Moved third 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 senators, I rise today to speak at third reading as sponsor of Bill C- 82, An Act to implement a multilateral convention to implement tax treaty related measures to prevent base erosion and profit shifting.

Remember this one?

In his second reading speech, my honourable colleague Senator Ngo, the friendly critic of this bill, quoted Sir Winston Churchill, who said:

For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.

Well, honourable senators, I do not believe that Bill C-82 is in any way an attempt to try to tax ourselves into prosperity by lifting ourselves up by the handle of a metaphorical bucket. Rather, it is one of a number of practical and timely initiatives by Canada and our OECD and G20 colleagues to plug the holes in our national buckets so that we retain the taxes that are rightly due our governments.

Last week, we celebrated the seventy-fifth anniversary of the D-Day invasion on the beaches of Normandy that portended the end of the Second World War. Our colleague Senator Rob Black was there.

A little-discussed fact is that the Canadian tax system underwent a significant transformation during wartime under the leadership of the Right Honourable J.L. Ilsley, the federal Minister of Finance from 1940 to 1946. Personal income tax was extended to most of Canada’s working population, and corporate income taxes were raised significantly and applied to excess war-related profits at that time. This was critical for financing the war effort and establishing the postwar welfare state we take for granted today in Canada.

Sir Winston Churchill and the people of occupied France might never have had the significant and heroic support of the young Canadians we honoured on Juno Beach last week if our country had not found an effective and fair way to raise the revenues required to mobilize, train and equip those young soldiers, sailors and airmen.

Another significant historical reality with relevance to our bill is the emergence, post-World War II, of new ways for nations to work together to ensure peace and to rebuild and maintain a prosperous and fair world order.

NATO, the modern United Nations and the OECD can all trace their origins to the period of the Second World War and its immediate aftermath.

Bill C-82 embraces the spirit of international cooperation by enacting a multilateral tax convention, known as the MLI, that will allow Canada and its international treaty partners to efficiently — and “efficiently” is the key word here — implement tax treaty-related measures to counter tax avoidance strategies. This bill has its origins in a G20 effort in cooperation with the OECD.

Pravin Gordhan, former South African finance minister, said, “Aggressive tax avoidance is a serious cancer eating into the fiscal base of many countries.”

Pulitzer Prize-winning investigative journalist, specialist in tax issues and author of The Making of Donald Trump — does that word wake you up? — David Cay Johnston, states:

Tax shelters are to democracy what pollution is to the environment.

Honourable senators, we all know how quickly the world is changing and how interconnected the global financial markets have become. No one country can effectively tackle tax avoidance on its own. A concerted effort is required for nations to come together and agree on minimum standards to prevent the erosion of the tax base and profit shifting that occurs when companies and individuals engage in deliberate tax treaty shopping — shopping for opportunities to exploit loopholes in current tax systems and thus successfully and at this time actually legally avoid paying taxes.

Current gaps in existing domestic laws and tax treaties have allowed for profits to be shifted to lower or even no-tax jurisdictions, causing leakage of potential tax revenues for our country and for other countries who share this concern.

With the global financial crisis of 2008, many countries saw their economies slowed and their tax revenues drastically reduced. Among other concerns, governments became worried about aggressive international tax avoidance and the resulting revenue losses.

In order to address these concerns, the G20/OECD Base Erosion and Profit Shifting program, known affectionately as BEPS, was born in 2013. The passing of Bill C-82 into law will enable Canada to implement that multilateral convention to prevent base erosion and profit shifting — the multilateral instrument, or MLI. The convention has both mandatory and optional provisions.

At the signing of this convention in 2017, Canada indicated that it would implement the mandatory provisions related to treaty abuses and dispute resolution. Provisions related to dual residency and taxation on dividends and capital gains were added by Canada since that initial point of signing.

In time, other articles may be adopted. Canada is taking a cautious incremental approach with its adoption of the various optional MLI provisions. Over 100 jurisdictions participated in the negotiations that led to the conclusion of the multilateral instrument and to date 88 are signatories to the convention, including Canada.

Bill C-82 would bring the MLI into force in Canada and allow us to swiftly modify the application of our bilateral tax treaties without the need for separate bilateral negotiations. This is where that important efficiency aspect comes in. Without the MLI, it is estimated that it would take many years to renegotiate all of our treaties on a bilateral basis.

Before I get into the details of the bill, I would like to thank Senator Ngo for his speech at second reading and Senators Bellemare and Downe for the questions they raised at second reading of this bill.

I would also like to acknowledge the hard work of my colleagues on the Standing Senate Committee on Foreign Affairs and International Trade in studying this bill as well as the capable staff who support our committee.

Our expert witnesses from Finance, the Canada Revenue Agency, Queen’s University, Bennett Jones LLP, Gowling WLG and Canadians for Tax Fairness provided well informed, in-depth and balanced testimony.

My parliamentary affairs adviser, Jess Mace, and Nour El-Farouk from the Office of the Government Representative in the Senate, faithfully and studiously accompanied me as we delved into the important substance of this bill and worked together to find the best ways to understand it first ourselves and then to explain it and its impacts to all of you.

