44th Parl. 1st Sess.
June 16, 2023 10:00AM
- Jun/16/23 10:23:27 a.m.
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Madam Speaker, the letter was seeking to specifically understand each jurisdiction's particular needs and any supports required to facilitate their participation in a pan-Canadian system.
During the committee hearings, requests were heard to lower the ownership threshold to disclosure from 25% to 10%. First, it is important to point out that the decision to adopt a 25% threshold was made in 2018, and it was approved by Parliament in 2019 in Bill C-86.
With that said, the government does not support lowering the ownership threshold from 25% to 10%, because doing so could introduce significant interoperability issues. The 25% threshold makes the most sense for the following reasons: It is in line with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, Canada's anti-money laundering and anti-terrorism financing legislation. It also aligns with the beneficial ownership thresholds put in place by Canadian provinces, including Quebec and British Columbia. It is also in line with the ownership threshold adopted in all major jurisdictions in the world, including the U.S., the U.K., the European Union and Japan. Finally, it is compliant with the G20 and the norms set by the G20's Financial Action Task Force.
It should be emphasized that lowering the ownership threshold is not necessary to uncover significant control. Individuals who have a right to or actually exercise significant influence or control over a company are still required to be registered, even if they own less than 25% of the shares.
To ensure the effectiveness of the new registry, it is crucial for Canada to stay in line with domestic and international norms. Otherwise, the data it collects would not be interoperable or comparable; this would create both a significant burden on businesses and a significant challenge in ensuring compliance. Lowering the ownership threshold from 25% to 10% will take us out of alignment with best practices, both domestically and internationally; therefore, it is not recommended by the government.
The lack of beneficial ownership transparency is impairing Canada's ability to combat serious financial crimes, such as fraud, money laundering and tax evasion. It also limits our capacity to enforce domestic and international sanctions and to effectively trace and freeze financial assets. Finally, it is impacting the trust of Canadians and foreign investors in our marketplace.
Our inability to quickly and quietly identify a company's beneficial owner delays criminal investigations; denies law enforcement leads to potential suspects, witnesses and evidence; and impairs the identification and seizure of suspected proceeds of crime. It also reduces the ability of private businesses to protect themselves.
It is clear that the registry proposed by this bill and the interoperability measures that form part of the regime would significantly improve Canada's ability to fight financial crime. It would help public authorities verify owners across corporate layers, help businesses better validate the identity of their trading partners and render more difficult the use of corporations for illicit activities.
Future areas that should be examined to improve our ability to ascertain the beneficial owners of assets include bringing in new requirements for foreign companies doing business in Canada to disclose their beneficial owners, as well as for the Government of Canada to play a coordinating role in assisting the provinces and territories to establish a pan-Canadian land ownership registry. This registry would be able to work in concert with the corporate beneficial ownership registry. It would dovetail the important legislative changes to improve our ability to tackle financial crime that were announced in this year's budget implementation act.
A forthcoming review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act will surely identify further measures to take. I hope all members of this House will join me in supporting this important bill's passage so that we can continue to improve our ability to protect Canada from financial crime and the illicit activities that it supports.
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Madam Speaker, as previously stated, the Bloc Québécois supports Bill C-42. This bill will reveal who is really behind shell corporations. The bill will make it easier to fight tax evasion, money laundering and the financing of illegal activities.
Furthermore, the process that resulted in this legislation is beyond reproach and respects the jurisdictions and autonomy of Quebec and the provinces. This approach is becoming increasingly rare in Ottawa, and we applaud it in this case. Finally, I would like to remind the House that Quebec already has its own registry.
However, for anyone who believes in tax fairness, surely it is high time we cracked down on tax havens. As members know, by using them, the ultra-wealthy are evading taxes like never before, and so are the big banks, multinationals and web giants. These companies justify their actions on the grounds that their schemes are legal, even though their greed is completely immoral.
I would now like to refer to two economists, Emmanuel Saez and Gabriel Zucman, who clearly illustrate the method in their book The Triumph of Injustice.
First, they explain that the legal framework for multinationals has changed little since they were first developed in the 1920s. Subsidiaries of the same multinational are treated as autonomous entities. For example, “Apple Ireland must be considered for tax purposes as a firm of its own, distinct from Apple USA.” Since Ireland's tax rate is half that of the United States, it is in the multinational's interest to transfer its profits there to pay half the tax.
