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View Diane Lebouthillier Profile
Lib. (QC)
Thank you very much.
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.
Ted Gallivan
View Ted Gallivan Profile
Ted Gallivan
2021-06-22 16:19
Thank you.
Factually, a more complex audit will take more time, and factually, when the CRA has the onus of proof, it needs to gather evidence that will withstand a challenge in court. It does take more time because we think it's in the Crown's best interest.
That's what the OAG observed. They observed, in the more complex cases, that we did allow more time to get the information, because we needed that information to collect the taxes owed.
View Julie Dzerowicz Profile
Lib. (ON)
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?
View Diane Lebouthillier Profile
Lib. (QC)
Mr. Chair, I thank my colleague for her question.
I agree that combatting tax evasion is a difficult task for the government, a serious and complex one that takes time. We are tackling these very profound problems and very wealthy people who have the resources to hire the best lawyers and the best teams.
On the question of the Panama Papers, the government has invested over a billion dollars and has identified 900 Canadians. More than 200 audits have been completed and 160 audits are underway.
We have given the CRA the tools and resources to fight tax evasion. That fight was not a priority for the Conservative government, as was even confirmed publicly by one of their former ministers of national revenue, Jean-Pierre Blackburn.
View Francesco Sorbara Profile
Lib. (ON)
Thank you, Mr. Gallivan.
Minister, you've been the minister for the Canada Revenue Agency for a number of years. You have submitted a number of budget requests to the government, and in terms of asking for resources to be provided to the Canada Revenue Agency.
Can you again really touch upon just how much we have invested into CRA because of what you have requested as the minister of the Canada Revenue Agency?
View Diane Lebouthillier Profile
Lib. (QC)
I thank my colleague, who is also my parliamentary secretary, for his question.
Our government has invested over $1 billion in the Canada Revenue Agency. It actually had to organize an entire sector of the CRA so that, as I said, it could provide the resources and tools needed to be able to combat tax evasion. We had lost expertise. We have sought out people, we have signed agreements, country by country, and we are working with the OECD, the Organization for Economic Cooperation and Development. The CRA works at the international level. That is why it is so important to support the 2020‑21 budget. We are giving ourselves additional tools to ensure that the rules and the laws that enable us to take more effective action against tax evasion are tightened.
View Francesco Sorbara Profile
Lib. (ON)
I'll go back to Mr. Gallivan.
Mr. Gallivan, as you know, at the Canada Revenue Agency, the government has invested significant resources. Can you speak about this in terms of the ongoing breadth of proceedings that the CRA has undertaken, in terms of looking at aggressive tax planning and also, of course, on the tax evasion side, please?
Ted Gallivan
View Ted Gallivan Profile
Ted Gallivan
2021-06-22 16:53
Thank you.
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.
Ted Gallivan
View Ted Gallivan Profile
Ted Gallivan
2021-06-22 17:10
We're approaching $100 million in identified, unpaid taxes, plus, when we find those cases, we mine them for others. In terms of ROI and the tactical benefits, it's tens of millions of dollars, cresting $100 million. In terms of deterrence, it's harder to track, but it's definitely there.
Samya Hasan
View Samya Hasan Profile
Samya Hasan
2021-06-17 12:02
Thank you so much for inviting me to be part of this panel today. I really appreciate the timing of this invitation.
As mentioned, my name is Samya Hasan, and I am the executive director of the Council of Agencies Serving South Asians. CASSA is a social justice umbrella agency supporting the well-being of South Asians in Canada.
I’d also like to acknowledge that I am joining you today from the traditional territory of the Mississaugas of the Credit, which is covered by the Williams Treaties, and its colonial name is Durham region.
It's a difficult moment for me to speak today, as the entire Muslim community in Canada grieves the loss of the Afzaal family, as we witness the hate crimes against Black Muslim women in Alberta, as we see videos circulating on social media celebrating the London terrorist attack, and as we hear about the violent threats being made to a number of mosques in the GTA. However, I am here today to support our communities at this difficult time with hopes that the four Muslim Canadian lives lost will be far too many for our political leaders and that urgent action will be taken to reassure the Muslim community once again that we are safe in this country.
