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View Gabriel Ste-Marie Profile
BQ (QC)
Thank you, Mr. Chair.
Like the minister, I too want to wish you a happy birthday, Mr. Chair.
I am going to start with a statement. Then I will ask my questions.
Hello, Minister. Thank you very much for being here this afternoon.
The committee has already been working on the problems of tax evasion and tax avoidance for some time, in particular on the tax schemes put in place by KPMG, providing a financial vehicle to enable certain of its clients to reduce their tax payable. In light of the internal documents relating to this plan provided to the committee by KPMG on May 17, 2016, this could be a form of tax evasion, so of something illegal.
All these problems are extremely complex, as you acknowledged and pointed out in your speech. Today, for example, we can read in La Presse that data from the Canada Revenue Agency show that its recent efforts to combat tax evasion by the richest Canadians have not led to any charges or convictions. The same kind of article can be read on CTV.
Experts have appeared here to tell us that there is a feeling of impunity toward the government and the CRA, among the users of the tax havens and the tax law experts who create their schemes. We have been told that to put an end to this kind of behaviour, the United States brought out the heavy artillery to deal with KPMG: investigations by the Internal Revenue Service, threats of searches and of charges of obstructing justice, penalties, criminal charges of fraud and conspiracy against the firm and its officers, and threats to charge the firm with being a criminal organization. Here, there has been none of that. Instead, the CRA has proposed voluntary disclosures and still nothing has been resolved with the clients who did not agree.
The experts reminded us that it is not possible to control what we can't see. Unfortunately, as you said in your testimony, the Canada Revenue Agency does not have access to all the information for doing these audits. For example, KPMG keeps going to court so it doesn't have to share its information with the CRA. The experts denounce the appearance of impunity and unfairness for the rich clients and the companies that create these schemes. They conceal their information from the CRA and contest the requests in court. At the committee, it is extremely difficult to get answers to our questions, to shed light on this entire matter. There are even witnesses who refuse to appear, in spite of the summons issued by the committee. These are no jokes!
I repeat: it is important to shed light on this entire matter and get to the bottom of things. We have to be able to put in place laws, regulations, processes and guidelines to prevent any form of tax evasion. That is why I am asking you, as Minister of National Revenue, to initiate a public inquiry into the matter of the schemes created by KPMG that enabled Canadian taxpayers to collect money in the form of gifts or otherwise, money that was not included in the tax returns of the recipients, from companies in the Isle of Man or any other country, as section 231.4 of the Income Tax Act empowers you to do. I believe the committee could also adopt a motion to that effect a little later.
Do you want to initiate a public inquiry, Minister, please?
Thank you.
View Diane Lebouthillier Profile
Lib. (QC)
Thank you, Mr. Chair.
I thank my colleague for all of his preamble and his long question. I have sincere sympathy for the victims of fraud and I understand how much it can affect their lives. However, I can say that under the provisions of the Income Tax Act, I can't comment on any specific case. As my colleague knows very well, I cannot give and I will never give the CRA any instructions concerning criminal investigations.
As is the role of our government, my role is to provide tools and resources so that the CRA, which is autonomous, can do its own work. Out of respect for the obvious principles of judicial independence, politicians must not ever interfere in investigations. That would be really very inappropriate.
View Gabriel Ste-Marie Profile
BQ (QC)
If I may, that is not at all what I asked. The committee's limitations are clear, and the only solution, the only tool, for shedding light on the entirety of KPMG's offshore activities is the public inquiry.
We are not talking about an investigation before the courts. You, as the Minister of National Revenue, are the only one who has this power under the Income Tax Act; you can ask for a public inquiry to be held to get to the bottom of things and shed light on the situation. In my opinion, that is what should be done.
I will ask you again. Please, can you ask for a public inquiry to be held into this entire matter so we can get to the bottom of things?
Thank you.
View Diane Lebouthillier Profile
Lib. (QC)
Mr. Chair, as you all know, committees are independent. You manage your own business.
What I am seeing at present is that my colleague wants to play police officer. I invite him to give up his seat as a member and apply for a position as an investigator with the RCMP, where there are vacant positions. He would probably be happier there than in his present position.
View Gabriel Ste-Marie Profile
BQ (QC)
I am extremely disappointed to hear such nonsense being given as an answer.
In the United States, a senate committee held an inquiry that has changed things. It is our role to do that here. My role as an elected representative, and our role as a committee, is to ask the minister to initiate a public inquiry to get to the bottom of things. There are enough points to be raised to ask for that.
We are not getting any answers, other than being told to change jobs. What a load of nonsense. She is the one who has the power.
Is she going to do it, yes or no?
View Diane Lebouthillier Profile
Lib. (QC)
Mr. Chair, I am going to ask my colleague to vote on budget 2021, which sets out proposals that really are even more useful for eliminating the loopholes used to avoid paying taxes in Canada, and that allocate additional money to the CRA so that it can modernize and improve its capacities.
In addition to all the work done and the agreements signed by the countries, I am also very happy to see that the United States has embarked on the same path. We are therefore going to work in collaboration with our partners. As I said at the outset, this is a long and complex issue, and I understand very well that the public are offended. We are continuing our work and we truly want to combat tax evasion. This is a priority for our government.
View Peter Julian Profile
NDP (BC)
Thank you very much, Mr. Chair.
I also want to wish you a happy birthday. Someday we will celebrate together, I'm sure.
I would like to welcome the minister and Mr. Gallivan.
I'm going to continue in the same vein as Mr. Ste‑Marie.
We are talking about thousands of Canadians, victims who have lost all their life savings. We know very well that in the frauds committed by Norshield and Mount Real, there are thousands of Canadians who lost everything. The system has never got justice for them.
Minister, you have been the minister for six years. What do you say to the victims, like Janet Watson who appeared before the committee, who say that the government has done absolutely nothing to protect them or to bring the guilty parties to justice?
