog of old tax business. We hope it will put an end to the problems that this 10-year delay has caused.
There are four problems I'd like to touch on. The first is the uncertainty that's been created for taxpayers and indeed the CRA. The implication of outstanding tax legislation being out there for so long is that taxpayers have been in a state of limbo for over 10 years. This is unprecedented in my 35-year career. Every year, taxpayers face a decision and a dilemma about how to file their tax returns. Do you file tax returns based on proposed legislation, press releases, and other things? Do you file your returns based on your best guess of what may pass or what may not pass? Or do you file your file your tax returns on the basis of enacted law and worry about squaring things up later when it's all passed?
I've already mentioned the challenges faced by taxpayers over the past 10 years. The CRA, of course, has a whole parallel set of problems on how to apply and assess tax returns and then go back and reassess if necessary based on enacted law.
Second, there are also tax administration issues, given that we're dealing with over 10 years' worth of backlog. Because the normal period when a tax return can be assessed is three to four years, many years of a taxpayer's return could well become statute-barred since 2002—while this legislation remained in this state of legal limbo. As a result, both taxpayers and the CRA could have lost their rights to assess proposed tax amendments, whether they be tightening or relieving in nature, depending on how the returns were filed and assessed by the CRA during the period of uncertainty.
The third problem I want to mention is the court system. The courts are also struggling to come to grips with this massive tax backlog. I want to point out, for example, the recent case of Michael Edwards v. The Queen. This was heard recently by the Federal Court of Appeal. This is because Bill C-48 contains a series of important amendments to the charitable donation rules related to the determination of an advantage and split receipting, among other things. These proposed amendments, for the most part, were introduced in 2002 and were generally aimed at leveraged charitable donation arrangements and buy low, donate high types of arrangements. They're still not law.
In Edwards, the court recently postponed the hearing of the taxpayer's appeal to the Tax Court of Canada on the basis that the CRA had disallowed the $10,000 donation he claimed. He actually paid a little over $3,000; the $10,000 donation was denied under a leveraged donation program.
Michael Cunningham
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Michael Cunningham
2013-02-14 8:46
That must be the technology because you sound loud from across the water also.
What I thought I would do, Chairman, would be to set out the context of Staffordshire Police and the situation in the U.K. and then tell you how we have responded to it here in Staffordshire.
Members may be aware that the spending squeeze in the U.K. is affecting all elements of the public sector, including policing. To give you some context, the budget of Staffordshire Police was about £184 million in April 2010. The squeeze means that we will be taking approximately £38 million out of that budget over a period of four years. The challenge is for us to dramatically cut our cost base and to maintain high levels of operational delivery. In my budget, 86% is spent on staffing costs. Therefore, a reduction of approximately 20% means that we have to cut into salary costs. To that end, there will be effectively 300 fewer police officers and 300 fewer police staff members, non-police officers, by the end of the four-year period. There is potential for a further squeeze beyond 2014, for which we are bracing ourselves.
This has meant that here in Staffordshire Police we have not recruited any officers into the police force for some three years now and we are managing the shrinking of the organization by not recruiting and requiring officers to retire when they reach pensionable service age. This is the same across the country. Police officer numbers in England and Wales now are at about an 11-year low. By 2015, there will be approximately 15,000 fewer police officers in the U.K. than there were at the beginning of the process in April 2010.
What that has required us to do is basically to go back to first principles. If we were to try to continue to police in the way that we have always done so with significantly fewer people, we would simply fall over. The scale of the cuts has required us to take a transformational approach to the delivery of policing and to redesign policing delivery in ways that had previously been unthinkable.
In terms of first principles, what I did here in Staffordshire was to ask what is policing built upon? Very clearly the model that we have undertaken here in the U.K. is very much about local policing solving local problems. So I was able to commit in years one and two of the spending cuts that we would not reduce any neighbourhood officers. In other words, every other part of the business had to be scrutinized to take the hit. It has required us to re-engineer our business processes and to collaborate more effectively with other police forces and crucially with other public sector agencies.