The disproportionate impact of Islamophobia on Muslim women has been widely documented in Europe, the United States and Canada. Clearly, Islamophobia is a gendered crisis; it operates according to gendered stereotypes of Muslim men as violent, terrorists and abusive, and of Muslim women as accomplices or oppressed. This is especially true for visibly Muslim women who choose to wear the niqab or the hijab, due to the preconceived notion that Muslim women have been forced to dress this way by patriarchal systems.
In fact, in a survey published by the Toronto Star in 2017, 56% of Canadians believed that Islam suppresses women. On the contrary, there is very little understanding or recognition of the worldwide movement of Muslim women to wear the hijab as a sign of empowerment. These stereotypes of Muslim women in policies, political rhetoric and the media lead to increased Islamophobic incidents against visibly Muslim women. One such policy was the now dismantled barbaric cultural practices act of 2015. Due to the limited time I have today, I'm not going to talk about the online hate component, as I know my colleagues have probably discussed it, and my sister, Amira Elghawaby, has talked about that at length.
For a long time, we shamed France for its anti-hijab and anti-niqab policies, yet we have a province in our own country that passed unconstitutional policies without any evidence of harm to society based on what Muslim women can or cannot wear. In these policies, we see the height of hypocrisy of modern, white feminism, which is led mainly by white women, to the exclusion and detriment of visibly Muslim women and other racialized women who feel empowered by their faith and choose to wear the hijab or the niqab.
On the other hand, widely believed stereotypes of Muslim women as being oppressed in their own communities do not do Muslim women any favours. In fact, it is the state that passed the Islamophobic policies and it is the state that is oppressing Muslim women by limiting their freedom to choose. It is the state that oppresses Muslim women by sitting idly while their human and constitutional rights are being abused and doors to opportunities in this country are closed for them, just because they choose to dress a certain way. This is systemic social and economic exclusion of visibly Muslim women, yet we are silent. Decades of being exposed and victimized by Islamophobia described in detail by my other colleagues today have led many Muslim women to feel unsafe, defensive, distrustful and afraid, afraid that anything that they do or say can be used against their communities by the media.
To address this crisis, I urge this government to work with Muslim women and Muslim-led community groups and organizations to combat Islamophobia with a focus on the gendered impact of this crisis. I urge this government to work with the provinces to mandate a community-informed education curriculum on Islamophobia, among other areas of anti-racism such as anti-Black racism and anti-indigenous racism, especially in public schools, so that our children grow up to respect people of all faiths, cultures and races.
Finally and most importantly, I urge this government to implement restrictions on online hate and legislate penalties now for social media platforms for not shutting down hate content.
I'm going to end with the brilliant words of Dr. Yaser Haddara from Hamilton from an article I read earlier this week:
Our leaders must take the needed hard look in the mirror. They must take responsibility for their own actions and those of their political parties and supporters. They must commit to do better and they absolutely must do better. Hate thrives in the dark. We fight it with transparency, accountability, and equality before the law. No more special laws,—
That's with reference to Bill 21:
—no more secret audits,—
That's with reference to the report from last week showing the CRA unfairly targeting Muslim charities over the last decade:
—no more double standards. Anything less, and I fear we’ll soon stand again in yet another Canadian city to mourn more Canadians lost.
Thank you for your time.
Ted Gallivan
View Ted Gallivan Profile
Ted Gallivan
2021-06-10 15:33
Good day, Mr. Chair.
To maximize the time for questions, I might just cover some key points of emphasis. The full remarks are filed with the clerk of the committee.