View Diane Lebouthillier Profile
Lib. (QC)
Mr. Chair, I thank my colleague for his question. We know that I have very sincere sympathy for the people who have been victims of fraud, just as he does. I truly understand how much this can affect their lives.
However, as I said, and it doesn't bother me to repeat it, our government respects the CRA's status. I can't instruct the CRA to initiate audits and I do not intervene in audits. This is what protects the integrity of the tax system. We are going to continue doing the work we do, and because we want to keep moving forward, I invite my colleague to vote for the budget that has been introduced. It contains even greater resources to tighten the net and make sure that people pay their fair share.
If my colleague wishes to get any more technical and administrative information, Mr. Gallivan can answer him.
View Gabriel Ste-Marie Profile
BQ (QC)
Thank you, Mr. Chair.
If we want to get to the bottom of the tale of the shell companies set up by KPMG, if we want to get to the bottom of the tale of the thousands of small investors like Ms. Watson who were swindled, the only solution, according to the experts, is a public inquiry. Tax law expert André Lareau is one of the people saying that.
The role of requesting an inquiry has been assigned to you, Minister, and no one else. I also want to remind you that it was thanks to a whistle-blower inside the CRA that we got wind of the deals that were offered to the Isle of Man fraudsters. The reason the CRA's investigators are unhappy is that the order came from higher up. It takes a public inquiry.
Are you going to call a public inquiry, as you are given the authority to do by section 231.4 of the Income Tax Act, yes or no?
View Diane Lebouthillier Profile
Lib. (QC)
I thank my colleague for his question.
As I said, I can understand very well. I have enormous sympathy for the people who have been victims of fraud. I know how much this must affect them.
Out of respect for the obvious principles of judicial independence, I believe that politicians should never interfere in investigations.
View Gabriel Ste-Marie Profile
BQ (QC)
It isn't interference.
Minister, you are the only person in Canada with the power to shed light on it and get to the bottom of things. That is the power you have. You are the minister. Sympathy is not enough.
Are you going to initiate a public inquiry?
I understand it's a no. The message you are sending to everyone who has been swindled is that you are sympathetic, but you aren't going to do anything. That is unacceptable. That choice is the choice to do nothing to get it moving, to do nothing to get to the bottom of things. That is a definite sign of incompetence.
View Diane Lebouthillier Profile
Lib. (QC)
I can understand my colleague's frustrations. For our part, we govern. We establish priorities.
View Diane Lebouthillier Profile
Lib. (QC)
That is what my colleague will never be able to do. I have told him repeatedly that the Canada Revenue Agency is independent. I cannot initiate an investigation—
View Gabriel Ste-Marie Profile
BQ (QC)
You are the only person who can request a public inquiry. It would seem that you do not even know this. That is unacceptable.
View Wayne Easter Profile
Lib. (PE)
Mr. Ste-Marie, the minister has the floor. I don't want to intervene here, but I would suggest that members go back and look at Mr. Gallivan's answer on section 231.4, in which he talked about what kind of inquiry that is under the act. I'd suggest members look at that comment. Look at section 231.4 in relation to the words Mr. Gallivan said earlier.
Mr. Julian.
View Peter Julian Profile
NDP (BC)
Thanks very much, Mr. Chair.
I think we probably have about 45 minutes. I believe that Mr. Ste-Marie wants to come back to an issue as well.
I've already circulated the motion and I'll read it for the record and then add an amendment just to facilitate things. This is following discussions with Mr. Sorbara. I move:
That the Committee request that the government initiate a public inquiry under the Income Tax Act—
I would add “or the Inquiries Act”.
—to investigate tax planning by KPMG, or any of its subsidiaries, in the Isle of Man, the possible involvement of the sword companies Shashqua, Katar, Sceax, Spatha and Parrhesia corporations, and to investigate tax fraud in the Cinar, Norshield and Mount Real cases and any possible links with the KPMG Isle of Man tax planning and/or Isle of Man's sword companies, and that this be reported to the House.
I'm adding “or the Inquiries Act” because that gives the government the scope to use either tool, and since there is some dispute around the use of the Income Tax Act, my interpretation—and I would certainly agree with Mr. Ste-Marie and Mr. Lareau on that—is that it gives the government a broader scope to use the tool that is most appropriate.
The most important thing here is that we know from the testimony we had from Janet Watson, from the really important journalism we've seen both with Enquête on Radio-Canada and also from The Fifth Estate on CBC that thousands of Canadians were defrauded. That money was taken overseas. We have a responsibility and we've undertaken to get to the bottom of it as much as we can, but to date, we have asked KPMG many questions and have received often evasive or incorrect responses or no responses at all.
Therefore, I believe that given what we know and that we all share an interest in getting to the bottom of this and we all share an interest in seeking justice for the victims of these colossal frauds—half a billion dollars, and people losing their life's savings. You can only imagine somebody who saved up, like Janet Watson did, $68,000 of her life savings and lost it all due to this fraud.
I believe we have a responsibility to pass this motion. Ultimately, it is a request, but it does seek justice for the victims, and I believe that's what every member of this committee wants to see as well.
Serge Bilodeau
View Serge Bilodeau Profile
Serge Bilodeau
2021-06-17 16:27
Yes, I'm here. I don't know for how long, because the IT guys have been trying to fix the problem for one hour and a half.
Serge Bilodeau
View Serge Bilodeau Profile
Serge Bilodeau
2021-06-17 16:29
I'm sorry, but I was told that you couldn't hear me. So I will continue.
Thank you for the invitation.
I am retired from KPMG. I was an associate in the Montreal office for 25 years, from 1987 to 2014. I was never in charge of the tax department or any other department at KPMG, either locally, provincially or nationally. I was a client service associate, not a manager.
In summary, I advised clients on Canadian and international tax matters. I was involved in developing and implementing foreign transactions, such as financial structures, like the so‑called double dipping, the repatriation of foreign profits, and foreign currency management.