If I may say, even with the taking of already well over £15 million out of my budget, crime has continued to reduce, public confidence has continued to increase, and public satisfaction with the service that we are delivering is still very high, at about 88% of people who receive a service from us being either satisfied or very satisfied, and that is in the teeth of the significant cuts we're facing.
We have had to look very closely at not necessarily the numbers of officers we have, but the productivity of those officers and how we have deployed them. We have reviewed things like our shift patterns, we have done away with the concept of things like double-crewing unless it's absolutely necessary, and we are thinking about how we can make our services more accessible to members of the public in different ways. For example, if I can take £1 million out of my estate costs, it means I don't have to take that £1 million out of salary costs. So we're looking at, wherever possible, if we can share public access points and buildings with other public sector agencies. It seems a madness to me at a time of such public sector austerity that in one town we may have a police station next door to a town hall, next door to a library, next door to a school, when we ought to be thinking much more dramatically about the rationalization of public estate.
In terms of our business processes, it was at this point we engaged with the private sector. The consulting company, KPMG, worked with us to do two things. One was they brought expertise to us around business process redesign to take out inefficiencies in some of our core processes such as core handling, prison handling, and crime management. They injected significant pace and professionalism and expertise into this work for us. The second thing they did was they built up a capacity within my force so we did not become dependent upon the consultants going forward. It was difficult because we had to pay significant amounts of money up front at a time when there isn't a lot of money about, but the return on investment was significant. The lessons for private sector engagement are the following. We had to be crystal clear about what was required, we had to build capacity and not reliance, we had to challenge them on innovative ways of paying for their services, and we had to think of new models of engagement with the private sector that are beyond simple consultancy and outsourcing.
I would like to make just a couple of final points, Chairman. One of the things that I think this affords us is an opportunity to have discussions that we probably ought to have been having anyway about the use of public money. There is much closer cross-public sector delivery in some of our crucial areas of activity. One example I gave when I was over, a month or so ago, was in relation to a multi-agency safeguarding hub, where we have police officers co-located and jointly managed with social workers and with health professionals dealing with the early intervention of our most vulnerable people in our communities, vulnerable adults and children at risk.
Two things have happened as a result of that. The first thing is that the operation is far cheaper than it was, because we're able to co-locate and jointly manage. Crucially, though, it is more effective because we're able to share information and design interventions far more effectively than was previously the case.
Finally, I will offer a reflection on how this has been in terms of leadership. Leading through austerity is a significant challenge. The real learning, for me, is that we have to maintain confidence and optimism with the people we are leading if we are to continue to deliver effective public services at a significantly reduced cost. That in itself has been a leadership challenge. I am not saying I have always got it right, but we've given it a very good go.
Thank you.
View Candice Bergen Profile
CPC (MB)
In terms of that consultancy, you mentioned that KPMG came in. One of the challenges we hear, when we talk about the economics of policing and cutting back, is that it's hard to measure. It's not like a factory, let's say, where you can measure input and output and know literally moment by moment where you can make something more efficient.
We know that with good companies, that's exactly what they do. They in fact have a day-to-day and a moment-by-moment way of looking at how to make things more efficient. In policing, obviously that's the challenge. How did KPMG manage that in terms of measuring, in terms of coming in and asking what was effective?
Michael Cunningham
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Michael Cunningham
2013-02-14 8:58
They worked with our staff. This is where I think we've had to make significant improvements, around the very point you make: measuring productivity. It is simply not good enough, I think, when we are working with such significant financial challenges, to say that we cannot capture productivity and efficiency.
What the private sector was able to assist us with was that we able to look at our deployment practices, the workload of officers, the number of incidents they dealt with, and the number of crimes they dealt with, and to look at where we could be much more efficient around how we deployed staff.
They were also able to design and map out our core business processes—for example, from the arrest of an individual through their detention and subsequent interviewing. When that process was mapped out, we were able to capture where the inefficiencies were, such as where the officers were wasting time waiting around in custody blocks for solicitors or for access to detained persons, and to see if we could squeeze that time so that we could make officers think about their time far more productively.
View Randall Garrison Profile
NDP (BC)
Moving on, then, you talked about how you work with KPMG on the efficiencies. Is that work they have done work that's been published anywhere? Are there reports on the work they've done with you or similar reports that we could get access to?