Both the Government of Canada and the CRA are firmly committed to combatting tax evasion. We are also determined to make it much more difficult for all those who intentionally choose not to meet—
Ted Gallivan
View Ted Gallivan Profile
Ted Gallivan
2021-06-10 15:34
It must be recognized that international tax evasion and aggressive offshore tax avoidance are very complex global issues.
Ted Gallivan
View Ted Gallivan Profile
Ted Gallivan
2021-06-10 15:34
Thank you, Mr. Chair.
Through the government's investments, which have been announced in federal budgets since 2016, the CRA has been able to equip itself with tools and resources that allow collaboration and exchange of data at a global scale and provide much more transparency for Canadians.
Because of these investments by the Government, the CRA has benefited from better data, better partnerships, and ultimately, better results in its fight against tax evasion.
Canada is one of more than 70 countries that exchange information via country-by-country reporting. Since 2015 Canada has participated in the sharing of data related to international electronic funds transfers of over $10,000. Additionally, with the implementation of the common reporting standard in 2016, Canada and nearly 100 other jurisdictions have been able to benefit from data from financial institutions that identify financial accounts held by customers who are non-residents for tax purposes.
Thanks to budgetary investments since 2016, the CRA has observed excellent signs of success. In fact, the agency has identified over $12 billion in gross audit assessments every year, over 60% of which is related to tax avoidance by large multinational corporations and aggressive tax planning by wealthy individuals. While the CRA had committed to finding an additional $5 billion over five years, we actually achieved that goal a year early, despite the pandemic. In addition, our proven results demonstrate that we're taking the right tax cases to the Tax Court of Canada, the Federal Court of Appeal and the Supreme Court of Canada.
Of course, there is still work to be done, but we have a proven track record to show that we are making it increasingly difficult for non‑compliant individuals to continue their activities.
As part of the fall economic statement 2020, and confirmed in budget 2021, the government committed to investing an additional $606 million over five years, starting this fiscal year. Notably, we are working to close the high-net-worth compliance gap, bolster technical support on high-risk audits and enhance the criminal investigations program. These investments will allow the CRA to fund new initiatives and extend existing programs targeting international tax evasion and aggressive tax avoidance.
The Government of Canada's continual investment in fighting tax evasion and aggressive tax avoidance promotes an international exchange of information that is both modern and collaborative, and ultimately ensures that all Canadians pay their fair share.
Alexandra MacLean
View Alexandra MacLean Profile
Alexandra MacLean
2021-06-10 16:49
Thanks very much, Mr. Chair.
I just wanted to add how seriously we take our mandate in international and large business directorate. We have been staffing up and we have been focusing on training. As the member indicated, we are challenging very well resourced interests that have very well qualified advisors. They have very deep pockets. There is a strong focus on improving training and making sure our people are well equipped to take on the most challenging and complex tax situations.
We have also invested a lot in information technology. I think Mr. Gallivan has touched on that in some of his answers. The amount of data coming into the agency is better than it has been in the past by quite a lot. We're better able to detect relationships and transactions than we were in the past, for sure.
However, it is a challenging business. There's a lot of money at stake, as many people have mentioned during this afternoon's proceedings. A lot of resources are deployed, I guess, on both sides, but particularly in the interest of high-net-worth individuals and multinational enterprises.
I wonder if my colleagues from Finance want to highlight.... We are quite excited about some of the budget 2021 initiatives that will help us deal with base erosion.
Bob Hamilton
View Bob Hamilton Profile
Bob Hamilton
2021-06-08 11:07
Thank you, Madam Chair.
I am happy to be with you once again, to discuss “Report 7—Canada Emergency Wage Subsidy”, released in spring 2021 by the Office of the Auditor General of Canada, or OAG.
With me today are Ted Gallivan and Maxime Guénette, whom you already introduced.
My focus today is on the response of the Canada Revenue Agency, or CRA, to the motion adopted during meeting 27 of the Standing Committee on Public Accounts related to its study on report 7.