I have also acted as an advisor in several mergers, acquisitions and corporate restructuring for both public and private companies.
In the course of my career, I have had numerous discussions with tax authorities to obtain advance rulings or during tax audits. The discussions sometimes concerned foreign operations. My role was to meet the needs of clients by applying tax laws with the highest standards of integrity, compliance and professionalism.
Like most professionals in Quebec, as a CPA, I am bound by professional secrecy regarding our clients and former clients. I will do my best to answer your questions in light of this confidentiality requirement.
However, I can confirm beyond any doubt that I was never involved, as an associate or otherwise in what has been called the Cinar affair. The first time I heard about this case was in the media. Unfortunately, fraud appears to have been involved. As a Canadian taxpayer and a tax professional, I strongly encourage this committee to shed light on the matter.
Today, I am an occasional consultant for KPMG and sit on a few boards of directors.
KPMG is a firm that, in my experience, always acts with integrity and in the best interests of Canadians.
I would like to clarify a few points in that sense.
With respect to the Isle of Man's foreign company structure—the so‑called OCS—I was not involved in its development. I became aware of the structure in the early 2000s, as did several other tax associates in the firm. I reviewed the analysis prepared by the firm's senior tax experts, as well as the two independent legal opinions. At the time, I felt that the structure was valid from a tax and legal perspective, as long as clients followed the advice provided. I personally participated in creating two of those structures. In one case, a third party company was responsible for implementing the structure, so my role was limited.
I also want to make it clear that I was not involved, as an associate or otherwise, in the shell companies named after swords or in Parrhesia. I understand that this may be of interest to you, because those companies were registered in the Isle of Man, but neither of them were associated with the two cases I worked on.
I would not be able to give you any information on that. [Technical difficulty] Ms. Iacovelli, who answered your questions on this subject when she appeared before the committee.
I will do my best to contribute to the discussion today.
View Pat Kelly Profile
CPC (AB)
When you were an employee at the Montreal office, your office did offer offshore products to your clients. That was something you did in the course of your work at KPMG in Montreal. You said you had two clients, or you were at least involved in offering offshore products on two occasions.
View Pat Kelly Profile
CPC (AB)
Okay.
I really want to know about the scope. I'll go a little further with the question just to ask about the scope of overseas products offered in the Montreal office when the witness was there. I think he said in his opening statement that on a couple of occasions, he'd been involved in that.
Can he comment? Was tax planning involving overseas products a common or widely used strategy in the Montreal office when he worked there?
Serge Bilodeau
View Serge Bilodeau Profile
Serge Bilodeau
2021-06-17 16:43
Actually, the product, what we call OCS planning, that is to say the foreign company structure, was offered on a national basis, not only in Montreal.
However, in terms of my responsibility to the clients, my involvement in both situations was from Montreal.
View Pat Kelly Profile
CPC (AB)
Okay, so what changed? When did your business stop offering overseas products and why?
Serge Bilodeau
View Serge Bilodeau Profile
Serge Bilodeau
2021-06-17 16:44
The planning was developed by a group of senior tax experts, led by a man named Barrie Philp, and it was developed on a national level. The analysis was done on a national level. Then it was explained locally, in each of the provinces. When the situation was appropriate, it was discussed with the client and, if they agreed, it was implemented.
View Pat Kelly Profile
CPC (AB)
I'm not sure that was an answer to my question. I wanted to know when.
Was there a date or a time period at which KPMG stopped offering overseas products? I think the earlier testimony suggested that there was a time at which KPMG ceased offering this kind of tax plan.
Serge Bilodeau
View Serge Bilodeau Profile
Serge Bilodeau
2021-06-17 16:45
KPMG did an overall assessment and stopped offering those products in 2002, 2003 or 2004. In fact, the decision was the firm's, not the local office in Montreal. That's why I hesitated. That decision was made by the firm on a national basis.
View Pat Kelly Profile
CPC (AB)
What was the rationale for that decision? Was there a change in the law?
View Pat Kelly Profile
CPC (AB)
Serge Bilodeau
View Serge Bilodeau Profile
Serge Bilodeau
2021-06-17 16:46
It would be difficult for me to give you the reasons for that decision, because I was not part of the committee that made the decision to no longer recommend the structure.
View Gabriel Ste-Marie Profile
BQ (QC)
Thank you, Mr. Chair.
Good afternoon, Mr. Bilodeau.
From my point of view, creating a company in the Isle of Man, into which wealthy Canadian clients pour their fortune, so that the shell company can then pay them tax‑free donations, is completely immoral. I, for one, want to live in a society where such schemes are illegal. That is why the committee is doing this study on the situation.
I want to remind you that all witnesses who appear before committees of Parliament are protected by immunity, meaning that you do not have to worry about incriminating yourself or anyone else. If something were to be revealed, under no circumstances could it be used in a lawsuit. That is what the Law Clerk and Parliamentary Counsel of the House has reminded us. What we want to do is get to the bottom of it, and I think that this immunity allows us to do that.
To your knowledge, is there a connection between KPMG and the sword companies: Shashqua, Katar, Sceax, and Spatha?
Serge Bilodeau
View Serge Bilodeau Profile
Serge Bilodeau
2021-06-17 16:57
My former colleagues answered that question based on the analysis that was conducted.
Serge Bilodeau
View Serge Bilodeau Profile
Serge Bilodeau
2021-06-17 16:57
You will understand that I cannot testify and make assumptions about things I do not know. All I can confirm, as I mentioned in my opening remarks, is that I do not know these companies, I have never heard the names of these companies and I do not know the people involved.
I know that the firm was asked, and my former colleague, who is responsible for taxation in Canada, answered it.
View Gabriel Ste-Marie Profile
BQ (QC)
She actually didn't answer it, and we just passed a motion to have her answer it.
