Proceedings of the Standing Senate Committee on
National Finance
Issue No. 73 - Evidence - September 19, 2018
OTTAWA, Wednesday September 19, 2018
The Standing Senate Committee on National Finance met this day at 6:45 p.m., in public, to study Bill S-243, An Act to amend the Canada Revenue Agency Act (reporting on unpaid income tax); and in camera, to consider a draft agenda (future business).
Senator Percy Mockler (Chair) in the chair.
[Translation]
The Chair: Honorable senators, welcome to this meeting of the Standing Senate Committee on National Finance.
[English]
My name is Percy Mockler, senator from New Brunswick and chair of the committee. I wish to welcome all of those with us in the room and viewers across the country who may be watching on television or online. As a reminder to those watching, the committee hearings are open to the public and also available online at sencanada.ca.
I welcome back all members of the committee following the summer recess.
I would ask senators to introduce themselves.
[Translation]
Senator Bellemare: Diane Bellemare from Quebec.
Senator Pratte: André Pratte from Quebec.
Senator Moncion: Lucie Moncion from Ontario.
[English]
Senator Griffin: Diane Griffin, Prince Edward Island.
Senator Deacon: Marty Deacon, Ontario.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator Eaton: Nicole Eaton, Ontario.
[Translation]
Senator Forest: Éric Forest from Quebec.
[English]
Senator Andreychuk: Raynell Andreychuk from Saskatchewan.
Senator Neufeld: Richard Neufeld from British Columbia.
[Translation]
The Chair: I’d like to introduce Ms. Gaëtane Lemay, our clerk, and our two analysts, Mr. Alex Smith and Mr. Shaowei Pu, who together support the work of this committee.
[English]
We are beginning our study, honourable senators, of Bill S-243, An Act to amend the Canada Revenue Agency Act (reporting on unpaid income tax). Bill S-243 was introduced in the Senate of Canada on November 22, 2017, by our colleague, the Honourable Senator Percy Downe, who is present with us this evening as our first witness.
This study was referred to our committee June 5, the same day after second reading.
Honourable Percy Downe will make remarks, to be followed by questions from the senators.
Hon. Percy E. Downe, sponsor of the bill: Thank you, chair, and colleagues. Most of you have heard me speak about this bill in the past, so I will make brief remarks and try to answer any questions you may have.
The proposed “Fairness for All Canadian Taxpayers Act” is the conclusion of many years of work not only by myself but by a series of Parliamentary Budget Officers and others working across Canada to obtain some measure of transparency and accountability from the Canada Revenue Agency.
I have said in the past that the CRA enjoys a unique status within the machinery of government, in that it always makes money for the government. As a result — and I recall this from my own time in government — there has existed an attitude of “if it’s not broken, don’t fix it” towards the agency. In other words, the purpose of the CRA is to generate revenue for the government. The CRA is generating revenue, therefore, the CRA must be working properly.
Unfortunately, recent experience — my own and that of others — demonstrates that confidence has been misplaced. I will later describe a series of circumstances in which the Canada Revenue Agency has been shown to be less than transparent with Canadians. Therefore, any claim or estimate they generate must be subject to independent verification by the Parliamentary Budget Officer.
The purpose of this bill before you is threefold. One, it requires the CRA to report annually to Parliament on all convictions for tax evasion, including a separate listing of all convictions for overseas tax evasion.
Two, it requires the Minister of National Revenue to report to Parliament yearly on the tax gap.
And third, it requires the CRA to provide the Parliamentary Budget Officer with the data they require on the tax gap, as well as any additional data the PBO considers important to their own independent analysis of the tax gap.
The first requirement arises simply from the difficulty in getting this information out of the revenue agency. You would think the Canada Revenue Agency would be shouting from the rooftop about all the people they have convicted for overseas tax evasion, but they are reluctant to part with detailed information. The CRA website has an enforcement notification page, listing recent charges, convictions and sentences for tax crimes, but it lists very few convictions for overseas tax evasion.
Furthermore, when journalists are looking for details about these convictions, and in particular how many of them were related to overseas tax evasion, the numbers became even less impressive.