The motion requested that both the Department of Finance and the CRA provide the committee with:
all studies, data and analysis used for the implementation of the Canada Emergency Wage Subsidy, that these documents be provided to the committee with redactions for Cabinet confidence and personal information, and that these documents be provided to the committee no later than May 27, 2021.
Upon adoption of this motion—
Bob Hamilton
View Bob Hamilton Profile
Bob Hamilton
2021-06-08 11:08
I'll start where I left off. It's getting close to the end.
Upon adoption of this motion, the CRA immediately set to work to meet the committee's expectations. I acknowledge the efforts of numerous employees across the agency, representing both a significant and a necessary time investment to perform this work within the stipulated deadline. Their effort underscores the seriousness with which the agency takes its duty to be both transparent and accountable to Parliament and to Canadians.
Thank you again. We welcome any questions you might have today.
Ted Gallivan
View Ted Gallivan Profile
Ted Gallivan
2021-06-08 11:17
Madam Chair, what I would say is that this is an internal document that we produced based on a number of assumptions. Our own internal analytics folks would have made a number of assumptions to produce that analysis. That is an estimate to help guide the level of effort that was necessary. It's not a projection but perhaps an outer limit that we used for planning purposes to allocate resources. It's based on assumptions, and only time will tell whether those assumptions will be proved to be correct.
Maxime Guénette
View Maxime Guénette Profile
Maxime Guénette
2021-06-08 11:43
Thanks, Commissioner. Thanks, Madam Chair.
There are two sections of the Access to Information Act that were invoked, the principles of which were invoked for redactions in the package that you see.
In the case of the particular paragraph that is being referenced, it would be paragraph 16(1)(c) that applies. This is information whose disclosure could jeopardize our ability to enforce the law, essentially, so the information that you would see redacted, without getting into the details of what's behind that particular paragraph, is information that would telegraph perhaps a bit too much to the general public about the ways in which we'll conduct our audits or the areas where we would focus more of our attention.
The way that these redactions were applied, of course, was by access to information folks within my team with delegated authority. Even though this is not an access to information request, these are the principles that we use, and when we make recommendations, we would check in also with the experts—in this case, in Mr. Gallivan's shop—to validate that the risk of injury is what we understand it to be.
In this case, maybe Mr. Gallivan would have something to add to that.
View Luc Berthold Profile
CPC (QC)
Thank you very much, Madam Chair.
I'd like to begin by thanking the witnesses for being with us today.
I know that having to put programs in place quickly during a pandemic has its own set of concerns and risks. As we read through the documents you sent us, we could see which risks had been raised and which had been proven to be real over the weeks and months.
My question is for Mr. Hamilton.
I was surprised to see that, in several places in the documents, there was reference to reputational risks to the Canada Revenu Agency.
Can you explain to me the extent to which these risks were considered among the major potential impacts? Why was so much attention paid to them?
Bob Hamilton
View Bob Hamilton Profile
Bob Hamilton
2021-06-08 12:40
I thank the hon. member for his question.
The agency's reputation is important to us, both in times of pandemic and in normal times. It's important because for the tax system to work, Canadians need to have confidence in the agency. So, the agency's reputation is a factor in the decision to participate in the tax system, among other things.
View Luc Berthold Profile
CPC (QC)
You'll understand why I'm asking this question. This is a discussion I want to have because I want to understand what Mr. Gallivan was talking about earlier. He talked about the risk associated with the very small number of audits that will be done of individuals and businesses that received the wage subsidy.
Does the agency want to maintain that tough image, and has this program hurt that image, which you have to maintain to make sure that people pay their due to the government?
Bob Hamilton
View Bob Hamilton Profile
Bob Hamilton
2021-06-08 12:41
These are two aspects of the agency's reputation.
First, it is its ability to deliver benefits in a timely and efficient manner. Second, it is its ability to ensure that those who receive benefits are eligible for them. It's important for us to preserve both aspects of the agency's reputation.
That was a consideration in the period after benefits began, and that process is still ongoing.