So let me confirm what you just told me: to your knowledge, there is no connection between KPMG and Shashqua, Katar, Sceax, and Spatha. Did I understand correctly?
Serge Bilodeau
View Serge Bilodeau Profile
Serge Bilodeau
2021-06-17 16:58
I don't know them, and the firm answered that it had no connection with those companies.
View Gabriel Ste-Marie Profile
BQ (QC)
I find it curious that you don't just say “yes, you're right”.
Serge Bilodeau
View Serge Bilodeau Profile
Serge Bilodeau
2021-06-17 16:58
Look, I'm strongly encouraging this committee to investigate the matter. If it appears that there has been fraud, that's not right and I would encourage your committee to continue its investigation. KPMG representatives will answer your questions, as they always have.
View Gabriel Ste-Marie Profile
BQ (QC)
Thank you for that thought, but I find your way of answering rather curious. I am just asking you to confirm that, to your knowledge, there is no link between the sword companies and KPMG. Your answer goes around and around and ends up back at your statement. It's as if there's something you don't want us to know, and I find that worrisome.
Serge Bilodeau
View Serge Bilodeau Profile
Serge Bilodeau
2021-06-17 16:59
No.
Mr. Ste‑Marie, I probably wasn't clear enough. In fact, there are two answers to your question.
First, there is my own personal answer, which regards my work as a partner and non‑partner at the firm. I believe that I clearly said that I don't know these companies and I don't have any ties with them.
Now, the second answer is KPMG's. As my colleague said in her previous appearance, efforts were made to look for ties with those companies across the firm as a whole, but nothing was found.
View Gabriel Ste-Marie Profile
BQ (QC)
I understand that there are no ties.
I also take it that you don't personally know anyone who, whether closely or remotely, worked with, had ties with or contributed to the operations of those companies with swords in their names: Shashqua, Katar, Sceax and Spatha. Is that correct?
View Ed Fast Profile
CPC (BC)
View Ed Fast Profile
2021-06-17 17:24
Mr. Bilodeau, I did want to ask you a specific question.
That OECD report specifically highlighted four things that could be done to address the issue of, what they refer to as, professional enablers. They're talking about accountants. Let's be very frank about that.
The first was engaging in more communication. The second was leveraging the role of supervisory bodies in industry sectors. Third was early disclosure, and then whistle-blowing, and then a strong approach to enforcement.
I want to ask you a question about the second part, and that is supervisory bodies. Those are your professional societies that are governed provincially. Are you aware of anyone within KPMG, any accountant within KPMG, having been disciplined or cited or censured as a result of the Isle of Man offshore structures?
Serge Bilodeau
View Serge Bilodeau Profile
Serge Bilodeau
2021-06-17 17:25
No, I don't have that information.
View Peter Julian Profile
NDP (BC)
Thank you, Mr. Chair.
Mr. Bilodeau, I am tempted to ask you a question about the victims, like Janet Watson, who appeared before our committee. She lost all her life savings because of these strategies.
But I will stick to questions about Parrhesia.
Two very troubling questions emerge from Ms. Iacovelli's testimony.
First, Parrhesia, which has links to the sword companies, was registered as the result of a document faxed from the offices of KPMG in Montreal.
Were you aware of the existence of Parrhesia? Was it discussed in the offices in Montreal? Do you believe that it is one of the issues that could have been discussed by your famous risk management committee?
Then, Ms. Iacovelli clearly stated that the services of those companies were not provided after 2003. However, we discovered that Pannhesia was dissolved on May 24, 2021, just a few weeks ago, and right after the revelations on Enquête and The Fifth Estate, programs on Radio‑Canada and CBC respectively.
Were you aware that Parrhesia existed until that date? How do you explain that Parrhesia was in existence for all that time, although, according to Ms. Iacovelli, it was not active after 2003?
Serge Bilodeau
View Serge Bilodeau Profile
Serge Bilodeau
2021-06-17 17:33
I refer you to my previous comment. I have absolutely no knowledge of that company, so I will answer each of your questions by saying that I am not familiar with it. I had no information about Parrhesia or nor did I have any contact with people who were involved in setting it up.
View Peter Julian Profile
NDP (BC)
This will be my last question for today.
Mr. Bilodeau, you mentioned a tax expert called Barrie Philp. Is he the resource person who should enlighten us about the whole matter of KPMG's strategies?
Serge Bilodeau
View Serge Bilodeau Profile
Serge Bilodeau
2021-06-17 17:34
Barrie Philp, whose name appears in the document that KPMG submitted, was one of those involved in developing that strategy.
As to whether he has to appear or not, I feel that's it's a question for you to answer.
View Ed Fast Profile
CPC (BC)
View Ed Fast Profile
2021-06-15 17:37
I ask that question because we've spent a fair bit of time today and in the rest of our meetings on tax evasion talking about what the government's role is and how we can do this better.
Is it a matter of resources? I think there's some evidence that it is a matter of resources. Is it a matter of simplifying the tax system? I would agree with you that this is required.
There is certainly a role for your profession itself to play, whether it's your provincial professional societies or whether it's your national organization. Are there things that your profession can do to help government ensure that the tax laws of our country are complied with, not only by your clients but by your members, the accountants themselves?
Charles-Antoine St-Jean
View Charles-Antoine St-Jean Profile
Charles-Antoine St-Jean
2021-06-15 17:38
Yes. Every CPA in Canada, by virtue of belonging to a provincial institute, is subject to a code of conduct, which is quite strict. It's in terms of behaviours and expectations of CPAs. CPAs, like all Canadians, are expected to abide by the law. Also, they're expected to abide by the code of conduct to make sure that they don't get involved with, say, tax evasion. That's a criminal act. You cannot be a CPA and do that.
View Ed Fast Profile
CPC (BC)
View Ed Fast Profile
2021-06-15 17:39
However, is it safe to assume that the tax avoidance and perhaps tax evasion strategies that are employed by companies often involve the enabling work of accountants?