In theory, subsidiaries must exchange goods and services at market value, on an arm's-length basis, as if the entities were independent of each other. In practice, however, they have considerable leeway to shift profits to tax havens.
The principle, which has barely changed, was developed in the 1990s by tax optimization consultancies. It involves the sale between subsidiaries of assets that have no market price, such as logos, brands, management services or financial services.
The economists give some examples:
What's the price of Apple's logo? It's impossible to know: This logo has never been sold in any market. What's the price of Nike's iconic “swoosh”? What's the price of Google's search and advertisement technology? Since these logos and trademarks and patents are never traded externally, firms can pick whatever price suits them.
The firms sell all-in services, that is, a creative intragroup transaction accompanied by a certified “correct” transfer price. Saez and Zucman explain what this means:
Thanks to the proliferation of intragroup transactions conducted at doctored prices, high profits [in the hundreds of billions of dollars] end up being recorded in subsidiaries where tax rates are low, and low profits in places where they are high.
The economists estimate that $800 billion U.S. in multinationals' profits is transferred to tax havens. That represents 40% of their global profits and 60% of the profits of U.S. multinationals.
Variations on these schemes are made available throughout the world by the Big Four accounting firms, Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers.
It is always the same thing. Here are two examples provided by the authors:
In 2003, a year before it was listed as a public company in August 2004, Google sold its search and advertising technology to its own “Google Holdings,” a subsidiary incorporated in Ireland but for Irish tax purposes a tax resident of Bermuda, an island in the Atlantic where its “mind and management” are supposedly located.
Transfer pricing was kept secret, but it was certainly low. Otherwise, it would have had to be declared to the Securities and Exchange Commission. Saez and Zucman estimate the figure at $700 million U.S., tops, when the same algorithms have, for example, enabled Google Holdings to report $22.7 billion U.S. for doing business in Bermuda in 2017 alone. That is 30 times more for a single year. Talk about the goose that lays the golden eggs.
Economists have pointed out that, in Asia, Singapore is the location used instead of Bermuda. Its tax rate for multinationals is also nil, or zero.
Here is the second example. In 2004, Skype, which was founded by a Swede and a Dane, transferred the better part of its technology to its Irish subsidiary. However, thanks to LuxLeaks, the leak of confidential documents from PricewaterhouseCoopers in 2014, we know the details of that transaction. The cost of the technology transfer was estimated at 25,000 euros, which is scandalous, given that Skype was bought by eBay a year later in 2005 for $2.6 billion U.S., over 100,000 times the price of the transfer. Saez and Zucman explain that corporate tax dodging schemes are quite simple. They said the following:
At its core, it involves manipulating the price of intragroup transactions in goods (like iMacs), services (as when a US firm buys “management advice” from an affiliated party in Switzerland), assets (such as Google selling its search and advertisement technology to its Bermuda subsidiary), or loans (as happened during the Netherlands Antilles frenzy of the early 1980s).
In that regard, the Netherlands Antilles frenzy was a sort of dress rehearsal for the use of tax havens. It started in the late 1970s and was banned in the late 1980s. This new corporate tax evasion industry fits within the context of the emergence of the neo-liberal ideology, which occurred at the same time as the boom in tax havens for individuals. Saez and Zucman illustrated that as follows, and I quote:
Here is how it worked. A US firm would set up a subsidiary on the island of Aruba, Bonaire, or Curaçao. It would then have this affiliate borrow money from a European bank at the prevailing interest rate, around 3%, and lend it back to the US parent company at a much higher interest rate, around 8%.
The difference in rates helped shift the profits from the United States to the Caribbean.
As we know, the use of tax havens really took off in the 1990s. With the fall of the Berlin Wall, neo-liberalism triumphed. The new generation of executives focused their corporate role on serving the shareholders exclusively. In the meantime, the share of profits earned overseas doubled from 15% to 30% for American multinationals.