Michael Cunningham
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Michael Cunningham
2013-02-14 9:09
I could certainly give you access to reports on the work they've done here in Staffordshire. I think they have published and showcased work in conferences and the like, and we have contributed to a journal. Again, I'd have to research that and get that to you. The short answer is yes, there are published results, and yes, I could get that to you.
Carole Deniger
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Carole Deniger
2012-10-30 15:46
Good afternoon. I will be making my presentation in French.
I am Carole Deniger, from SECOR-KPMG. It feels a bit odd to say that name because SECOR and KPMG merged very recently. My colleague Rob DePetris will speak to you afterwards. I will be making a somewhat more general presentation, whereas Rob will address specific questions and tax issues.
KPMG-SECOR's expertise in this sector is in both the tax and economic areas and in more strategic studies, particularly those that SECOR conducted at the time for Quebec, Ontario and Prince Edward Island and many industry clients.
At the risk of seeming to repeat what was said by our friends from the Entertainment Software Association of Canada who preceded us, I believe it is important to note all the profound changes that have been affecting the industry in the past few years.
We know that the recession hurt the market, but there have also been major paradigm shifts as a result of digital distribution, new platforms, the construction of mobile and online platforms, networked games, particularly social games, and all the new business models that have followed, with subscription and microtransaction models. So there have been some major changes to which Canadian and foreign businesses must adapt.
Incidentally, when we talk about Canadian businesses, I believe we are still really talking about businesses that are provincial or are based around major cities such as Montreal, Toronto, Vancouver and various hubs where solid expertise and real maturity have been developed. I believe those hubs have managed to position Canadian businesses on the global stage. That is also the case of foreign businesses because we know that most of the gaming industry's workforce is at large firms owned by major publishers such as Ubisoft and Eidos, but also by many national businesses and smaller but very dynamic players.
As for the growth issue, as a result of tax credits in particular, I believe we have achieved such a degree of maturity that this is not a priority at the present time. We have managed to build critical mass, expertise that is recognized and no longer challenged. Now we have to develop recognition related more to our content and success, and that is perhaps where we must focus our efforts, particularly at the federal level and across Canada. For the general public, what is made in Canada does not really exist. It exists for the professional industry because people know each other. Initiatives such as Game Nation are also starting to make our businesses better known here, but we are talking about an entertainment-related sector. So it is important to position ourselves as Canadians on the world stage.
What does that mean? There is obviously a marketing issue, but we have to make sure that there is support for intellectual property created here. We have to be able to maximize the success of that property, that is to say original content, to support it and to generate maximum profits. In fact, in certain respects, we are talking about a service industry that creates a lot of jobs. Now we have to think about creating value. That does not mean that we have to control everything here. I think it is important, particularly for games intended for very large audiences, to have publishers outside Canada. However, if we can retain more of our intellectual property, we will negotiate better conditions, earn larger royalties and generate more profits that will stay here.
That can be done through existing measures, in particular the Canada Media Fund, which is quite a large fund, particularly its experimental component. However, perhaps it should be adjusted to provide more support for the creation of original content. That is what we also call prototyping in the gaming industry. We have to get to at least the prototype stage. We obviously already have the research and development tax credit. However, tax credits are mainly granted at the provincial level, and we are well served in that respect.
Incidentally, I took another look at the KPMG study. As you probably know, it states that Canada is a mature region where digital entertainment costs as a whole are the lowest in the world. We are well served in that respect.
I do not want to go back over immigration, but the issue of work permits, like that of marketing and commercialization support, is becoming an increasingly important issue. The same is true for venture capital in general. I know you have funded studies on that topic, including this one, which is a very good study. It shows that there are obvious deficiencies in funding to assist business start-ups, particularly in the digital entertainment industry.
Thank you.
Rob DePetris
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Rob DePetris
2012-10-30 15:52
Yes, I'm going to take a different tack on this.
I want to thank you for inviting me. It was so important to me that I gave up Tuesday night bowling.
Basically, my role at KPMG is tax, but in the past I worked at a video game company. I was vice-president of finance for a domestic company. I want to bring that experience in and touch on some of the things we did in Ontario.
