Multilateral Instrument in Respect of Tax Conventions Bill
Second Reading--Debate Adjourned
May 9, 2019
Moved second reading of Bill C-82, An Act to implement a multilateral convention to implement tax treaty related measures to prevent base erosion and profit shifting.
She said: Honourable colleagues, I rise today to introduce you to Bill C-82, An Act to implement a multilateral convention to implement tax treaty related measures to prevent base erosion and profit shifting, also known as the Multilateral Instrument or MLI.
Harvard University historian Dr. Albert Bushnell Hart said:
Taxation is the price which civilized communities pay for the opportunity of remaining civilized.
Before I get too deep into my remarks on this important bill, I first want to confess that I am neither a tax lawyer nor a tax accountant, although, like all of us present, I have been paying taxes to three levels of government for most of my life.
While I agree with Dr. Bushnell Hart that taxation is vital to our civilization, this is how we are able to build and maintain essential infrastructure, ensure the health, well-being, safety and education of our population, support arts and culture, protect our environment and help build strong communities, economies and good relations with our global neighbours.
Yes, taxation is essential. I am sure that everyone in this chamber and all Canadians would also want taxation to be fair.
There are a number of fundamental ways a jurisdiction can grow its tax revenues in order to provide better for its citizens. It can impose greater taxes. It can take measures to grow the economy and thereby grow its tax base. And it can plug holes in its existing tax system to make sure that it captures the tax revenues that are rightfully due to it.
Bill C-82 enables Canada to implement an important instrument to plug some of the holes in our existing tax system. Tax fairness is a key priority for Canadians. It is crucial to building an economy and society that works for everyone.
Tax fairness is fundamental to our democracy.
Bill C-82 represents a major step forward in addressing unfair tax avoidance schemes. Ensuring tax fairness is a complex process, requiring ongoing engagement with a wide range of partners here in Canada and around the world.
Bill C-82 harnesses the strength of international partnerships by enacting a multilateral tax convention that will allow Canada, along with many of its international treaty partners, to implement tax treaty-related measures to counter tax avoidance strategies.
Are you riveted? These tax avoidance strategies make it possible for businesses and wealthy individuals to exploit gaps and mismatches in the tax rules, inappropriately shifting profits to low-tax or no-tax jurisdictions in other countries, thus the reference to the prevention of profit shifting in the title of this bill.
These profit-shifting strategies have the potential to erode the tax base of countries like Canada while making it possible for businesses and wealthy individuals to avoid paying their full and fair share of taxes owed — again the reference to the prevention of tax base erosion in the title of this bill.
Toby Sanger of the watchdog Canadians for Tax Fairness says:
By channelling funds to low-tax jurisdictions, corporations and wealthy investors continue to enjoy all the benefits of living in Canada without fully contributing to the very services and programs they use.
Although some of these tax avoidance tactics are in fact illegal, many are still able to be done legally due to how current treaties are drafted. At a time when capital and businesses are increasingly global and interconnected, no single country can address tax avoidance alone.
There is a growing consensus echoed by many, including Christine Lagarde, head of the International Monetary Fund, who recently declared, “The current international corporate tax architecture is fundamentally out of date.”
It is estimated that the kind of profit shifting Bill C-82 is intended to address costs countries between US$100 billion and US$240 billion every year, representing 4 to 10 per cent of global corporate income tax revenue. Now, that is significant.
Also concerning is that the existing system allows some corporations to take advantage of the loopholes while gaining a competitive advantage over others.
Real reform requires cooperation at the international level. That is especially true for Canada, which has one of the largest networks of tax agreements.
Currently, Canada has 93 international tax treaties in force and continues to work on similar agreements with other jurisdictions.
In 2013, the G20, including Canada, began working with the Organisation for Economic Co-operation and Development, the OECD, to address these significant concerns about tax avoidance and looking to find solutions that could be implemented across the globe.
Accordingly, the OECD has developed measures that countries could incorporate into their tax treaties to address their concerns. The challenge, honourable colleagues, is that given the large number of tax treaties in existence, it would take an extraordinary amount of time to renegotiate each of these agreements one by one.
A new approach was developed, one that would make it possible to implement these changes in a more timely and efficient manner. Are you ready for the new approach? That new approach, which is at the core of Bill C-82, is the Multilateral Instrument, or the MLI.
