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View Kim Rudd Profile
Lib. (ON)
Thank you. I think airlines, as an example, have certainly gone to plastic and no cash.
View Pierre-Luc Dusseault Profile
NDP (QC)
Mr. Chair, I first want to thank Mr. Giroux and his colleagues for their work.
I know that you've been working on this issue for several years and that, even though you had other data sources, it wasn't very easy to enlist the co-operation of the Canada Revenue Agency to access the data that you used to prepare this report.
My first question concerns electronic funds transfers. You addressed international electronic funds transfers and transactions between affiliates or related companies. However, from what I can see, for the European Union's black and grey list countries alone, electronic funds transfers total $628 billion.
Can you give us an idea of the countries on these lists and the value of the $628 billion in electronic funds transfers between Canada and these countries and between these countries and Canada in relation to the size of the countries' GDP?
Yves Giroux
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Yves Giroux
2019-06-20 11:10
For these detailed questions, I'll turn to Mr. Mahabir and Mr. Bernier, who can provide a list of these countries. I'd say that the scale of the electronic funds transfers to these countries is disproportionate to the economic activity in these countries or to Canada's economic ties with them. This suggests that the transactions are more than simply economic transactions for tangible property. These transfers are probably justified by tax matters.
With regard to the countries on the list, Mr. Bernier can give you some examples.
Govindadeva Bernier
View Govindadeva Bernier Profile
Govindadeva Bernier
2019-06-20 11:11
Yes.
Thank you for your question, Mr. Dusseault.
We referred to the list established by the European Union in December 2017. The list is often updated. Countries are added, removed or moved from the black list to the grey list. Since most of our data predates the first list, we included all countries that were on the black list at some point. Although these countries have since improved some transparency practices, this wasn't necessarily the case at the time of the electronic funds transfers. At one point, up to 70 countries were on the list. I won't name them all here.
In May 2019, countries such as Belize, Fiji, Marshall Islands, Samoa, Trinidad and Tobago, Vanuatu and the United States Virgin Islands were on the black list. Bermuda, Barbados and Aruba have been on the list before. We often hear these names when we talk about tax havens.
View Pierre-Luc Dusseault Profile
NDP (QC)
As Mr. Giroux said, the $628 billion in electronic funds transfers to these countries or from these countries to Canada are disproportionate to the real economic activity of these countries.
The same is true for offshore financial centres, which are covered in the other part of your study on electronic funds transfers. There are sink and conduit financial centres. Perhaps it isn't necessary to go into detail. Three trillion dollars pass through these offshore financial centres. We rarely say “trillion dollars” in French, but the amount is more than a few billion dollars.
Can you provide a typical example of an offshore financial centre? How much money goes through these financial centres and what does this mean in terms of the country's economic activity?
Yves Giroux
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Yves Giroux
2019-06-20 11:13
I can put the amount in perspective: $3 trillion, or $3,000 billion, is more than Canada's GDP. These transaction or cash flows—some transactions occur more than once a year in various inflows and outflows of funds—are completely disproportionate to the economic activity of the country in question.
We looked at countries such as Tonga, small islands in the Pacific with a tiny GDP. However, the value of transaction flows between Canada and Tonga is several times higher than Tonga's GDP. No economic reason or transaction in property or services can justify flows of this magnitude from Canada to Tonga or from Tonga to Canada. It's completely disproportionate, given Tonga's GDP and the transactions in tangible property or services that occur there.
Clearly, this is purely for financial or tax reasons. There may be legitimate financial reasons, such as better interest rates or a more secure banking system, but I highly doubt this. I think that, aside from these legitimate reasons, few reasons justify transferring so much money to such a small country, other than tax reasons.
View Pierre-Luc Dusseault Profile
NDP (QC)
The other part of this study concerns transactions between companies. These tables basically show that several countries considered tax havens are among the top 10 in terms of offshore transactions with Canadian companies that have affiliates or related companies that don't deal at arm's length. The United States is in first place. This won't surprise anyone, since the United States is our closest neighbour. Canada's trade with the United States is substantial and often valid and proper.
Luxembourg, a European country, is in second place. What is Luxembourg's economy or GDP? How can we justify the fact that this country ranks second in terms of the number of transactions conducted by Canadian companies abroad? Is it because Luxembourg's economy is growing? Is it because many oil wells are drilled in the country and there's an extraordinary amount of economic activity?