Honourable colleagues, we already covered a lot of ground at second reading of Bill C-82, so for the purposes of this third reading, would like to briefly turn to the key questions raised at second reading.

Senator Bellemare asked whether the Senate committee members would determine how this tool fits into Canada’s fiscal framework, whether it would have to be amended or whether it was simply a question of seeing how it will work within Canada’s fiscal framework.

In answer to Senator Bellemare’s question, your committee determined to pass the bill unamended. It did, however, examine carefully how the MLI would fit into and work within Canada’s fiscal framework, as the senator had asked.

Although we were focused on the details of this very specific bill, your committee learned that Canada is taking several steps to strengthen its fiscal framework domestically and internationally. The MLI is being implemented internationally in order to restore taxation in a number of instances where income would otherwise go untaxed.

A tax treaty is covered by the MLI if both Canada and the other jurisdiction list the treaty for MLI purposes. Once implemented, the MLI is expected to apply to most of Canada’s tax treaties — not all, but most.

The MLI would go to the very roots that have allowed those loopholes, those holes in the bucket to continue. It will put in place more effective measures to prevent businesses and individuals from taking advantage of treaty loopholes to shift their profits to the lower or no-tax jurisdictions that are happening today.

The anti-abuse rule introduced through the MLI will have the effect of denying a benefit under a tax treaty where one of the principal purposes of any arrangement or transaction was to simply obtain that benefit. Similar to the General Anti-Avoidance Rule, or GAAR, used by the Canada Revenue Agency, the principal purpose test, or PPT, will be a key instrument used under the MLI.

The dispute resolution mechanism — binding arbitration — obligates the parties to submit unresolved cases to an independent and impartial decision maker. This is already included in the Canada-U.S. tax convention and is an efficient and fair method to ensure these cases are managed.

Finally, Senator Bellemare, in answer to your questions, the MLI is expected to strengthen our current fiscal framework by: limiting opportunities for treaty abuse — it will protect Canada’s tax base by introducing rules that reduce those opportunities for taxpayers to engage in aggressive tax avoidance transactions that seek to take advantage of tax treaties; and by providing greater certainty for taxpayers and tax authorities through the more timely and efficient resolution of tax disputes.

Nonetheless, the multilateral instrument is but one initiative of many that Canada is undertaking to strengthen its tax regime. As these new mechanisms are applied, there is no doubt that others will need to be developed.

Senator Ngo foreshadowed a significant area of concern discussed at the committee when he concluded his second reading speech. He said:

Yes, let’s strive for tax fairness, but let’s not do so to the detriment of our competitiveness and our collective prosperity.

As our committee learned, there are a number of opinions on what constitutes tax fairness and what could happen to Canada’s competitiveness and prosperity when the MLI is implemented.

On the one hand, we have Queen’s law professor Dr. Arthur Cockfield who, although he sees the MLI as just one measure needed to reduce international tax avoidance, supports Canada’s incremental approach to the adoption of this instrument. He said:

. . . if you go too far, it will destabilize, make the investment environment uncertain and arguably hurt Canada that way. On the other hand, I think maybe because of the Panama Papers and other recent developments, Canadians actually care about international tax . . . so we do have to do a lot more hard thinking about real changes to the system.

We also heard from Toby Sanger, executive director of Canadians for Tax Fairness. He quoted Christine Lagarde from the International Monetary Fund, who recently made the following observations:

The current international corporate tax architecture is fundamentally out of date. . . . First, the ease with which multinationals seem able to avoid tax . . . undermines faith in the fairness of the overall tax system. . . . So, [she concludes,] we clearly need a fundamental rethink of international taxation.

Mr. Sanger states that:

Bill C-82 enables Canada and other countries to effectively implement wholesale changes to their numerous bilateral tax treaties. It is, in general, a positive step forward. It is an efficient way of consistently adjusting the thousands of bilateral tax treaties that have been signed between nations. Canada has indicated that 75 of our 93 tax treaties will be covered by this MLI.

Mr. Sanger also expressed his concern about tax fairness as it relates to competitiveness. He stated:

The largest multinational corporations in the world are most able to avoid taxes through the current system and to consequently gain an unfair tax advantage over smaller and medium-sized businesses. That contributes to greater corporate concentration. We’ve seen the stories about Google and Apple and other corporations paying very low rates of tax.

It also contributes to less competition . . . .

He concluded by saying:

. . . while this bill is a positive step and I urge you to support it as it is, we can and must take much bigger steps forward to develop a much more functional international corporate tax system. . . . We need a simple, level playing field around the world so that there are fewer opportunities for loopholes and so that it is fairer for all involved.

On the other hand — you know how this goes at committees — we heard from Laura Gheorghiu, partner at Gowling WLG, and Jared Mackey, partner at Bennett Jones LLP on concerns they had regarding the legislation. Unlike the other witnesses we heard from, their concerns were not about the MLI not going far enough but, rather, about the potential unintended negative consequences of this new instrument.

Mr. Mackey indicated that taxes are an important factor their foreign investor clients take into consideration as they evaluate the viability of an investment in a Canadian energy opportunity. He said:

With the enactment of Bill C-82 and implementation of the MLI, we are certain that a number of our clients will divert their capital toward more profitable opportunities outside of Canada.