The CBC’s Elizabeth Thompson reported in the media that “few, if any” of the court cases cited by the government to advertise its fight against overseas tax evasion have “anything to do with millionaires hiding money in overseas tax havens.” For example, she looked at the 78 convictions between September 2015 and October 2017 — a figure that has been repeated by the government, the ministers, the department and others, in response to criticism that they are not doing anything about overseas tax evasion. Her finding, after the CBC research, was that: “The review by CBC News of the list of convictions, which used a combination of CRA press releases, news stories, and court files, did not find any reference to convictions resulting from offshore tax evasion.” That report, colleagues, ran on CBC December 18, 2017.
The second requirement of my bill, that the CRA measure the tax gap, is something about which I have spoken at length in the Senate. Rather than go into it again, I will refer you to the table you have before you, which is in both languages, that my office has prepared. It outlines what a number of countries and international organizations think about the tax gap and the value in studying it.
This, I might add, is not a complete list of all the countries that measure the tax gap. It is basically a highlight. In fact, one thing that struck me was how few national revenue agencies offer an explanation of their decision to measure their tax gap. They simply regard it as self-evident, similar to Environment Canada which does not feel the need to explain why they record temperatures and rainfall.
In the last three years, there have been significant developments, not least that the Canada Revenue Agency has finally agreed, somewhat reluctantly, to look at the tax gap, and, indeed, has produced a couple of reports on the subject. On the surface, that would seem to be the end of the matter, and we can simply declare the file closed. But one thing I have learned on this journey is that you cannot just leave the Canada Revenue Agency to its own devices and accept whatever they tell you unchallenged. That’s why the importance of the Parliamentary Budget Officer getting the data from the CRA so they can come to their own conclusion.
We have all heard of the cases so I will mention them briefly, but I’m prepared to go into more detail if there are questions. When the Auditor General did a study of the call centre, the CRA was claiming a success rate of 90 per cent when Canadians called the CRA call centre on any issue. The Auditor General found out they did that by blocking over 28 million calls, and the real rate is closer to 36 per cent. So the CRA was publicly declaring 90 per cent but the Auditor General’s analysis found out it was 36 per cent.
We heard again today in the Senate about the disability tax credit, which was a controversial issue. Many of us were lobbied by disability groups who, when they came to see me, told me there used to be 80 per cent approval. That changed to 80 per cent rejection. We found that CRA claimed publicly that there was no change in the criteria but they changed the variables, and after public outcry they backed down.
The CRA and the government announced that $1 billion investment in the fight against tax evasion in the last two budgets — 2016 and 2017, over six years. Which is all correct, however, the government keeps referring to the CRA spending $1 billion. As of December 2017 they have spent $106 million of that. So there is no $1 billion suddenly fighting overseas tax evasion.
They announced they had a “full-time dedicated unit focused on offshore non-compliance.” When I filed a written question in the Senate and received their answer, it turned out they “did not necessitate an increase or transfer of resources.” In other words, it was a reorganization of existing personnel.
Of course, the favourite buzzword of the revenue agency is how much money they identified is owing. But when you ask them how much they have actually collected the figure is much more difficult to obtain and is always considerably lower.
These are only a few examples. I have listed many more in the past. It all boils down to the fact that as important as it is for the Canada Revenue Agency to finally estimate the tax gap, it is equally important for the estimate to be verified by an independent body, like the Parliamentary Budget Officer.
Colleagues, I would welcome any questions anyone has and try to answer them.
The Chair: Thank you. Honourable senators, we will commence with Senator Eaton, to be followed by Senator Forest, Senator Marshall and Senator Bellemare.
Senator Eaton: Thank you, Senator Downe. This is an excellent bill. I’m happy to support it.
The Conference Board of Canada has estimated the tax gap could range from $8.9 billion to $47.8 billion. Is that your understanding?
Senator Downe: That is correct.
Senator Eaton: Has our tax system become too complicated? Do you have any rough idea as to what percentage of it is people simply not filling out the forms properly?
Senator Downe: I don’t think that in itself is a problem. As we try to do our income tax, unless you’re an accountant, we come up against that difficulty of the complexity of the Canadian tax form, individually or if you’re a company.
What the Conference Board of Canada found, and the reason they had the wide variation, was that we simply don’t know. So you look at this chart about why other countries do it, they do it to find out the degree of the problem and therefore how much resources they have to put in to fight the actual problem. The figures the Conference Board of Canada came up with are shocking. The fact is that for years the CRA refused to estimate the tax gap which, as we all know, is the difference between what is owing and what should be collected.
The second thing the tax gap does is indicate how effective your revenue agency is in the job that they have been tasked with, which may be part of the hesitation on the part of the revenue agency.