Our goal, when we looked at this from an Ontario point of view, was to grow the industry. It wasn't about other factors, such as trying to create Canadian content and other things. We focused on one thing: creating jobs in a knowledge-based economy in Ontario. With that goal in place, what we looked at a lot was the tax credit system. We looked at taking a tax credit system that didn't work in Ontario and making it work.
We also looked at investing through business incubators. The federal government played a great role in this. We looked at how to help the entrepreneurs out there. Tax credits and entrepreneurial training are things I think the federal government should be concentrating on.
That's the reason things have progressed so well in Ontario, Quebec, and in places like Nova Scotia and Manitoba. I think B.C. was affected by a weak Canadian dollar at the time the industry started there. The tax credits over the last 20 years have been a replacement for a high Canadian dollar. The Canadian dollar back when B.C. created their industry was at 64¢ to 65¢ U.S., and now we have a Canadian dollar at par and we're replacing that with tax credits.
I think there's opportunity out there. I'm not saying the federal government has to jump into providing tax credits, but I think the SR and ED programs and other federal programs have helped. However, we must remember that in most video game companies, only 20% to 30% of the staff are programmers. The rest of the staff are artists, writers, and designers, people who aren't subject to the SR and ED credit. Even a lot of the programming people are not necessarily getting those tax credits, so SR and ED is only a small part for a video game company, whereas the digital tax credits offered by the province allow them to do a lot more.
That said, we need to concentrate on how to grow the industry. One of the things I'm not a big fan of, and this may be more personal than anything else, is the Canadian Media Fund. It does a lot of good things, but it's a $375-million fund. Why is the video game part of it a small fraction that is called “experimental”? How did a $67-billion industry become an experimental arm in Canada? I don't understand that.
This fund needs to focus a lot more on the video game industry. The other thing is, it's picking a lot of winners and losers, and I'm not sure that's always the best thing for government. I'd like to know how much return on investment they get from all these things they're investing in. How much have they actually gained? Can we put that money to better use than somebody sitting back and trying to figure out which video game they think is going to be commercially successful? I don't have the evidence on this, but I'd like to know.
Those are my initial thoughts.
On retaining intellectual property, perhaps there are ways through a tax credit system to do that. The biggest problem from the domestic side of retaining intellectual property is simply that most video games, other than some of the small mobile projects, are David and Goliath situations where a Canadian developer is being financed mostly by a publisher such as Ubisoft or Electronic Arts or some other big entity. There's no way you ever win the battle; if they're supplying the cash, there goes the intellectual property. It's very rare for a company to keep intellectual property.
The other thing I will quickly mention is the tax credits for investors.
Ken Cochrane
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Ken Cochrane
2011-10-24 15:35
Yes, for telco industry, that's correct.
Ken Cochrane
View Ken Cochrane Profile
Ken Cochrane
2011-10-24 15:36
Thank you, Mr. Chair, and committee members, for asking KPMG to come here today and share some of our insights with you.
Prior to the meeting I did distribute in both languages our 2011 report for Canada on mobile payments. I believe members should have that report as well.
The survey that we did was global in nature. We had approximately 1,000 executives from around the world, representing financial services, telecommunications, technology, and retail industry organizations, provide us with their insights on the barriers and opportunities to moving forward with mobile payments. So it's quite an extensive study. I'll briefly share with you the four different types of mobile commerce components that we were talking about.
One is M-banking. M is mobile, so it's about M-everything. M-banking provides you with direct access to a subscriber's bank services on a mobile device.
M-ticketing, which many people will likely be aware of, is where you actually purchase, let's say, airline tickets, and a boarding pass arrives on your mobile device and you can scan it in to gain access to a flight.
M-commerce really is about payment over the Internet. Unlike the banking side, it actually uses service providers like PayPal and Google Checkout, which have your banking information and will complete the transactions for you.
There's a new type of capability that is emerging that we call M-wallet, which is really a chip embedded in your mobile device that will have near-field communications capability. In other words, when it's close to a retail device in a store, it can actually communicate and share that payment information. The M-wallet, however, can also contain a lot of information in addition to banking information. You could have a range of credit cards, debit card information, and possibly driver's licence and other information on the mobile wallet. So there are some very interesting developments beginning to occur in that space.