View Luc Berthold Profile
CPC (QC)
In terms of collecting money owed to the government, are you concerned that the lack of audits that will be done on the emergency wage subsidy will damage the agency's credibility?
Bob Hamilton
View Bob Hamilton Profile
Bob Hamilton
2021-06-08 12:42
It is certainly always possible to criticize the agency, but I'm very pleased with the balance that we've been able to achieve in this context, as we did audits early in the program. Mr. Gallivan described actions that the agency took during that period, including using information obtained by our auditors. However, at the same time, there was a need to pay benefits.
I think we've struck a good balance, and now we're in the process of doing a little bit more post‑payment auditing, just to make sure we correct any errors that may have occurred.
In my opinion, as far as the reputation of the agency is concerned, I think we've struck a good balance in terms of auditing.
View Francis Drouin Profile
Lib. (ON)
Great. Thank you.
I'll switch gears.
Some Canadians, obviously, felt the impact of their government accounts being closed with the CRA. Can someone explain to me what happened there and why the government took the precaution to shut down these accounts? What is the best way for Canadians to prevent that from happening?
Marc Brouillard
View Marc Brouillard Profile
Marc Brouillard
2021-05-31 16:47
I can answer the first part of that question, Mr. Chair.
The CRA has been proactively using different methods and third parties to look for signals that accounts have been identified and potentially compromised. This is anything from, again, going back to the capabilities where there have been previous compromises or known lists of identities that are suspicious. All they do is deactivate the accounts. They contact the users, and they tell them that they may have been compromised and that this may have been part of some other event that may affect other accounts like their bank accounts, Facebook accounts and things like that. It is giving Canadians a proactive piece of advice that they need to look at their cyber-hygiene and that they need to take action.
With regard to the CRA accounts, there's a process for them to re-establish their accounts. They don't lose their accounts permanently. It's just that they have to reset their passwords and re-establish their identities.
I would leave it to Mr. Jones to talk about what other cyber-hygiene activities Canadians should take to protect themselves overall when this happens or just even as part of due course.
Scott Jones
View Scott Jones Profile
Scott Jones
2021-05-31 16:48
Mr. Chair, I'll quickly add in on what Canadians can do.
The first thing is this: Don't reuse passwords on accounts that you really care about. In fact, don't reuse passwords. We recommend that Canadians use things like password managers, something that will autogenerate some random, complicated string of passwords.
For things that you really care about though, use unique passwords. Turn on multifactor authentication. That means asking it to send you a text message when you're logging in, logging in from a trusted device, or having one of those hard tokens, although most people won't use those because those are kind of hard to use. However, turn on something so that it verifies.
Security questions are not multifactor authentication. That information has been stolen, so don't count on that as a second factor. When we talk about that.... So, it's something you know: your password. It's something you are: in the physical world, a fingerprint or a picture or something like that. It's something you have. That's where we talk about your getting a text message on your phone that gives you a code to log in with for the next few minutes, etc. That's multifactor authentication.
Turning on those things already makes you a much harder target. Those are simple things you can do. I encourage every Canadian to go in and change the passwords for the things you care about, the things that can have harm to you as a citizen. Set it to a hard password—better yet, a pass phrase if its allowed—something that only you know, that only you can remember. If you're going to write it down, lock it away somewhere and hide it. Don't tape it under your keyboard. That's the first place anybody looks.
Percy E. Downe
View Percy E. Downe Profile
Hon. Percy E. Downe
2021-05-06 15:35
Then we had the leaks of the Panama papers and the Paradise papers, showing thousands of accounts involving thousands of Canadians. Among many glaring examples of inaction by Canada’s revenue agency are the Panama papers, disclosed over five years ago and listing 900 Canadians with accounts in that one law firm in Panama.