I don’t think there is any cause for embarrassment there. If they’re not doing a proper job then the government has to give them the resources, as they have with this additional $1 billion, to identify the problem and correct it.
Senator Eaton: To follow up on them not spending the money, do you have any insight as to why they have only spent a fraction of the money they have been given?
Senator Downe: I hear different things, often from employees of the department. One of the problems is retention. These people are highly trained. The government has a salary range that doesn’t reflect their abilities anymore, so many of them simply cross the street to work for the other side, if you will. They’re highly skilled and highly trained after working in senior positions in the revenue agency. They can make a lot more compensation in the private sector. Retention is area the government has to look at. You may have to change the salary norms, which will set off alarm bells across government. But given the importance of the CRA, it’s something the government should seriously consider.
[Translation]
Senator Forest: I want to thank you, Senator Downe, for having brought all of your competence to the study of this very important issue.
In the course of the work of the committee, we met many witnesses. A consultation held throughout the country allowed us to arrive at a strong consensus. Our tax system, which was created to finance the war effort — and to which new parts were repeatedly added over the years — would really need to — In my opinion, a tax system must, on the one hand, perform well and generate the necessary revenue to pay for the public services we want to have as a society. It has to be fair. You raised a point today: one of the aspects of our system may not be quite fair, given what we have observed. It has to be competitive because we are in a global context, where today’s businesses, and some very competent young men and women, have the option of migrating to various tax regimes.
First, do you think it would be relevant to undertake an overall assessment of the Canadian tax system?
[English]
Senator Downe: No question, senator, I think you hit the key point, which is fairness. What undermines our tax system is the sense that some Canadians are getting a sweetheart deal because they can move their money offshore and never have to pay a price for it. In fact, if you go on the revenue agency website — and I haven’t done it in a few months — they have all kinds of convictions, and they are very good at this. I say this publicly all the time. They are very good at domestic tax evasion convictions. You’ll see carpenters in Saskatchewan, nurses in New Brunswick, dentists in Ontario, charged, convicted, many times sent to jail. The same site for overseas tax evasion and basically blank.
What has happened is that the department has not had the resources in the past, and/or the ability to challenge people who lawyer up and get accountants. Some of these accounts overseas, in Liechtenstein, for example, with 106 Canadians with bank accounts. It’s very important to emphasize again, it is not illegal to have a bank account overseas. It is, however, illegal not to declare the proceeds from it. Those 106 Canadians with bank accounts in Liechtenstein — one bank there, you couldn’t open an account unless you had half a million dollars.
After eight years the Government of Canada determined that there was $20 million or $30 million owing from those people. Not all of them, but some of them. Not one person was charged, and not one person was convicted.
So it goes to the basic question of fairness that you raised in your question. If the tax system is undermining Canadians’ confidence that everyone is treated fairly, Canada would have a very serious problem.
Senator Marshall: Thank you, Senator Downe, for being here.
Do you think that the bill is going to solve the problem? The end result is that you want the government to collect all the taxes that it’s entitled to. You are going to start out requiring the Canada Revenue Agency to come up with data to calculate the tax gap. We all know there are concerns about the reliability of the information from the Canada Revenue Agency, so have you given any thought to that? They are going to provide the data to a Parliamentary Budget Officer. How much confidence do you have that the information is going to be accurate and reliable? Could you speak to that?
Senator Downe: I have a lot of confidence in the Parliamentary Budget Officer. They are an independent officer of Parliament. They have studied what other countries are doing. They are not reinventing the wheel. All these other countries do it. They have been in touch with them, they know what data to ask for. The reason it has taken three to four years, maybe longer, to get the data from the CRA is because they refuse to give it to the PBO. Under the Parliamentary Budget Officer’s legislation, when they request it, they are supposed to give it. In my opinion, they are in violation of the act. The previous Parliamentary Budget Officer, the current one just passed the Senate in June, the previous Parliamentary Budget Officer was prepared to take them to court on that issue, and they then provided information required. So I have a great deal of confidence that they know what to ask for, and they know how to assess the tax gap.
It’s not a silver bullet. It won’t solve everything, but what it will do is explain to Canadians the magnitude of the problem. As Senator Eaton said, the conference board had a range of $9 billion to $47 billion. That’s quite a range. That’s $9 billion or $47 billion. What is the number? The PBO, I think, will get us all closer to what the number is and then Canadians and the government will be able to determine what has to be done.