Charles-Antoine St-Jean
View Charles-Antoine St-Jean Profile
Charles-Antoine St-Jean
2021-06-15 17:39
They could be non-CPA accountants. They could be many, many different kinds of people, so they're not necessarily CPAs. It can be anyone who can work in this field in Canada.
Hassan Yussuff
View Hassan Yussuff Profile
Hassan Yussuff
2021-06-01 11:12
Thank you, Chair.
First let me thank the committee for the opportunity to present to you today.
I represent the Canadian Labour Congress, Canada's largest central labour body in the country, and it speaks on national issues on behalf of three million working men and women from coast to coast. The CLC, of course, supports Bill C-253, and I want to thank the members who voted to advance this bill.
For years, the CLC has advocated changing the bankruptcy laws in our country. Workers and pensioners should be first in line, not last, when it comes to paying creditors. Workers pay for their defined benefits, pensions and other post-retirement employment benefits by deferring part of their compensation. Employers have a legal obligation to pay these promised pensions in retirement. It is totally unacceptable that earned benefits are taken away from pensioners, through no fault of their own, at a time in their lives when they are least able to adjust. Pensioners cannot simply go back to work when their pensions are cut. They need the post-retirement drug coverage and benefits that they have earned through working for a lifetime.
This tragedy has gone on too long. It has occurred too often. It cannot go on any longer. It is time to fix this problem.
The insolvency process is rigged against working people. The recent Laurentian University example shows how small unions are isolated and besieged by CCAA proceedings. Workers are threatened with devastating job losses unless they agree to make deep concessions to wages, pensions and benefits.
The CLC believes that public institutions should be excluded altogether from the CCAA and the BIA. The federal insolvency laws are meant for commercial corporate reorganizations. They were never meant to provide cover for provincial governments that refuse to live up to their fiscal obligations and expect workers and pensioners to pay the costs. The CLC would prefer that the claims of workers and pensioners be moved to the front of the line, as Bill C-253 seeks to do.
If there is no consensus to do so, the CLC believes that all parties should consider granting pensioners' and employees' claims the status of “preferred claim”. This would place them immediately behind the secure creditors in priority of claims, but ahead of unsecured creditors. We believe that treating employees' claims as preferred claims will materially improve outcomes for workers and pensioners.
However, getting the data to establish this is not easy. Currently the data is controlled by the big accounting firms—especially Ernst & Young, KPMG, Deloitte and PricewaterhouseCoopers —that act as monitors in CCAA proceedings and trustees in bankruptcies. There is a clear public policy purpose for making this data available for researchers. We are seeking aggregate anonymized data for large business insolvencies in which pension deficits are involved. We are not seeking commercially sensitive data. In our view, the superintendent of bankruptcy should be required to obtain this data from monitors and make it available to researchers.
We also recommend that the federal government conduct a feasibility study to establish a national mandatory pension insurance scheme for Canada. This study should form the basis of discussions with the provinces to establish a national scheme to rescue stranded pensions.
Finally, the government must stop company executives from enriching themselves and shareholders when there is a serious pension deficit.
The 2017 Sears Canada CCAA filing and liquidation was an outrage. Beginning in 2010, Sears paid $1.5 billion to shareholders in dividends and share buybacks. By doing so, Sears paid five and a half times more to its shareholders than it would have cost to entirely erase the deficit in its DB pension plan. Sears' decision in 2013 to pay a $500-million dividend when the pension deficit stood at $313 million would alone have been enough to eliminate the deficit. Instead, Sears Canada pensioners outside of Ontario were forced to accept cuts in benefits. This is a profound injustice. It should never be permitted to happen again.
Thank you very much. I look forward to any questions that committee members may have.
I wish all the best to you.
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.
View Gabriel Ste-Marie Profile
BQ (QC)
Thank you, Mr. Chair.
I would first like to give my regards to all our guests and thank them for their presentations. I also want to thank them for joining us today.
Ms. Watson, your testimony was very powerful. Let's hope that justice is done.
I would also like to acknowledge our colleague Elizabeth May, who is with us today.
Finally, I would like to remind you that my colleague Stéphane Bergeron is bringing motion M-69 to the House, which includes most of the measures suggested by the guests to combat tax avoidance and tax evasion.
My questions are for the representative from KPMG.
Ms. Iacovelli, I'm asking you and KPMG Canada to provide the Standing Committee on Finance with the following information.
KPMG has put in place tax strategies that provide a financial vehicle for some of its clients to reduce the tax they owe. For each case where KPMG Canada has directly or indirectly created or assisted in creating one or more companies in the Isle of Man, thereby enabling one or more Canadian taxpayers to hide money or reduce their tax payable, I am asking you to provide the committee with: all the documents used in these plans; a list of the companies created through these strategies; a list of the directors and officers associated with these strategies; a list of all those who benefited directly or indirectly; and the fees received by KPMG for each of these plans.
I would also ask that you provide us with the complete information for each plan carried out in a country or territory other than the Isle of Man and that you identify the country or territory. Of course, the clerk will be able to send you this request. If you are unable to respond fully now, I would ask that you provide your responses in writing to the Standing Committee on Finance as soon as possible or within 30 days.
Are you taking note of that?
I will continue with my questions.
Lucia Iacovelli
View Lucia Iacovelli Profile
Lucia Iacovelli
2021-05-06 16:23
Thank you.
That was quite a comprehensive question, so I'll try to approach everything that I think I heard.
I want to be clear that KPMG did not set up shell companies to hide money. That's not what we do. We provide legal advice that's tax-effective and we require that our clients meet all their filing obligations.
With respect to your request in terms of providing information, under my code of conduct I'm not able to provide you with client information unless there's a legal order that's provided. We have dealt with the CRA's request. We have provided the CRA with a list of all of the OCS clients and provided the CRA with the OCS files as well.
