Madam Speaker, I thank my colleague across the way for raising this question. If someone had told me six months ago that we would be talking about tax havens in the House of Commons, I would not have believed it, but here we are.

Tax havens and the tax system are not simple issues. It is a question of multinationals and taxation. We talk about international taxation, but that is not the right term. It is about how a government collects taxes on income earned abroad by residents or corporations of that same country. There is therefore no such thing as international taxation.

Today, I would like to go over the Canadian tax system and talk about how the budget will address this issue. The last two members who spoke made rather simplistic analogies. It is a bit more complicated than that and I will try to explain why. I will do so in English, and then I will talk about the budget in French.

Canadian income tax rules allow active business income earned by foreign subsidiaries of Canadian corporations to be repatriated back to Canada free of Canadian tax if the income was earned in a jurisdiction with which Canada has a tax treaty or tax information exchange agreement. We currently have 114 tax treaties around the world. Barbados is one of these countries, as are several other countries with low tax rates or provincial regimes. The exempt surplus rules in the Income Tax Act and the income tax regulations allow active business income to be earned by a foreign affiliate.

So we have active business income. What does that mean? Basically, the test is that, as long as a corporation has five employees, it qualifies as active business income. That is the test.

It has to be earned by a foreign affiliate. A foreign affiliate is a corporation of which a Canadian corporation has at least 10% equity. It is repatriated to the Canadian parent corporation as dividends without being subject to Canadian tax, provided that the foreign affiliate is resident in, and the income is earned in, a jurisdiction with which Canada has a tax treaty, such as Barbados.

In contrast, active business income earned by a foreign affiliate of a Canadian parent corporation that is resident in a country with which Canada does not have a tax treaty is subject to Canadian tax when repatriated to the Canadian parent as dividends. So we have a foreign tax credit system. Basically, if there is no treaty it is taxed in a foreign jurisdiction. If the dividend is paid to Canada, we recognize and give credit to the foreign tax that was paid and then we tax that income in Canada.

We have two regimes: if we have a tax treaty; and if we do not have a tax treaty.

Budget 2016 would be a start to addressing tax evasion in Canada from Canadian corporations and individuals as well.

Tax evasion and aggressive tax avoidance by individuals and businesses entail a fiscal cost to governments and taxpayers, and reduce the fairness and integrity of the tax system. As a matter of fairness for all taxpayers, the government seeks to prevent underground economic activity and tax evasion and to close tax loopholes. Consequently, budget 2016 provides resources to ensure more effective administration and enforcement of tax laws and includes measures to improve the integrity of Canada's tax system.

A key component is the $444-million investment over five years to help the Canada Revenue Agency, the CRA, do more to crack down on tax evasion and combat tax avoidance. This significant increase in funding will see examinations of personal income tax returns increase from 600 to 3,000 every year over five years. This large increase should generate additional tax revenue of approximately $400 million over five years.

Furthermore, the CRA will hire more than 100 senior auditors and specialists to audit high-risk multinationals, which should generate even more revenue over five years. The CRA will also create a program to charge those who promote tax schemes, thereby increasing the number of files that the CRA can review every year to 200, which is 10 times the current number.

The number of auditors working on these schemes will increase sixfold, from four to 24. This is highly technical and highly specialized. This team will be able to conduct audits, apply penalties, and refer cases for criminal investigation, where appropriate. Furthermore, to make sure they deliver results, the CRA will embed legal counsel within the investigation teams. These lawyers will ensure that the cases are properly prepared and go to court as quickly as possible.

Canada is also taking measures to protect the integrity of Canada's tax base internationally. First, Canada and other members of the G20 and the Organisation for Economic Co-operation and Development, the OECD, are working together to develop the base erosion and profit shifting action plan, also known as the BEPS action plan. This refers to international tax-planning arrangements undertaken by multinational companies to inappropriately minimize their taxes, for example by shifting taxable profits away from the jurisdiction where the underlying economic activity took place.

As part of its commitment to protect the integrity of the Canadian tax base, the Government of Canada is acting on certain recommendations of the BEPS project in budget 2016. As we announced in our first budget, we are proposing new legislation to strengthen transfer pricing documentation by introducing country-by-country reporting for large multinational enterprises.

The Canada Revenue Agency is applying revised international guidance on transfer pricing by multinational enterprises, which provides an improved interpretation of the arm’s-length principle.

We are participating in international work to develop a multilateral instrument to streamline the implementation of treaty-related BEPS recommendations, including addressing treaty abuse.

The CRA will also undertake the spontaneous exchange with other tax administrations of tax rulings that could potentially give rise to base erosion and profit shifting concerns.

As for the future, Canada is committed to the BEPS project and will continue to collaborate with the international community to ensure a consistent and standardized response to the BEPS project.

Second, the government is working with its international partners to increase transparency through the automatic exchange of financial account information between tax authorities. The implementation of the new global standard in that regard, the common reporting standard, which was developed by the OECD, will help promote monitoring, combat tax avoidance and tax evasion, and restore public confidence in the fairness of the Canadian tax system. Right now, over 90 jurisdictions have agreed to implement this new standard.

Finally, the ability of the wealthy to use private companies abroad to inappropriately reduce their taxes or defer paying them is another source of national concern.

The fact that these people have money and access to clever accountants and lawyers should not excuse them from having to pay their fair share of taxes.

Budget 2016 includes measures that respond to this concern and indicates that a review of the tax system will be conducted in the coming year.

I can assure my colleagues that, in the future, the government will continue to identify and take action against tax planning schemes in order to ensure that the tax system operates as fairly and effectively as possible.

Paul Lefebvre

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