Senator Marshall: Do you have any concerns about the reliability or the accuracy of information provided by the Canadian Revenue Agency? Because I would rely on the Parliamentary Budget Officer, I would rely on him to look for information from the Canada Revenue Agency, and he has to go with that. So how much confidence can he put, or can we put, in what is being provided by the Canada Revenue Agency, given their reputation?
Senator Downe: It’s a legitimate concern. I understand the Parliamentary Budget Officer has been asked to appear. That’s a question I think you should ask him as well. They obviously understand the technical workings of this far better than I do. I have confidence they will know what to ask for, if they get it.
Senator Marshall: Right. So once the tax gap is identified, then it goes back to the Canada Revenue Agency. They know that they should be collecting $80 billion more. They have to know where they have to go, so you’re back depending on the Canada Revenue Agency now to determine, “Okay, how do we audit? Whom do we audit? How do we do the audits”? Once we identify how much individual taxpayers or corporations owe the Canada Revenue Agency, then they have to collect it. It just seems like the Parliamentary Budget Officer is a very small part of it and that the Canada Revenue Agency is the bigger part of it, but it’s the Canada Revenue Agency that we have the problem with. So we’re back to relying on the Canada Revenue Agency. How do we attack that? How do we solve that problem?
Senator Downe: What I hope is, if this bill passes, it will, in effect, have a report card every year on the revenue agency from the PBO that will show where they are now, and if they are not improving over the years, or if they are improving, by how much. It’s a simple dollar report, how much they are not collecting, within a margin of error. It’s not a perfect science, but it’s far better than anything we have now. It will be a yearly report card that the public will be made aware of, the government will be made aware of, and hopefully that will put pressure on this agency that is very secretive and not transparent. As they should be, I might stress, in certain areas. Nobody wants to know the chair’s income tax made public. All that confidentiality has to be protected, but the raw data is what we are looking for. I think the PBO can do it. Maybe he’ll tell you he can’t, but I think he can.
Senator Marshall: We have to start somewhere.
[Translation]
Senator Bellemare: I think the bill is very interesting. However, I wonder what purpose it will serve if we don’t have sufficiently precise data to measure the actual tax gap.
I’d like to follow up on the comments made by Senator Eaton and Senator Marshall. Gaps of $9 billion to $47 billion are very large. As an economist, I know that tax evasion is one of the major elements. If that is the aspect we want to measure, we have to be very clear. If we are talking about paying one’s fair share for public services, that is something else, because there is the whole phenomenon of the black market economy which is very difficult to evaluate. It may be even larger, I don’t know. However, if we undertake to measure the tax gap due to the fact that people manage to avoid taxes and we do not take the black market economy into account, I don’t know if we will do useful work. Perhaps we will, in any case, since we have to start somewhere.
In the course of your research on how other countries function, did you find out how they manage to take the black market economy into account?
[English]
Senator Downe: Thank you, senator. Your first comment is quite correct. This would not be a precise figure. If this bill passes, the PBO will give a range, but I suspect the range will not be as wide as the Conference Board of Canada, and it is not an exact science. We will have a closer figure to what the tax evasion is, but it will not be precisely down to the dollar.
On the underground economy, that is one tax-gap analysis the CRA has already completed. About four or five years ago they were opposed to doing tax gaps at all. They have evolved into, “We will do them.” I think they have done two or three. They haven’t done overseas yet, but one of them was the underground economy in Canada. I assume they will be here, and you can ask them that question.
I believe that is correct. My assistant says yes. He is highly paid, so I am sure it is correct.
Senator Andreychuk: Thank you, Senator Downe, for appearing. You have been very persistent on this topic, and I have seen you rush into the chamber to find an opportunity to talk about it. I think we have done a service to Canadians on this subject matter.
I am looking at your bill. You said that part of the problem may be retention at the higher levels of highly skilled people. What we have heard in this committee is the churn rate at the lower level and that people are not trained. The tax system is so complex, there is a lot of discretion built into it, so it is a constant tension between the person filing and the person who judges.
In your bill, under proposed subsection 88.1(1), it reads:
88.1(1) In this section, tax gap means the sum of the amount of taxes that should have been assessed under the Income Tax Act on undeclared income . . . .