View Gabriel Ste-Marie Profile
BQ (QC)
Thank you, Mr. Chair.
Clearly, our respective readings of the legislation are completely different. In our opinion, an accounting firm such as KPMG does not have that power with respect to requests from the Standing Committee on Finance.
Ms. Iacovelli, has KPMG Canada asked a company like KPMG in the Isle of Man or any other company to create, directly or indirectly, one or more of the four companies registered in the Isle of Man under the names Shashqua, Sceax, Katar and Spatha?
If so, which ones were they and how did that happen?
Lucia Iacovelli
View Lucia Iacovelli Profile
Lucia Iacovelli
2021-05-06 16:27
The four companies that you have mentioned, which are known as the “sword” companies, are not KPMG clients. We have never been involved with those clients and we have not set those clients up.
View Gabriel Ste-Marie Profile
BQ (QC)
Let me ask my question again, since that's not exactly what I wanted to know.
Was KPMG Canada directly or indirectly involved in the creation or use of one or more of those four companies?
If so, which ones were they and how did that happen?
Lucia Iacovelli
View Lucia Iacovelli Profile
Lucia Iacovelli
2021-05-06 16:27
We did not participate directly or indirectly. We did not ask another firm to set up these companies. We have no relationships, whether directly or indirectly, with the “sword” companies.
View Peter Julian Profile
NDP (BC)
Thank you very much.
I'm going to move on to Ms. Iacovelli. As Mr. Ste-Marie has mentioned, when a committee requests information, it's important to follow that request. As you know, there's a non-cooperative tax jurisdiction list, which basically lists tax havens around the world.
I have a series of questions. As well, we'll be following up with a letter that we'd like KPMG to answer.
First off, how many client companies or shell companies—you called them “client companies”—that currently exist in the Isle of Man and in all of the other tax jurisdictions that are “non-cooperative jurisdictions” has KPMG set up? That's my first question.
Second, how many were established since 1999—again, in the same list—by KPMG internationally?
How many have been dissolved or wound up since 1999? That's my third question.
My fourth question is, how many Canadian clients of KPMG invest in overseas tax havens, either offshore bank accounts or shell companies—you've called them “client companies”—and how many out-of-court settlements has KPMG negotiated on behalf of those clients with Revenue Canada?
Those are the questions that we will ask you to follow up on.
I also note that you are here voluntarily. We certainly appreciate that. We will be convening other witnesses from KPMG, I believe, including Serge Bilodeau, who runs your Montreal office, and we appreciate that co-operation.
Can you also indicate, when you receive a notice to preserve documents, how those notices are observed within KPMG internationally?
My final question is around Parrhesia, which you've acknowledged is a KPMG client company incorporated on the same date as the “sword” companies on December 17, 2001. First you said in your testimony that it was a common registrar that KPMG had approached, and then you said that nobody was engaged to actually incorporate Parrhesia. Could you clarify that, please? Who within KPMG actually moved to register that client company?
Lucia Iacovelli
View Lucia Iacovelli Profile
Lucia Iacovelli
2021-05-06 16:34
Maybe I'll start with the question with respect to products. We don't offer products. We offered the OCS product until 2003. We stopped offering the product in 2003, and we have not offered products since 2003.
I think you also asked a question with respect to tax havens. We don't provide any tax schemes or shelters with respect to clients. It's not what we do. We provide legal tax planning with respect to our clients, and we ensure that our clients pay the taxes that are required.
Unfortunately, I can't speak to Parrhesia. I'm not familiar with that. I will have to undertake to provide that if I can. You could appreciate that if it is a client, I can't provide information with respect to client files.
View Ted Falk Profile
CPC (MB)
View Ted Falk Profile
2021-05-06 16:38
With that, I would like to switch over to KPMG.
Ms. Iacovelli, you've indicated that you weren't involved as a company and that you didn't provide advice to your clients on how to develop any of these schemes. Have any of your clients or your organization been involved in the Liechtenstein scheme?
Lucia Iacovelli
View Lucia Iacovelli Profile
Lucia Iacovelli
2021-05-06 16:38
Unfortunately, I'm not aware of any.
View Ted Falk Profile
CPC (MB)
View Ted Falk Profile
2021-05-06 16:38
Okay. What about the Panama papers scheme?
Lucia Iacovelli
View Lucia Iacovelli Profile
Lucia Iacovelli
2021-05-06 16:38
My understanding is that the listings with regard to the Panama papers are not publicly available. I'm not aware that any of our clients are within those Panama papers.
View Ted Falk Profile
CPC (MB)
View Ted Falk Profile
2021-05-06 16:39
When this committee was discussing concerns about tax avoidance and evasion with KPMG in 2016, Gregory Wiebe was asked about whether the Isle of Man scheme helped to restore the trust of Canadians in the tax system. He had this to say, and I'll quote:
I think that if you look at that particular issue through the lens that we look through today, no. I think that if you look at that issue through the lens that existed at the time, in 1999, when it was policy and practice for individuals to have monies in a non-resident structure offshore, it was a very different time. We used to smoke in restaurants in 2006. We used to text in our cars up until two years ago. Times change, and we change with them.
Looking at it through that lens, I can't defend it.
My question to you, Ms. Iacovelli, would be this: How would you say that KPMG has changed since 2016, when that testimony was provided?
Lucia Iacovelli
View Lucia Iacovelli Profile
Lucia Iacovelli
2021-05-06 16:39
I think that we had already changed by 2016. We operate under our global and national code of conduct, which is our responsible tax practice. Some of the highlights from that responsible code of conduct are that we act lawfully and with integrity and that we provide clients with the highest quality of tax advice.
When we look at the lens from 20 years ago, the lens that we looked through was legality, and it was looking at GAAR. Since then and since the mid-2000s, we've added the additional lens of responsible tax. The tax landscape and social acceptances have changed greatly over the last 20 years.