The response from wealthy states was to lower the corporate tax rate, which did not help repatriate their profits. Between 1985 and 2018, the average corporate tax rate was halved, going from 49% to 24%. As the two economists point out, in the early 1950s, corporations paid as much in taxes as individuals. Today, with the tax cuts and the use of tax havens, this ratio has changed dramatically. Businesses contribute 10 times less than individuals. Back home, in Quebec, this imbalance has been documented extensively by Professor Lauzon.
Multinationals now reign supreme; they artificially relocate their profits to tax havens to avoid paying taxes. The profits they do not relocate are taxed at half the rate they were 30 years ago. Not to mention that they outsource their real activities to countries where the people are underpaid, allowing their profits to swell even more.
The solution to this injustice is first and foremost political. In fact, that is the pretext that multinationals use. According to their rhetoric, all of this is legal. What is more, they undertake a colossal amount of lobbying to keep it that way. Saez and Zucman take issue with that:
It's a weak defense: nothing of substance happens in Bermuda, so it stands to reason that Google has booked $22.7 billion in revenue in that island to avoid taxes, in violation of the economic substance doctrine.
The authors conclude it will take a revolution in how things are done if we want to change the game, saying, “In need of a Copernican revolution, [the OECD has] been busy refining the Ptolemaic model”.
I therefore invite the House and this government to be the revolution the world needs.
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- Jun/16/23 10:55:59 a.m.
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Madam Speaker, I thank my hon. colleague for his very detailed and interesting speech. With regard to the last question, it was mentioned that Canada could become a leader in the fight against tax evasion. Would this not require a major revolution?
I will give an example. There have recently been document leaks. Radio-Canada reported that Canada recovered 20 to 30 times less money than European countries. We also learned that even Revenu Québec recovered more money than the Canada Revenue Agency, and that is just for Quebec. Is that not outrageous?
We really need to send a message to the Canada Revenue Agency and the government that they need to do a lot more.
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- Jun/16/23 11:16:37 a.m.
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Madam Speaker, I am immensely pleased today to extend a warm invitation to my colleagues and to all Quebeckers and Canadians to come visit my riding, Manicouagan, this summer.
To the people back home, Manicouagan really means the north shore, a true country within a country, its 350,000 square kilometres teeming with so many wonders that the north shore tourism bureau aptly describes it as “nature beyond measure”.
I may be biased, but I cannot help but boast that Manicougan has 1,300 kilometres of beaches, 60% of the salmon rivers in Quebec, Anticosti Island, which is the size of Corsica, 168 dams, including the Daniel Johnson dam, the largest arch-and-buttress dam in the world, the Manicouagan-Uapishka Biosphere Reserve, numerous outfitters and controlled harvesting zones, and thousands of lakes, not to mention whales and caribou. In short, the north shore is a veritable feast for the senses.
In closing, I invite everyone on the north shore to become ambassadors for our region and show the entire world that our passion for wide open spaces is equal only to our love for people.
We look forward to welcoming visitors.
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- Jun/16/23 12:02:36 p.m.
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Madam Speaker, I would like to thank my colleague for his question. The forest fires raging in Quebec right now are certainly having an impact on the national caribou population, which is already in decline. This situation makes it all the more urgent to take action. Just yesterday, the Minister of Environment and Climate Change set out a timetable for the plans to protect Quebec's caribou.
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- Jun/16/23 2:35:56 p.m.
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Madam Speaker, I rise on a point of order in connection with Motion No. 22, which was adopted by the House on November 15, 2022.
I was very surprised and deeply appalled when the government announced earlier that we are going to sit until midnight on June 23. I would remind members that the House unanimously adopted a motion recognizing Quebec as a nation. Here in the House, members are well aware that Quebec's national holiday is celebrated on the evening of June 23 in just about every municipality. We were sure that we had an agreement with the Leader of the Government in the House in that regard, but now we have learned that we do not.
I want to read the beginning of Motion No. 22, which states, and I quote:
That, notwithstanding any standing order, special order or usual practice of the House,
(a) until Friday, June 23, 2023, a minister of the Crown may, with the agreement of the House leader of another recognized party, rise from his or her seat at any time during a sitting, but no later than 6:30 p.m., and request that the ordinary hour of daily adjournment for a subsequent sitting be 12:00 a.m.....
What I would like to know is which House leader of another recognized party supported this motion.
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