And it goes on. The word “should” is difficult for me because in whose eyes? First, you have to be certain of your declaration that income is owing. We have found that that is the fudgy part. When you put all those qualifiers in, will we have something reliable? That gives me concern.
Did you find that the reticence to get into this was because so much of the overseas — and I understand when they catch up to it that it is undeclared income — is then negotiated and, therefore, it is a deal? You don’t want to say, “Well, we settled for . . . .” This is something 30 years ago we used to do in Canada. We didn’t disclose the amount owing but what was settled.
Senator Downe: Exactly.
Senator Andreychuk: Do you have any comments?
Senator Downe: Yes, I do. There is a difference, and everyone understands the difference between tax evasion and tax avoidance. Tax avoidance is you can write this or that off.
Senator Andreychuk: Yes. It is legitimate.
Senator Downe: The Canada Revenue Agency has a rough figure of what each individual should be paying based on their income, and that is a reflection on that.
The enforcement is a good statement because that is the fallback position on the CRA. I mentioned Liechtenstein earlier. In Liechtenstein, a disgruntled employee of the bank stole a list of all the clients and offered it for sale. The government in Germany purchased it. They did an integrity test and found out there was a number of Germans on it, found out it was legitimate, and then they offered it freely to every other country with citizens on the list. Canada had 106 people on it.
So the Canada Revenue Agency didn’t actually do anything. They weren’t proactive. It just fell into their lap.
Those 106 Canadians had over $100 million in that one bank in Liechtenstein. As I mentioned before, you couldn’t open an account unless you had half a million. The largest bank account was $12 million. Then we found out the revenue agency’s position was they didn’t have the resources or the expertise. They wanted to know how it worked. Therefore, they didn’t charge anyone, even though they identified $22.4 million was actually owing.
So you compare that to what the other countries did. Getting the same list from Germany, they immediately swung into action. I think the Australians are the best example. They set up a task force, a multi-department project — Project Wickenby. They identified a target that they wanted to collect, which they say exceeded. They then publicized people being convicted and charged. The Australian example found that when people were seeing their neighbours charged and their other neighbour going to jail, the amount of tax evasion fell dramatically from people wanting to send the money overseas.
In Canada, you can’t point to a name or a person that has been convicted. Nobody knows. And those that are convicted, as Elizabeth Thompson of CBC News found in her research — if a sliver happens to be overseas, it’s some organized crime group or something. It’s not Canadians hiding money overseas at all, although the department tries to claim that.
Senator Pratte: Senator Downe, as you mentioned, the CRA published a couple of reports on their estimate of the tax gap. I think they did it for personal income and GST. There remains the corporate side of things, which I suppose will be important also.
Did you take a look at how they estimated the tax gap and whether you are satisfied with how those reports were written and how the data was used, so that we can be confident that what the bill would do, as far as the CRA estimates, is simply what they have done recently, after a lot of pressure was applied? So whether you want them to do what they have been recently doing but simply do it annually. Or do you have anything to say about not being satisfied with the work they are doing, after finally being convinced to do it?
Senator Downe: That would be the logical conclusion, that they have started to go the tax-gap analysis. They are the experts that Canadians should be accepting. The problem is they have made so many misleading statements — and I went through a few of them, for example, what they told Canadians about the call centre and the disability tax claim — and the list goes on and on.
I think Canadians deserve to have an independent analysis of that. We have the Parliamentary Budget Officer set up to serve parliamentarians. He and his team, who are highly trained in this area, can take the raw data and confirm what the CRA is telling us or point out any errors. It is a safety check only because the CRA has been so misleading to Canadians on so many topics.
Senator Pratte: Your bill would require the CRA and the Parliamentary Budget Officer to estimate the tax gap annually?
Senator Downe: Yes.
Senator Pratte: Have you considered that maybe every three or five years would be sufficient? First, I am sure there are quite a lot of resources going into estimating this tax gap.
Second, I don’t know, but I am not sure it is useful to have it every year or whether it will vary tremendously from year to year. I don’t know what the experience of other countries has shown to that effect.
Senator Downe: That’s a legitimate comment as well. There is an amendment to that effect. You will hear many witnesses. I’m trying to get the ball rolling here but I wouldn’t be opposed to amendments that would improve the bill. That maybe one we will want to consider.