The base erosion and profit-shifting project of the OECD and the G20 resulted in the development of 15 action plans. These action plans make up the Multilateral Convention to Implement Tax Treaty Measures to Prevent Base Erosion and Profit Shifting, otherwise known as the MLI. Yes, it is a mouthful, but it is very important. This is a very important piece of legislation.
The MLI is the product of this global initiative involving the work of more than 100 countries and jurisdictions, including Canada. It is the first multilateral treaty of its kind.
The Multilateral Convention was signed by Canada in Paris, France, on June 7, 2017. Its purpose is to allow participating jurisdictions to adopt the OECD and G20 measures to combat tax avoidance strategies without having to renegotiate each of their tax treaties separately on a bilateral basis.
This enables countries to work together more effectively and more expeditiously in the fight against aggressive international tax avoidance.
In addition, the application of the multilateral instrument would demonstrate Canada’s desire to work collaboratively with our fellow signatories to the convention and take concerted action to combat worldwide tax evasion.
At the same time, the MLI would provide certainty for taxpayers, and certainty is important. It would include measures designed to improve dispute resolution under tax treaties.
Prevention of treaty abuse is addressed by adopting a new preamble in each treaty, which states that:
The object of the treaty is not to create opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including through treaty shopping arrangements.
Treaty shopping arrangements are very common.
Bill C-82 was first introduced in the other place on June 20, 2018. There are currently 87 signatories to the Multilateral Instrument, which will allow for modification of over 1,400 tax treaties globally. The MLI initially entered into force on July 1, 2018, and it has now entered into force in 25 countries across the world.
Honourable senators, the MLI is an important tool in combatting aggressive international tax avoidance. This tool will benefit Canada and its international partners. For this reason, I support Bill C-82.
Bill C-82 addresses a need for additional safeguards in our current tax system. The important measures brought forth in the bill, which are designed to address tax avoidance in the international realm, will not plug all of the current holes in our tax system that lead to the erosion of our tax base, but they represent a vital step forward.
Bill C-82 builds on other efforts of the government to ensure Canada’s tax system is fair for everyone.
I will briefly reference some highlights of those other efforts so you can put this in context.
At the close of the 2017-18 fiscal year, CRA had 50 ongoing criminal investigations related to the transfer of funds to low- or no-tax jurisdictions. The government is also targeting those who promote tax avoidance schemes and has so far imposed more than $44 million in fines on those who are promoting these schemes.
Thanks to the new availability of data and targeted government investments, CRA now has better tools and better approaches which are leading to the improved integrity and fairness of our tax system.
These tools help the CRA gather valuable information and allow its agents to work more effectively and intelligently to ensure that all Canadians are paying their fair share.
Budget 2019 has gone even further with an investment of an additional $150.8 million over five years to allow the CRA to fund new initiatives and extend existing programs.
These include hiring additional auditors and building technical expertise to target non-compliance associated with crypto-currency transactions and the digital economy; creating a new data quality examination team to ensure proper withholding, remitting and reporting of income earned by non-residents; and extending programs aimed at combatting offshore non‑compliance.
In turn, these targeted compliance initiatives are expected to produce a revenue impact of close to $370 million over five years. This is in addition to gains realized by the provinces and the territories through these measures.
Honourable colleagues, in conclusion, as I have noted, Canada has already made tremendous progress when it comes to tax fairness. We know there is so much more to be done. I know we are all committed to ensuring that Canada’s tax system operates fairly and effectively. By protecting the integrity of our tax system and guarding against the abuse of our tax treaties, Bill C-82 and the implementation of the Multilateral Instrument are the next logical steps in this process.
Once this bill receives Royal Assent, Canada will be able to deposit its instrument of ratification of the MLI, and the convention can then enter into full force in three months. In order for the MLI to come into force by January 2020, Canada would need to deposit its instrument of ratification by September 30 of this year.
For this reason, timely consideration and passage of this legislation is critical. I therefore encourage my esteemed colleagues to support sending this bill to committee for its thorough study. There are a number of important technical aspects related to Canada implementing the MLI that our Senate committee will need to examine in depth.
Colleagues, Benjamin Franklin once said:
In this world, nothing can be certain except death and taxes.
Well, given this stark reality, honourable senators, let’s work together to make sure Canadians can have more certainty and confidence in our tax system. Let’s ensure tax fairness for all Canadians. Let’s move this bill forward.
Wela’lioq, thank you.
Senator Coyle, would you take a question?
I congratulate you on your interesting speech, senator. This topic is not always exciting, but you presented it with a great deal of wit and humour. Thank you.