You can also see it through a great deal of legislation that's been put in place, not just in Canada but globally as well, including Sarbanes-Oxley and the FIN 48 legislations. There was the global financial crisis, which impacted us greatly. The common standards reporting was introduced as well. There's been quite a bit that's changed with respect to transparency, which has very much changed the social landscape and what's acceptable.
View Annie Koutrakis Profile
Lib. (QC)
View Annie Koutrakis Profile
2021-05-06 16:41
Thank you, Mr. Chair.
Welcome to all our witnesses this afternoon.
Ms. Watson, I was very disturbed to listen to your testimony, because I've been employed in the financial services industry for more than 25 years. I don't know if my colleagues know, but I started in 1984 as an assistant stockbroker and went all the way up into a leadership role on the retail side, working for large firms owned by big banks and independent firms. I was employed in the industry in 2005, and when the story broke on Mount Real, Norshield and Cinar, I was supervising portfolio managers and financial advisers at the time. One of the primary roles and responsibilities I had as a professional registrant with IIROC was to make sure the people I was supervising were doing the right things.
Doing the right things meant that when new accounts were brought to my desk to be reviewed and opened, I had to make sure I knew who that account belonged to. It was removing the corporate veil. When I listened to the testimony today saying that we don't have a public registry to show the owners of some of these shell companies, I can tell you that through IIROC, we were doing that, so perhaps we can work directly with IIROC and the Autorité des marchés financiers in Quebec as a starting point.
With regard to KPMG, Ms. Iacovelli, I know in your testimony you said that you don't advise your clients—wealthy clients or any kinds of clients—to get into tax avoidance schemes, but I look to you for guidance and professional.... What kinds of checks and balances are in place for companies like KPMG when people approach you for tax information to make sure that they are not crossing the line or going beyond the spirit of the law? Are there any checks and balances when you are giving that type of advice to clients?
Lucia Iacovelli
View Lucia Iacovelli Profile
Lucia Iacovelli
2021-05-06 16:43
I expect that all my partners abide by our code of conduct with respect to our responsible tax.
Again, we provide legal tax advice. We act lawfully and with integrity, and I expect that of all my partners. We explain clearly and objectively the technical merits and sustainability of tax advice to our clients, and we also don't allow for any transactions that are contrary to any relevant legislation.
We also have a very robust mechanism of client acceptance to ensure that we're working with clients of the highest integrity as well. We also have processes in place so that if there is a transaction that's out of the ordinary, it's brought forward to our risk and reputation committee, which is made up of several partners, and it undergoes a GAAR committee review ahead of that. I'm quite proud of our organization, quite proud of the type of law and the type of planning we provide to clients.
View Gabriel Ste-Marie Profile
BQ (QC)
Thank you, Mr. Chair.
Ms. Watson, let me tell you that we are going to do everything we can to get to the bottom of this. We will not give up. You can count on us, no matter how long it takes, we will not give up.
Ms. Iacovelli, I want to tell you how disappointed I am with your answers. Mr. Julian asked you questions, and you say that you have nothing in the Panama Papers, because the list does not exist. It was reported by the International Consortium of Investigative Journalists. I can't believe the extent of your stonewalling. I have a hard time believing you because of your behaviour before this committee.
Ms. Watson mentioned this. You had Norshield and Mount Real as clients. They stole money from the little people, and when they were found guilty, poof, the money was gone. You are telling us that KPMG is not even remotely connected to the missing money. But the reports from CBC/Radio-Canada demonstrate that the sword companies were set up on the same day as the others, and that there is evidence that you set them up.
I don't believe you. I don't believe you.
I want to get to the bottom of this.
We will send you the questions, and we will ask you to answer them. Let me remind you that your code of conduct, which tells you not to answer, is not the law. Your code of conduct is not governed by legislation. I hope that we will have answers to our questions.
Also, Ms. Iacovelli, you say that everything you do is legal. Yes, and why? Because you are in Canada.
In the U.S., when KPMG did the same thing, the Internal Revenue Service (IRS), the equivalent of the Canada Revenue Agency, filed criminal charges against KPMG's executives and the company, even threatening to prosecute it as a criminal organization, which would have resulted in its dissolution.
The U.S. stood up, and that led to change. People paid money back and paid penalties. KPMG, in order not to be dissolved, agreed to dismantle three of its divisions, and to stop selling tax planning services. It paid nearly $500 million in damages to the government, and agreed to have an IRS agent with unlimited access to all of its records at all times for three years. That's what the Canada Revenue Agency should be doing here to get to the bottom of this.
Criminal charges were upheld against the nine executives: two were cleared, six were fined a total of $25 million, and one was imprisoned. That's what should be done here, if the Canada Revenue Agency and the Minister had any spine.
What do you have to say to that?
Lucia Iacovelli
View Lucia Iacovelli Profile
Lucia Iacovelli
2021-05-06 16:49
Thank you, Mr. Chair.
We have no connection to Cinar. We are not involved with Cinar. We have never provided audit or tax advice to Cinar. We are not connected in any way—
View Gabriel Ste-Marie Profile
BQ (QC)
Lucia Iacovelli
View Lucia Iacovelli Profile
Lucia Iacovelli
2021-05-06 16:50
Thank you.
We are not in any way connected to the four “sword” companies. We have never provided any advice with respect to those companies. We have co-operated fully with the CRA. We've provided all the files and all the client names with respect to our offshore structures.
View Peter Julian Profile
NDP (BC)
Thank you, Mr. Chair.
I, too, am extremely disappointed in the answers from KPMG. We ask questions and we are not getting answers.
The Standing Committee on Finance has the authority to seek that information. KPMG cannot just tell us that the company had absolutely nothing to do with this. They have to respond and explain. So far, we have received no answers to our questions, and there have been many.
I'm very disappointed in the quality of the answers we're getting.