There will be a cost, but when you look at some of the comments here on this document you see how other countries use it as a foundation piece. Even the State of California does it; not only the American government. It is a useful tool for those in the business. We have not had that. Once we have that and get it , it may be that the Parliamentary Budget Officer only has to do it only every three years and that the CRA numbers are correct. That is what we would all hope. Unfortunately, given the track record, we need some supervision and oversight in the short term in my opinion.
Senator Moncion: Thank you for your presentation, Senator Downe.
I’m looking at the information on the United States about the Internal Revenue Service that developed the concept of tax gap as a way to gauge taxpayer’s compliance with their federal tax obligations. I understand the importance of the information.
Are you aware — you have to be because you were at the Senate then — about the Foreign Account Tax Compliant Act that came into effect a few years back?
Senator Downe: Yes.
Senator Moncion: Do you have any information on how that came into play to help the United States get more information? That went off everywhere in the world and now all financial institutions have to report back to the United States on American citizens who have accounts in any financial institutions anywhere.
Do you know how or if that came into play for the information that they receive and that if that helped with the information they are getting and how they gauged the differences?
Senator Downe: The short answer is no. I don’t know the answer to that and I don’t know how it came about.
Senator M. Deacon: Thank you very much, Senator Downe for being here this evening. I certainly support the need for independent analysis and the consideration of looking at moving perhaps every two or three years.
One would think, naively perhaps, that data, accountability and rigorous record keeping would be important, particularly when it comes to our dollars. One would also think that if there is an opportunity to systemically increase efficiency and bring in the dollars where they need to be, that would be a natural and normal business plan.
I know that you have been at this a while, with many conversations, so I ask the question: Is there something that you think truly is the biggest barrier in moving forward? Is there one piece? I think we can speculate, but I would like to hear your answer to that moving forward. Is this similar or some learning from other countries and jurisdictions that will assist with that?
Senator Downe: Thank you for that question. I identified, as I mentioned briefly earlier, two problems. One was I assumed they had a lack of resources. Their argument for many of these was, “The reason we didn’t charge anybody” — even though in the Liechtenstein case there was over $20 million owing to Canadians — “is we wanted to learn how it worked.” We didn’t really have the resources to do anything. I thought it was a resource question and now the government, in two budgets, have given them up to $1 billion over six years. Even though they only spend $100 million, there is $900 million more to come. That should help.
The second question, which I can’t answer, is whether there is a structural or cultural problem at the CRA that prevents them from being transparent, open and proactive. I mentioned Liechtenstein earlier. A couple of years later there was an employee at a bank in Switzerland who saw what happened to the guy in Liechtenstein. The guy in Liechtenstein sold the list, as I mentioned, to the German government and apparently got a lot of money for it. Another guy in a bank in Switzerland thought that sounded good so he stole his client’s list from his bank and that one bank in Switzerland had 1,785 Canadians with accounts there. Again, I want to emphasize that it is not illegal to have an account overseas. It’s illegal not to declare the proceeds.
Given what happened in Liechtenstein, I started to file a bunch of questions; the same questions of how much is owing and so on. They wouldn’t tell me anything, such as how much they recovered, how many people were audited, nothing. They just closed right up.
Now, the assumption would be if they were doing a great job they would be telling us. This actually gets a bit worse because this list ended up with the Government of France. They wanted to do what the Government of Germany did with Liechtenstein. They wanted to share the names of everyone. We found out through an access-to-information request that the French government had to ask the Canadian government to ask for the list. So that’s not very proactive. At which point the French government gave them the names of the 1,785, they shut down and won’t tell us what happened. Maybe there were no taxes owing. Maybe there was $20 in those 1,785 accounts, or maybe $300 million or $6 billion. Nobody knows.
Senator Eaton: I want to pick up on something you said, senator. You used the word “structural.” I’m referring to Sweden. As well as giving a general picture of how well the national tax agency succeeded in its task of determining the correct tax, is there a threshold of taxation where people will start really looking for ways to evade taxes?
Senator Downe: That’s a good question. I would ask the PBO and the CRA. I’m no expert on that, but it would seem to me that the conference board identified a tax gap range. I would assume that the government, in the best of days, would never collect 100 per cent of what is owing. There will always be seepage. It’s a matter of identifying what it is and trying to reduce it as much as possible. If we find out from the PBO that the tax gap in Canada is $47 billion, then I think Canadians would be outraged.
Senator Eaton: It’s interesting that Sweden talks about the correct taxes.
Senator Downe: Yes, and I don’t know what that is, but you could ask the CRA.