Yves Giroux
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Yves Giroux
2019-06-20 11:17
I'm not familiar with Luxembourg's oil activity, but I highly doubt it. I know that the country has had coal mines. To give you an idea of the scale, let's say that Luxembourg's population roughly aligns with the city of Gatineau's population, or with the slightly larger populations of Laval or Longueuil. The territory is quite small. While the economy is in fact booming, the population is small. Luxembourg is probably one of the richest countries in the world, per capita. However, this isn't necessarily the result of booming tangible economic activity.
I suspect that many transactions to and from this country are taking place because of a well-known fact. Luxembourg is often referred to as a “country of post office boxes.” Companies have addresses that consist of an office shared by several companies or that are limited to a single post office box. This situation is very common because Luxembourg is a tax-friendly country. That's the justification.
Mr. Mahabir can elaborate on this topic.
Mark Mahabir
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Mark Mahabir
2019-06-20 11:18
As Yves said, there are a lot of holding companies in Luxembourg. There are also no withholding taxes on royalty payments and dividend payments. That's one of the reasons why we're having a lot of transactions with that jurisdiction.
View Pierre-Luc Dusseault Profile
NDP (QC)
The first on the list of the top 10 countries is Luxembourg, whose population is the size of the city of Gatineau, but whose reportable transactions amount to $236.7 billion. There's also Switzerland, whose reportable transactions amount to $198.4 billion, and Ireland, which some people also consider a tax haven and whose reportable transactions amount to $172.4 billion. In Barbados, the reportable transactions amount to $48.2 billion, and in Bermuda they amount to $29.7 billion. The offshore transactions of these five countries on the top 10 list amount to about $685 billion. For the most part, the economies of these countries don't necessarily justify such a large flow of transactions.
Can you give us an idea of the situation in these five countries and the influence of double taxation agreements?
I don't know whether you focused on this issue in your study. I want to know whether the size of the transactions between Canada and these countries can be linked to the fact that we have double taxation agreements. These agreements may encourage the offshoring of profits, which can then be repatriated to Canada at a lower tax rate.
Yves Giroux
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Yves Giroux
2019-06-20 11:20
As part of the study, we didn't establish a causal link or correlation between the double taxation agreements with certain countries and the value of transactions reported on T106 slips in the case of transactions of related companies.
At first glance, it seems surprising that the value of transactions between related companies is higher in Barbados—given the size of its economy—than in Australia, which has a developed economy and fairly close ties with Canada. There are more transactions between Barbados and Canada than between Australia and Canada. The same is true for Bermuda, where the number of transactions is similar to the number in Australia. Bermuda is probably a very beautiful place to live and buy a second home. However, its economic activity doesn't even come close to Australia's economic activity.
Mr. Mahabir and Mr. Bernier may have more or, conversely, less information than I do on the relationship between tax treaties and transactions between related companies.
Mark Mahabir
View Mark Mahabir Profile
Mark Mahabir
2019-06-20 11:21
If we look at the list in table 3-5, we can see that it basically shows the revenues going into Canada from countries. On this list, there are a few jurisdictions where there is no corporate income tax, so there are revenues being earned by Canadians in jurisdictions where there is no income tax.
View Pierre-Luc Dusseault Profile
NDP (QC)
Table 3-5 shows that Luxembourg, of all the countries in the world, has the highest revenues from non-residents. These revenues amount to $47.6 billion.
Can you tell us what “revenues from non-residents” means? Are these payments made by affiliates of a Canadian company? What transactions are normally involved? Are they intellectual property payments, interest or dividends, for example?
Govindadeva Bernier
View Govindadeva Bernier Profile
Govindadeva Bernier
2019-06-20 11:22
In Table 3-5, we measured the revenues from transactions reported in Part III of the T106 slip. We've included the appended form in the report. Part III details transactions, either in property or services. The revenues may also include interest or royalty payments in particular, or payments for management services, research and development, and so on.
The first column, the revenue from non-residents column, concerns money that affiliates in Luxembourg have paid to companies in Canada. The expenditures are funds that Canadian companies have sent to companies in Luxembourg. The net revenue is the difference between the two.
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