Since then, other countries around the world with citizens identified in the Panama papers have collected over $1.36 billion in taxes that were owing to them. Australia has recovered over $172 million, Ecuador $105 million, and Spain $209 million. Even Iceland, a country of 370,000 people, has recovered $32 million. In the case of Canada, five years later, no one has been charged and no one has been convicted for tax evasion as a result of the Panama papers, and there have been no charges or convictions related to Liechtenstein or Switzerland.
Meanwhile, the Canadian government doesn’t even know the size of the overseas tax evasion problem. The Parliamentary Budget Officer has been trying to estimate the tax gap since 2012, but the CRA won’t co-operate.
For a comparison of what action a country can undertake, look at what Australia has done about overseas tax evasion. They established Project Wickenby in 2006, when eight government agencies came together to, in their words, “protect the integrity of Australia’s financial and regulatory systems” by cracking down on use of illegal tax havens. In that time period, the Australians collected over $750 million. A number of people were charged and a number were convicted. They concluded Project Wickenby by establishing the Serious Financial Crime Taskforce.
In Canada, in the case of Liechtenstein, the CRA, in their words, “waived referrals for potential criminal investigation to gather information”. In other words, the agency promised not to charge the people involved in that tax scheme in exchange for them explaining to the CRA how it actually worked. However, any lessons learned from the Liechtenstein affair in 2008 have obviously not been very effective, since no one has ever been charged or convicted, for all the additional leaks over the last 12 years.
Because the CRA has been so incompetent on overseas tax evasion, a number of things have happened: One, we don’t have the money to fund our priorities; two, the rest of us have to make up the shortfall by paying more taxes; and, three, Canadians are wondering why we have a two-tiered justice system for tax evasion. Try to cheat on your domestic taxes and the CRA will likely find you, charge you, convict you and force your repayment. Check their website and you'll see their results. Hide your money overseas and you likely will never be charged or convicted. Again, check their website and you'll see the results.
Canadians might want to ask why people are being treated differently depending upon whether they’re evading their taxes at home or overseas.
Colleagues, I would suggest the following measures for the committee to consider.
One, measure the tax gap.
Two, change the law so that it becomes an automatic criminal offence to have an undeclared account overseas and those who don’t declare their overseas accounts will automatically serve jail time.
Three, introduce beneficial ownership legislation so we know who actually benefits from financial transactions.
Finally, change the salary structure at the Canada Revenue Agency to retain experienced and specialized employees. Too many of them are being recruited by the other side for substantial salary increases.
Thank you, Chair.
Lucia Iacovelli
View Lucia Iacovelli Profile
Lucia Iacovelli
2021-05-06 15:44
Thank you for the invitation to appear before this committee.
I am KPMG's Canadian managing partner for tax.
Before I commence with my remarks, I'd like to extend my sincere sympathy to Ms. Watson and all of the other victims of the Cinar fraud. We know that you've been seeking answers for a long time, and I wish we could help you. We simply do not have any connection to Cinar. We were not their auditor or their tax adviser. We did not help any of the people who carried out the fraud to take your money or hide your money.
At KPMG we ensure that our clients are able to work within the tax system, achieve their goals and pay the tax they are required to pay. That is the lawful tax planning work that we do for our clients across Canada every day, and in accordance with KPMG's policies, practices and culture, we ensure the highest standards of integrity, compliance and professionalism.
Like most professionals, as CPAs we are required to protect the confidentiality of information regarding our clients and former clients. We take that obligation seriously, but when we receive a legal order requiring us to disclose client information, we comply with it. In February 2017, for example, in accordance with the CRA requirement, we provided the CRA with all the names and all of our files related to the OCS implementations in the Isle of Man.
I would also like to address recent reporting by the CBC, which is focused on four corporations, referred to as the “sword” companies, which were established in the Isle of Man in the early 2000s. It's alleged that these companies were used to facilitate the Cinar fraud. I don't know whether that's true. I do know that any implication that KPMG had anything to do with the Cinar fraud is false. Any implication that KPMG was in any way involved with the “sword” companies is also false.