Ms. Gheorghiu said in her testimony:

As you have already heard from others, certain provisions of the MLI present challenges for Canadian businesses and may discourage foreign investment into Canada, but I want to add that the MLI also applies in the other direction, to subject Canadian enterprises to similar challenges when investing abroad.

Without getting into the fine details of their concerns and the examples they provided, the main issues appear to be around, first of all, whether there will be any grandfathering provisions, a reasonable transitional process for cases where tax structures were put into place prior to the coming into effect of the MLI. That’s one very serious request from people.

Second, the uncertainty that comes with new instruments such as the PPT, or principal purpose test, and, in particular, its impact on resource mining, timber and real estate.

Despite these concerns, the witnesses described the MLI as “a pretty elegant instrument in terms of its breadth of application.”

These are very real concerns, and your committee took them into consideration in our decisions not to amend the legislation or provide any observations.

Finding a balance that is good for the people of Canada is the concern with everything we examine here in the Senate of Canada. In this case, we felt that Bill C-82 did, in fact, balance the interests of those who gain their incomes through investment and employment in companies we heard about as well as other companies, and those who benefit from the services paid for by the taxes that those companies should pay.

Clause 5 of Bill C-82 states:

The Minister of National Revenue may make any regulations that are necessary for carrying out the multilateral instrument or for giving effect to any of its provisions.

As with many bills, the devil, of course, will be in the details of the implementation.

Patrick Marley, Co-Chair of the Tax Group at Osler, Hoskins and Harcourt, who spoke at the House Finance Committee in support of some articles in the MLI, emphasized — and this is important — that tax practitioners are in great need of guidance on how the MLI will apply in Canada. One would hope that such guidance would be provided by the government and help address the uncertainties that our committee heard about from Mr. Marley’s peers in other law firms.

Finally, Senator Downe expressed significant concerns at second reading — you will remember his concerns — regarding the Canada Revenue Agency raising expectations that they will act on tax evasion and avoidance but that they would actually not deliver on those expectations. That was the gist of his concern. He also accused me of including in my second reading speech a free time political broadcast for the great work of the CRA.

I will first attempt to address Senator Downe’s concern with my speech and then briefly address his larger concerns.

I want to assure Senator Downe and all present in this chamber that, as an independent senator, it is absolutely not my job to be a cheerleader for the Government of Canada. In fact, it isn’t the job of any of us here in this chamber. It is, however, my job, when I am sponsoring a bill, to present the legislation in its context.

As Bill C-82 is a bill about improving tax fairness, I asked the department to provide me with information on other measures the government is taking to ensure Canada’s tax system is fair for everyone. I did provide some highlights of those measures in my second reading speech, and, after noting those, I intentionally said: “We know there is so much more to be done.”

Honourable colleagues, I also thought it would be important for you to hear the answer Alexandra MacLean, Director General, International and Large Business Directorate, Canada Revenue Agency, provided when asked in committee about issues related to implementation and enforcement, again, the concerns that were raised by Senator Downe. Ms. MacLean said:

The Canada Revenue Agency has a number of tools to detect aggressive tax avoidance and tax evasion. In particular, we require fairly detailed reporting regarding cross-border transactions. . . .

. . . Canada implemented country-by-country reporting for multinational entities with revenues over 750 million euros. . . . we receive high-level information, including all the jurisdictions in which a multinational operates, all its legal entities included in the corporate group.

In combination with our other reporting tools, that will give us a good line of sight on which transactions are going through which countries.

She does, however, go on to state:

There are no panaceas in a world of aggressive tax planning. A lot of money is at stake for governments and multinational enterprises, in particular. We can anticipate that they will attempt to plan around almost any new tool or legislative policy instrument.

So there you have it, colleagues: Preventing tax avoidance is not an easy task. Canada and its OECD-G20 partners on this MLI effort are up against a very sophisticated and well-resourced sector.

Honourable colleagues, as I come to my concluding remarks, just to wake you up, I thought you might enjoy this quote of Jean Baptiste Colbert, who was minister of finance under Louis XIV of France. Minister Colbert once said:

The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least amount of hissing.

The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least amount of hissing.

Honourable senators, I can assure you that with Bill C-82, we are not trying to build a Canadian version of Versailles, cake or bread to eat, with the proceeds of the measures brought into force with the adoption of the MLI. With any new tax bill, one can expect a certain amount of hissing. This one is designed to actually ensure that the plucking is fairly distributed among all the geese.

Although we have heard some concerns raised regarding this bill, I believe the positive benefits will make it worth pursuing. We know that we need to take practical steps, along with our international partners, to plug the holes in our current tax system and reduce tax avoidance.

We know that the MLI is a good start on this pathway toward tax fairness and the recovery of the tax revenues our government should be capturing for the benefit of all Canadians.

For the MLI to come into force by January 2020, it is critical to pass Bill C-82 in a timely manner.

Colleagues, I hope you will join me in voting in support of this bill once we have had a chance to hear from our colleague Senator Ngo.

Thank you. Wela’lioq.