What we heard from executives around the world is that they believe that mainstream adoption is somewhere between two and four years away. In the Canadian context we're hearing that. It's actually our position that it will be sooner than that; we believe that we'll see mainstream adoption within two years. Looking at our report and seeing the level of activity in this country right now in this space, we believe that it will occur just that much faster. We think we're really at a tipping point now.
When you look at our global study, you'll see that Asia is definitely leading in the adoption of mobile commerce, followed by Europe. While Canada is not leading, we're following the same pattern, wherein there are cards out there today like debit cards and credit cards that have near-field capability that you can touch and tap. We have seen one of the banks, the Bank of Montreal, put a sticker on the back of a mobile phone that lets you touch and tap and do a credit card-type transaction. Now we're beginning to see those chips actually embedded inside of mobile devices. We're moving down that trail as well.
We have some examples in the report that are actually quite interesting. For example, in Malaysia we see Maxis FastTap, where Maxis works together with a bank and a cell phone company, Nokia, and a terminal company that actually does the reading of the transaction at the retailer to actually complete the transaction. There's a full virtual capability in place in Malaysia.
We're seeing something a little different too. We're seeing what we call carrier billing. The example we use in the report is in Kenya, and we're seeing it emerging in Afghanistan as well. A company called M-PESA, a telecommunications company, is basically enabling the subscriber of the telephone to do banking transactions with his or her phone. This is without a bank account; this is using the telecommunication carrier's account. So you can roll up your payments basically through the telephone system and pay the telephone company directly. They have over 13 million subscribers currently in Kenya and are basically the dominant bank, in effect, from a retail perspective.
You can see how the world can change very rapidly with different entrants in the markets.
When we asked executives about the drivers behind this market—what's going to cause people to go over the edge and actually use these products and services--the primary items they focused on were on convenience of adoption. If it's easy to use, people will actually adopt it.
What is interesting is that this result is a little different, or somewhat contrary to an earlier study that we did, in which consumers said that security and privacy were the big issues for them. So here we're seeing global executives who are likely a little more comfortable with technology and who've had a little more time with it saying yes, but at this point we think we can solve those issues. It's all about convenience. If it's easy and fast to use, then people will begin to use these capabilities and services.
The other thing that we look at is the overall value chain. Mobile payments are in fact changing the value chain and so they are, in many ways, disruptive to the way things are today. If you look at the current value chain in the industry, in the credit card and the payment industry, we have very specific players today. We have the merchants; we have the credit card providers; we have the credit card companies; and we have the banks that actually play a role by issuing credit or handling the transaction. With mobile payments, we now see some new entrants, in particular the telecommunications companies, as well as technology companies, with all of these devices. So there are lots of changes afoot.
When you start to look at that, you have to say that we need to be well aware of those changes and determine how those players can play in the space and make the space work effectively.
There are lots of positive things emerging now, and about to emerge, in the Canadian context. As we stop and look at this overall, we are finding that there are really three ways to move into this space. One is through collaboration, and I use the Malaysian example, or Maxis FastTap, and the group of companies that have worked very closely together to produce a solution. There's the service provider model, such as M-PESA in Kenya, which is one implementation. And then we have joint ventures, such as the one that Rogers and Visa are now looking at in Canada.
I think one of the challenges here is that many complexities could arise if different approaches and different implementations come out of this. I think it's very important that we watch carefully and make sure we don't end up with a smart phone for every credit card that we own. We don't want as many smart phones in our pockets as we have cards today. So the whole concept of working together is key.
We come back with three recommendations.
First, develop a standards framework to make sure that this kind of commerce will flow very smoothly in this country and with other global players, which is very important overall.
Second, really focus on policy. Given that we have these new entrants--the technology companies, the telcos--it's very important that we enable innovation and not stifle it with tight rules and tight regulations that won't allow those players to play. So there is a balance between these two things.
Third, we need really solid education for businesses, consumers, and citizens in Canada to ensure they understand what they're doing when they're using these types of capabilities, as well as to really drive adoption, because we think, at the end of the day--
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