I want to come back to the issue of client companies or shell companies.
We might even say bogus companies.
You said there are no longer any shell companies or client companies as part of KPMG's strategy. Did I understand correctly? Could you give us the date when those companies were dissolved or wound up?
Lucia Iacovelli
View Lucia Iacovelli Profile
Lucia Iacovelli
2021-05-06 16:52
Thank you, Mr. Julian.
In terms of specific client information, I can't provide you with the details. My code of conduct precludes me.
View Peter Julian Profile
NDP (BC)
I'm not asking specifically. I asked earlier how many companies have been dissolved. You said they've all been dissolved. I'd like to know the dates when those companies were dissolved. That's data; it's not privileged information.
Lucia Iacovelli
View Lucia Iacovelli Profile
Lucia Iacovelli
2021-05-06 16:52
Mr. Julian, I didn't mention anything with respect to clients. I didn't indicate whether they were resolved or not.
I cannot discuss client information with respect to this committee—
View Gabriel Ste-Marie Profile
BQ (QC)
A point of order, Mr. Chair.
The committee has been given powers by an act that overrides the professional secrecy of accountants, and that argument cannot be made before the Standing Committee on Finance. I am sorry.
View Peter Julian Profile
NDP (BC)
My question was very simple: How many client or shell companies exist? You said you don't use this anymore. Does that mean that you have dissolved all these shell companies or client companies, including Plantation Island, General Island, Sandy Point, First Land, Parrhesia that I mentioned earlier? Does that mean those companies no longer exist, or does KPMG still have shell or client companies as part of its portfolio?
Lucia Iacovelli
View Lucia Iacovelli Profile
Lucia Iacovelli
2021-05-06 16:54
We do not offer the product. We have not offered the product since 2003. With respect to the specific client information, I cannot provide that. CRA has the names of all the clients, and we've provided them with each of the client bios.
View Peter Julian Profile
NDP (BC)
Ms. Iacovelli, I'm not asking for privileged information. I'm asking for numbers. You have access to those numbers. I don't understand why you are not being co-operative and answering these questions. They're legitimate questions.
Lucia Iacovelli
View Lucia Iacovelli Profile
Lucia Iacovelli
2021-05-06 16:54
Mr. Julian, I believe that my colleague Greg Wiebe, when he was at the finance committee previously, indicated that we stopped offering the product in 2013 and that there were 16 implementations of that product.
View Ed Fast Profile
CPC (BC)
View Ed Fast Profile
2021-05-06 17:07
Thank you, Mr. Chair.
I'm going to direct most of my questions to Ms. Iacovelli, but first I have a question for Ms. Watson.
My sympathies go to you and all of the victims of these frauds. I wish there were a better way of recovering the losses that you've suffered.
You've heard Ms. Iacovelli say that KPMG has no culpability in the different frauds that we're discussing today, whether it's Norshield or Cinar or Mount Real. Do you accept her denial?
Janet Watson
View Janet Watson Profile
Janet Watson
2021-05-06 17:08
Just judging by what was uncovered in Enquête and The Fifth Estate, there were too many coincidences. Ms. Iacovelli keeps referring to not being involved with Cinar, but I know KPMG was involved with Norshield. I'm not satisfied with her answers. I will give her the benefit of the doubt to say possibly she is correct or maybe she's not permitted to give more information, which is probably the case.
View Ed Fast Profile
CPC (BC)
View Ed Fast Profile
2021-05-06 17:09
All right.
I'm going to ask some questions of Ms. Iacovelli.
Ms. Iacovelli, you have denied any culpability in these frauds, but you did acknowledge that KPMG has established offshore structures for clients, correct? Just give a yes or no.
Lucia Iacovelli
View Lucia Iacovelli Profile
Lucia Iacovelli
2021-05-06 17:09
We provided products, which was the offshore product, until 2003. We have not provided any products after 2003.
View Ed Fast Profile
CPC (BC)
View Ed Fast Profile
2021-05-06 17:09
Prior to 2003, this product you provided was the OCS program.
Lucia Iacovelli
View Lucia Iacovelli Profile
Lucia Iacovelli
2021-05-06 17:09
It was the OCS structure, correct.
View Ed Fast Profile
CPC (BC)
View Ed Fast Profile
2021-05-06 17:09
All right.
Just for complete clarity, when you're referring to that product for these offshore structures, was the purpose of those structures to reduce the tax exposure of your client companies?
Lucia Iacovelli
View Lucia Iacovelli Profile
Lucia Iacovelli
2021-05-06 17:09
With respect to the offshore structure, the purpose of the structure was that it would mimic a non-resident trust. Back in those days, those trusts were very much—
View Ed Fast Profile
CPC (BC)
View Ed Fast Profile
2021-05-06 17:10
Okay. My question was very simple. Was it to reduce the tax exposure of your client companies?
Lucia Iacovelli
View Lucia Iacovelli Profile
Lucia Iacovelli
2021-05-06 17:10
Unfortunately, it's not a yes or a no answer, Mr. Fast. It's a very complex tax act. The last time I looked, it was over 2,300 pages.
With respect to the offshore structure, the offshore structure very much operated like a non-resident trust, which was very much accepted by the government. The government welcomed those types of structures because they allowed for wealthy non-residents to move to Canada and establish residency in Canada.
View Ed Fast Profile
CPC (BC)
View Ed Fast Profile
2021-05-06 17:10
Okay, then it was about reducing the tax exposure of your clients.
Lucia Iacovelli
View Lucia Iacovelli Profile
Lucia Iacovelli
2021-05-06 17:10
Mr. Fast, with respect to the offshore structure, again, it's very complex. It's not just a yes-or-no answer.
View Ed Fast Profile
CPC (BC)
View Ed Fast Profile
2021-05-06 17:11
I hate it when accountants try to hide behind complexity to avoid answering questions.
Let me ask you this: Why was the program terminated?
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