I flipped through the bill quickly. The PDF document is 56 pages long, so it’s fairly substantial. To ensure I fully understand the task that lies ahead, once this bill passes second reading, we’ll have to examine the matter to determine whether this instrument to establish multilateral agreements could help prevent tax evasion.
The bill includes a few clauses and a very lengthy schedule, which is the instrument itself, if I understand correctly. As part of their study of the bill, will committee members be asked to determine how this tool fits into Canada’s fiscal framework? Will they have to amend the instrument, or is it a question of simply seeing how it will work within Canada’s fiscal framework?
I will do my very best. As I confessed, I’m neither a tax accountant nor a tax lawyer, but I have been studying this bill, as you can tell.
At this point, we are looking at the principle of the bill, which, as I hope you have captured, if you were listening, is to enact this new convention, the Multilateral Instrument, and have Canada sign on. Instead of negotiating each tax treaty on an individual, bilateral basis to make our relationships with other tax treaty holders fairer, if we and they sign on to this — you have to be matched — then we don’t have to renegotiate.
More to your point, each country that signs on to this must sign on to the basic agreements to which everybody is going to be a party, and then there are options. Canada has already indicated and has actually changed its mind from its first signing on and has chosen to add a number of those special options to which you were referring.
Our committee will examine what Canada has chosen, as well as the overall treaty convention. Thank you.
Colleagues, I have a few brief words to follow our colleague’s remarks.
Bill C-82, like other bills that have come before us, is not objectionable. I do, however, have some concerns when I heard, basically, a free-time political broadcast at the conclusion of our colleague’s speech for the great work the Canada Revenue Agency is doing. I think it’s important to highlight in relation to this bill some of the actual facts as opposed to some of the spin that we hear from the Canada Revenue Agency about the great work they are doing. In my remarks, I just want to bring that to your attention.
We have found, for example, in the Panama Papers that 894 Canadians, individuals, trusts and corporations were identified. We have found out that three years after those papers were disclosed, $1.2 billion has been collected around the world. Canadians who have followed this issue closely were not surprised but disappointed to see that the CRA has not collected a cent.
Colleagues, you mentioned the ongoing criminal investigation. You mentioned how people have been targeted. You mentioned the fairness of the tax system.
Unfortunately, there is no proof other than a collection of words that the CRA is actually doing anything. I think this bill is helpful, but it is enforcement that is lacking. That’s why I take some objection to the conclusion of the honourable senator’s speech, where a summary was obviously presented about the great work the CRA is doing.
In fact, on the ongoing targeting, we found eight or nine years ago, when there was disclosure from that one bank in Liechtenstein, where employees stole the list of all the clients that was then shared around the world, 102 Canadians had accounts. As we know, it is not illegal to have an account in a foreign bank; it is, however, illegal not to declare the proceeds from that account to the Canada Revenue Agency.
We found that, years later, the CRA justified not charging one person with tax evasion, even though they identified that millions were owed to the Canadian treasury. They did so by the argument that they were using the information to find out how tax evasion actually worked. This was the justification that they told the Auditor General in his report. In other words, they were gaining knowledge.
That begs the question — back to my earlier comment — as to why nobody has been charged in the Panama Papers. What knowledge did they gather eight years ago that they could not use in the last three years to charge anyone, when $1.2 billion has been collected around the world? Zero has been collected in Canada, not one loonie, not $5.
Again, we hear the same argument from the CRA — they are working on it. They have identified money owing. They have not collected anything. We hear that it’s complicated. Well, it’s complicated for everyone. We hear that it’s difficult. Well, it’s difficult for Australia. They have collected hundreds of millions of dollars. Even Iceland has collected $25 million owing from the Panama Papers — Iceland, a country much smaller than Canada. Australia has collected $92 million. The list goes on and on, to add up to $1.2 billion.
We have the ongoing problem of the Canada Revenue Agency talking about how tough it is and how if you cheat on your taxes and try to hide your money overseas, they will find you and track you down. None of that is true. Nobody has been charged in Liechtenstein, eight years later.
Two years after Liechtenstein, another employee in a bank in Switzerland saw what happened to the guy who stole the accounts in Liechtenstein — he received compensation for the information he provided. He stole accounts from that one bank in Liechtenstein, and 1,785 Canadians had accounts there. Imagine that — 1,785 Canadians, one bank in Switzerland. How much money? The CRA will not tell us, because a few made a commotion over Liechtenstein where those 102 Canadians had over $100 million.