We can state this with confidence because we undertook the comprehensive and detailed due diligence of our files, records and personnel. We combed through millions of pages of documents. We reviewed our time and billing systems. We examined our client file databases, and we interviewed people. We took the added step of reviewing publicly available corporate documents from the Isle of Man. Through all of this, we found nothing that suggested that KPMG had any association with the “sword” companies.
We provided this information to the CBC, making it clear that they were mistaken, but they persisted in publishing irresponsible and misleading stories. As a result, our lawyers served a notice of libel on the CBC last week. The CBC's allegations mistakenly rely on emails, written 15 years after the fact, by a woman named Sandra Georgeson, and on similarities between the “sword” companies and KPMG client companies.
Let me address these mistakes one by one. KPMG, like other firms, commonly uses the support of corporate service providers to set up and help administer companies. There are a lot of these firms that do this work around the world. Ms. Georgeson worked for one such firm in the Isle of Man. In the early 2000s, KPMG in Canada offered a legal tax plan, known as the OCS. The OCS required the incorporation of companies in the Isle of Man, and Ms. Georgeson's firm was retained to do so. Fifteen years later she was asked by her new employer to prepare a list of these companies. Her recollection in 2015 was that the “sword” companies were examples of KPMG OCS implementations. They were not.
In its reporting, the CBC pointed to similarities in the sequential registration numbers, named directors, signatories and filing addresses between the OCS and the “sword” companies as evidence that KPMG set up these companies. The CBC is simply wrong in drawing this inference.
The similarities exist because whoever registered the “sword” companies used the same corporate service provider as KPMG, but our diligence shows that the “sword” companies do not belong to, or are in any way connected to, KPMG.
I wish we could help reunite the victims of this fraud with their money and bring the perpetrators to justice, but we can't. KPMG simply does not possess any information that could assist with the Cinar investigation.
Putting the CBC's unfounded theories about Cinar aside, the broader issue that is before the committee today is how Canada could combat aggressive tax avoidance and tax evasion.
We applaud the committee's review of this important issue. We share the committee's desire and we welcome the opportunity to contribute to the discussion today.
Thank you.
Debi Daviau
View Debi Daviau Profile
Debi Daviau
2021-05-06 15:50
Thanks for having us.
My name is Debi Daviau, and I'm the president of the Professional Institute of the Public Service of Canada, or PIPSC. It's the national union that represents some 12,000 auditors and other tax professionals at the CRA across the country. Our members are skilled professionals and knowledgeable tax experts who ensure that powerful corporations and wealthy individuals remain just as accountable as the rest of us.
With me today is Mr. Ryan Campbell, our union economist and my technical adviser today.
We'd like to thank you for the opportunity to present our views on this critical issue. Together we'd be happy to answer any and all questions you may have after our presentation.
We've researched this issue from the point of view of tax professionals at the Canada Revenue Agency and produced three reports on tax avoidance and evasion. You can find them on our website at PIPSC.ca. I'd be happy to forward copies to the committee members as a follow-up to this meeting.
Few Canadians enjoy paying taxes, but they understand that it's important to do it. Taxes fund the public services that make us healthier and safer, protect the environment and nurture a stable economy in which businesses can thrive and compete.
A healthy tax system is defined by fairness and integrity. The rules must apply to everyone. Unfortunately, many wealthy individuals and corporations use their superior resources to look for a shelter or haven where the tax rules don't apply. While these privileged few get a reduced tax bill, governments lose revenue for public services, resulting in either service cuts or tax hikes for everybody else.
In February 2018, we conducted a survey of professional staff at the CRA, including auditors, managers, forensic accountants, economists, statisticians and actuaries. Their responses were eye-opening.
Much of the criticism levelled at Canada's tax system is that while it is designed to be fair, it's easier for some to get around the rules than it is for others. In our survey, nine out of 10 tax professionals at the Canada Revenue Agency agreed that it's easier for corporations and wealthy individuals to evade and/or avoid tax responsibilities than it is for average Canadians. Environics Research put that same question to the general public and found that eight out of 10 respondents felt the same way.