[Translation]
Senator Forest: That’s very interesting. Several specialists told us that the techniques to assess the tax shortfall tend to target “small fraudsters,” that is to say those who attempt to avoid taxes through black market work. There is that legislative aspect.
However, is the issue not rather a problem of culture and the will to really want to intervene, rather than a legislative problem? It seems that the legislative tools exist, but that we are not using them. When you think that the French government was forced to provide the list of Canadians who have investments abroad that generate income, this makes me think that it isn’t a legislative amendment we need, but rather a change of culture regarding tax avoidance. Our big concern is evasion rather than avoidance. It’s a matter of culture, because the Canada Revenue Agency does not do its work correctly with the tools it has to deal with this situation.
[English]
Senator Downe: Yes, there has been a change of culture recently. It has become much more acceptable and easy to hide your money offshore because the chance of getting caught are nil to none. The Panama Papers came out. We have all these disclosures time after time. You pick up the newspaper or turn on the TV and you never see any convictions. The culture has been that it has gone down from the very rich to the richer middle class, I would suspect. Maybe you combine your winter vacation in the Caribbean, Panama, Cayman Islands or other well-known tax havens and do some banking when you’re there. That is the seriousness of the undermining of the confidence that everyone has been treated fairly. If you are a T4 employee in Canada your chances of tax avoidance are nil to none; they’ll catch you, they’ll charge you and they’ll convict you. And they quite proudly, as I said earlier put that on the website. The flip side is you’ll be looking a long time on the website to see the names of overseas tax evasion convictions.
[Translation]
Senator Forest: In fact, what you are telling us is that there is a change of culture, but in the wrong direction. We have aggravated the problem rather than improving things. I am a bit surprised that you are not recommending that we ask Canada Revenue Agency representatives to appear. They are at the very heart of this situation.
[English]
Senator Downe: The CRA is coming before the committee, I think. Another part of my bill, as I mentioned briefly in my remarks, is to publish who these overseas tax convictions are. You know, if you’re convicted in Canada, it’s public information. Why is it difficult to say if they are not doing — I’m not suggesting, the Irish government, for example, will publish your name and home address. I’m not suggesting that. People will show up with pitchforks. But if you’re convicted, it should be public information. The CRA should be accounting for that.
The Chair: For clarity, yes, they have been invited, Senator Forest, and hopefully they will be here at the table next week.
[Translation]
Senator Bellemare: I have a second question about the publication of the detailed list of all of those tax evasion convictions.
I want to be sure I understand what your bill is proposing correctly. Are your proposing that the Canada Revenue Agency publish on its website the names of all of those who have been accused of tax evasion? If that is correct, is that something we can do? Will people not defend themselves? Isn’t this a breach at some level?
Senator Eaton: Once they have been found guilty.
Senator Bellemare: Once they have been found guilty, that’s it. So, legally convicted? Do other countries publish such lists? In what I read, they talk about tax evasion, but not about a detailed list of offenders. Is this done elsewhere?
[English]
Senator Downe: Actually, Canada publishes domestically now. So you go on their website and you can see the names and convictions for domestic tax evasion, but there is none for overseas. I mentioned the Irish who publish your name and your home address, which I’m not recommending at all.
[Translation]
Senator Bellemare: I don’t see a problem.
[English]
Senator Downe: I’ll go back to the point I made earlier about Australia. The Australian situation was, when they found all this tax evasion going on, they did a very public campaign. When they were able to get some convictions, the number of overseas tax transfers fell dramatically because people saw neighbours, people they knew, their names were in the paper. They were charged, convicted, some of them went to jail. Then your interest in doing it fell dramatically. The reverse is true in Canada. You know the CRA will tell you seven or eight names. Ask for the names, if you’ve been convicted it’s public information. Ask them for the names, they can give them to you, or they have a very thin connection to overseas tax evasion, organized crime or some corruption, housing scam or something like that, but it’s not legitimate overseas tax evasion.
Senator Moncion: The problem with the data or the information that is provided, is it an investment that needs to be done in technology so that they can collect that information, or is it a reluctance to provide the information?
Senator Downe: Again, the PBO and the CRA will be here. They can answer those questions far better than I can, but it was initially a reluctance. The CRA did not see any value in doing a tax gap analysis. So only because of increasing public pressure over the last few years, they have undertaken that.