It is a massive problem.
On a related issue, we saw this week something on money laundering.
I appreciate the senator’s speech. I’m supporting the bill, but I’m disappointed that the CRA continues to raise expectations, but they don’t deliver.
If that was taken out of the speech, I wouldn’t be getting up at all. I support Bill C-82, because it’s helpful if it’s enforced.
Thank you, colleagues.
Do you have a question?
Senator Downe, thank you very much for reminding us. We’ve heard you speak at even greater lengths in other contexts on this very important matter. I don’t think anybody in this chamber would disagree with you. I want to be absolutely clear when I said in my speech that “we know there is more to be done,” I completely agree with this point.
Senator Downe, you said that you support this legislation. Would you say that Bill C-82 and the enactment of the multilateral instrument will be a positive step toward tax fairness for Canadians?
Thank you. Actually, no, because Canada doesn’t take any action. Other countries that signed this agreement will swing into action and do things. Canada, based upon the history of the last dozen years, will say all the right things, but when you ask them — and I urge you, senator, in three or four years, to start filing written questions and asking follow-up questions. You are bound to be disappointed at what is actually done.
Senator Downe, given the experience that you have expressed here and the disillusionment with action matching language, would you have any advice for the committee that will be studying this bill? Is there anything we should be looking at in the study of Bill C-82?
Thank you. The government should be doing what they said they would. They announced there would be an investment of close to $1 billion in the Canada Revenue Agency. As of December 2017, they have only spent $110 million. The Minister of National Revenue has been talking for the last few months about all the additional auditors that have been hired at the Canada Revenue Agency. Le Journal de Montréal did an investigative report and found out that a whole bunch of auditors were retiring. And it wasn’t 3,000 new auditors hired; it was around 192.
They have to stop constantly misleading. We had the Auditor General of Canada a couple of years ago in his report talk about the call centres, where the CRA was talking about the high number of Canadians who could get through to the Canada Revenue Agency call centre. When the Auditor General examined that, he found that after a certain number of minutes, the CRA simply hung up on the caller and counted that in their positive numbers. This is the Auditor General of Canada.
They constantly get caught.
Many of us here heard representations from Diabetes Canada. They used to receive a tax credit from the CRA, and suddenly, half the people who used to receive the diabetes tax credit stopped receiving it. The CRA said there was no change in policy. At the end of day, we find there was a change in the interpretation, so the result was that people actually who were receiving it stopped receiving it. The department changed their mind.
So when they are caught, they come forward, but they continue this misleading of Canadians.
The government should be doing all the things they said they would be. Print the billion dollars right away. Hire additional auditors, because all kinds of evidence suggests that for every auditor hired, there is a multiple of six or seven of the cost of their salaries and benefits in return to Canadians.
When Australia, for example, had the list of people from their country who had accounts in Liechtenstein — and they formed a task force right away — they ended up charging and convicting people and recovering a lot of money. The Australians tell us the other thing they found is the people who were interested in moving the money offshore suddenly lost interest when they saw friends and neighbours being convicted and going to jail.
Their enthusiasm for moving the money offshore declined rapidly. Colleagues, go on the CRA website you will see all kinds of people charged domestically with tax evasion. The CRA does an excellent job on domestic tax evasion. I have always said that. If you cheat on your taxes in Canada, you are very likely to get caught and, in many cases, convicted and sent to jail. The website is full of people. Look for the corresponding convictions, jail terms for overseas tax evasion; they are not there. That is a serious problem.
The second and last problem is the government still refuses, notwithstanding the passage of the bill in the Senate, to measure the tax gap. The government is still refusing to cooperate with the Parliamentary Budget Officer to measure the tax gap, which is the difference between what the CRA should be collecting and what they are collecting. The Parliamentary Budget Officer has been working on this for a number of years.
The new Parliamentary Budget Officer announced a couple of weeks ago that he is still having trouble getting the information he requires from the CRA to determine the tax gap. Other countries do this, the United Kingdom, even the State of California. That is how important the tax gap is. It not only tells you the size of the problem, it tells you how efficient your revenue agency is in doing their job.
The tax gap would be the first issue. Put that billion dollars in, hire the people and get going and if you convict some people, I suspect we will have the same result as Australia. We will have more money in our country for the priorities we want as Canadians, whether it is lowering taxes or investing in programs, and we will not have this double standard on the tax system.