You should find it troubling that CRA professionals with special knowledge of the inner workings of the tax system were more likely to agree than an average Canadian. Over eight out of 10 also agreed that tax credits, tax exemptions and tax loopholes disproportionately benefit corporations and wealthy Canadians compared to average Canadians.
When asked if multinational corporations shift profits to low-tax regions, even when there is little or no corresponding economic activity taking place in that jurisdiction, three out of four respondents agreed. When asked if the CRA has adequate audit coverage capacity to ensure tax laws are being applied fairly across the country, only 16% of respondents agreed. When asked if training and technology advancements within CRA have not kept pace with the complexity of tax avoidance schemes, 79% of the respondents agreed.
All of these survey results confirm one basic fact: Canadians deserve a rigorous examination of the tax system.
Our CRA professionals are among the best in the world at what they do, but they face great challenges. Their job is to go after individuals and entities that in effect have unlimited resources and can aggressively exploit legal and international grey areas for their own gain. The CRA employees, by comparison, often feel outdone by those trying hardest to avoid taxes.
In 2012, sweeping budget cuts were introduced to the agency. Even with the more recent government reinvestments, it still doesn't have all the tools and staff it needs to get this job done
Does this make any sense when the Parliamentary Budget Officer's own numbers show a $5 return for every dollar invested in combatting international tax evasion and aggressive tax avoidance? Does this make sense at a time when government spending has skyrocketed to deal with the social and economic impact of the pandemic?
We need to fix this now. More than ever, Canadians need the tens of billions of dollars in tax revenue, if not more, that are sitting in offshore tax havens.
We believe that a number of steps can be taken to correct the situation.
First, we need better enforcement of existing tax laws. One of the simplest ways to make the system fairer is to ensure that the same rules apply to everyone.
Second, we need to prevent political interference at the CRA. This was particularly visible during the previous decade when the CRA was accused of shifting its focus away from big tax cheats to individuals, charities and small businesses.
Third, because CRA officials are frequently put in precarious situations in which they are asked to hold powerful players to account in a high-stakes setting, whistle-blower protection is crucial to ensuring that professional integrity is paramount during the tax assessment process.
Fourth, while government investments in the CRA have increased in recent federal budgets, Canada's population continues to grow, and so do the amount of commerce and the complexity of tax evasion schemes. The CRA needs to hire more technical advisers and to invest in technology and training to deal with these factors.
Fifth, the CRA must enhance the capacity of its regional offices. The Auditor General has found that taxpayers receive different treatment from the CRA depending on where they live and who they are. Its regional offices need the appropriate resources to ensure that laws are applied fairly from coast to coast.
Finally, a number of policy reforms need to be undertaken. Budget 2021 announced initiatives that when implemented will take tangible steps in the direction of tax fairness. These include a digital service tax for companies like Netflix and Amazon and the creation of a publicly accessible beneficial ownership registry. These are both important initiatives long championed by PIPSC members and our allies in civil society.
While these changes are welcomed, we still have work to do. The Parliamentary Budget Officer has estimated that as much as $25 billion of corporate tax revenue is lost to tax havens every year. We must do more to end the transfer pricing and profit shifting that facilitate this destructive practice.
As of now, some incremental steps are being taken, but there are a variety of additional actions that could be put in place. The end result would be a new, simplified view of the global commercial landscape, one in which corporations can be prevented from pitting countries against each other and are taxed fairly everywhere.
In conclusion, CRA professionals must receive the training, tools and resources they need to do their jobs. The CRA must receive appropriate funding to ensure that tax laws are enforced equitably and that wealthy individuals and powerful corporations are just as accountable as any other Canadian.
Additionally, there needs to be international co-operation and updates to legislation so that those who try the hardest to avoid taxes end up paying their fair share anyway.
Thank you for your time. Mr. Campbell and I would be pleased to answer your questions.
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