Senator Moncion: How can they identify the lack of value for the information?
Senator Downe: Again, I don’t want to speak for them. They will talk about how it’s not precise and so on, but the second part of the tax gap analysis is equally important. It shows how efficient your revenue agency is. That may be the heart of the problem. If Canadians get a figure that billions of dollars aren’t being collected, then somebody has to be held accountable for that. That’s your revenue agency. They may be doing an outstanding job, and at the end of the day I’ll be up praising them in the Senate for this great work. We’ll see, I’m prepared to do that if I’m wrong. Given the record, I think we need to know what the figures are.
Senator Moncion: I go back to my foreign tax account compliance act. I know that you are not aware of how it goes on in the United States. Are you aware if any other countries have that kind of reporting back to them or it’s just the United States that has that?
Senator Downe: I really don’t know.
Senator Moncion: You really don’t know. Because that could be part of the solution to having every country report to every country about their citizens having accounts in other countries, where you can’t do tax evasion because it is reported back to the country where you are a citizen.
Senator Downe: As we saw in some of these tax havens — there is a lot of pressure on transparency and disclosure, so some of these tax havens are starting to share information, but there is a whole bunch of others that are not. So you have these leaks with the Panama Papers where there are Canadians names listed. Again it’s not illegal to have an account overseas, but you got a long way to having an account in Panama, unless you have a business and or residence there it would be interesting to know why you decided to bank there.
Senator Moncion: Maybe for when you go on a trip?
Senator Neufeld: Thank you senator for being here. I know you worked a long time on this, so I certainly support you in what you’re doing.
I was just wondering how long you plan on staying in the Senate if you’re going to get up and praise the CRA for doing a good job. It’s not a question, just a little comment to you.
Let’s say there is a dispute between CRA and a company or individuals domestically, and they come to a deal. There is no charge, so there is no conviction, but they have collected some money. Is that kind of the way it is with offshore also?
It’s alarming some of the numbers of people, individuals and companies that have those accounts, and how much money the CRA didn’t get. It’s not reported. Is that because you think they actually cut a deal with different individuals? I mean the legal fees may cost $5 million so why would you chase $6 million? Or $4 million or $3 million? Is that in fact true? Is that what is taking place in a lot of these cases and that’s why it’s not reported? How does this bill actually combat that, or is there some way you can?
Senator Downe: No, that’s a very good comment actually because that does happen a lot domestically, as you indicated. The flip side of that is you go on the website and you see domestic convictions. You see an absence of that on overseas tax evasion.
For example, I’m looking at the comments here, February 2013, the assistant commissioner, Terrence McAuley, spoke at the House of Commons committee about Liechtenstein. He said:
That project is virtually complete now. You’re correct in identifying the 106 names on that list. We have gone through that list and we have conducted 47 audits and identified —
— again one of the key words —
— $22.4 million of outstanding tax from a base of approximately $100 million in raw assets. From that we are now in the process. . . we are finished collecting $8 million of that. With respect to the balance, roughly$14 million is currently before the courts.
Senator Neufeld: Okay.
Senator Downe: So we have basically finished that project. So before the courts, I read that — again, I don’t know — as people objecting to what the CRA is doing as opposed to the CRA going after them.
Senator Neufeld: Yes, I understand that, and I agree with you. Thank you.
The Chair: Senator Downe, just to bring to the attention and clarity of the committee that next week, September 25, we will have a tax expert from U.K. We will also have panel representatives from CRA, Finance Canada and the PBO.
Do you have any closing remarks before we move on?
Senator Downe: Chair, members of the committee, thank you. Change is always difficult. The CRA has resisted all through this piece from many areas of the criticism of what they are doing, what they are not doing and what they should be doing. They are very reluctant to keep up with current trends. It’s difficult when you look at where Canada used to be and how far we have fallen behind. Transparency International put out a report last week — some of you may have seen it — where Canada is falling down greatly on corruption, money laundering and other things all connected to tax evasion. Our system is not keeping up with what it should be. We can do much better and we should be doing much better, and I hope this committee can lead the charge in that area.
The Chair: In closing, thank you very much, senator. There’s no doubt that no one can dispute the fact that you have always served Canadians with transparency, accountability and reliability. On this, thank you very much.
Senator Downe: Thank you.
The Chair: Honourable senators, we will suspend and go in camera in order to prepare for the next hour of our meeting.
(The committee continued in camera.)