44th Parl. 1st Sess.
June 16, 2023 10:00AM
Madam Speaker, I rise today to offer a few thoughts on Bill C-42, which proposes amendments to the Canada Business Corporations Act, or CBCA, and would make consequential changes to other statutes to create a federal beneficial ownership registry. This registry would be, arguably, the most important tool we could utilize to better detect, deter and prosecute money laundering, tax evasion, fraud and terrorist-financing activities.
First of all, I want to congratulate all members of the Standing Committee on Industry and Technology for their hard work. They studied a bill with more than 20 clauses, dealing with a highly complex subject matter, and heard from numerous stakeholders who represent a spectrum of views.
Among other factors, the committee heard that the interoperability of the registry is a key concern and is, in fact, a key ingredient to the success of a pan-Canadian beneficial ownership registry. Certain witnesses appearing before committee emphasized the need to ensure adequate alignment, both domestically and internationally. The need for this is obvious, given the transnational nature of organized crime and the complexity and sophistication with which actors can conceal the true owners of different assets. We need to be able to work together to counter this.
Interoperability has many dimensions, but it generally means that Canada not only respects international best practices on thresholds and uses the best available data standard but is also similarly aligned with domestic best practices. Thus, provinces are enticed to join a pan-Canadian registry and information can be shared seamlessly to trace illicit activities across jurisdictions. That is why Canada has adopted the beneficial ownership open data standard, which is an internationally accepted open standard for modelling and publishing information on the beneficial ownership and control of companies. It is used for collecting, sharing and using data on beneficial ownership. Canada's use of this standard would ensure that our registry could communicate and speak using the same technical language as beneficial ownership registries around the world do, as well as communicating with our provincial and territorial partners.
The standard would also mandate that corporations provide information about individuals who have significant ownership stakes and control in any corporation, thereby empowering law enforcement, the CRA, banks, journalists and the general public to accurately ascertain the true owners of any given company. This will help prevent criminals from using anonymous, numbered corporations, or shell companies, which are sometimes spread across multiple jurisdictions as a shield to conceal the true owners of companies.
Furthermore, I want to highlight the work of the committee in increasing the maximum penalties for those found to have failed to comply with the legislation, with fines now up to $1 million. This will ensure that there is a sufficient deterrent effect for individuals frustrating the important purpose of the legislation.
The provinces and territories have a major role to play here, because the vast majority of companies are in fact incorporated provincially. That is why I am pleased to see my home province of British Columbia taking a leadership role in response to widespread allegations of money laundering in the province. B.C. has tabled legislation to create its own beneficial ownership registry for corporations, and it has already created a beneficial land ownership registry, which is now in effect.
It is easy to see why action is important. A 2018 report estimated that money laundering has played a role in increasing housing prices by approximately 5% in British Columbia. The lack of knowledge regarding the true owners of over half of the top 100 most-expensive properties in B.C. not only worsens the problem of housing affordability but also raises further concerns about potential tax evasion related to the treatment of principal residences. Furthermore, clear ties have been made between money laundering and the devastating health crisis we are facing in B.C., the opioid epidemic, where illicit funds garnered from the sale of fentanyl and other illegal drugs are laundered through real estate and other opaque means, contributing to the problem.
That is why, in addition to Canada's adoption of the beneficial ownership open data standard, the federal government has worked and continues to work alongside its provincial and territorial counterparts to continue to move the needle ahead on ensuring beneficial ownership transparency in Canada. This collaboration began at the officials level in 2016 and was formalized in a 2017 agreement among federal, provincial and territorial finance ministers. They agreed, in principle, to pursue legislative amendments to their respective corporate statutes that would require corporations to hold accurate and up-to-date information on beneficial owners, as well as to eliminate the use of bearer shares.
In 2019, finance ministers further agreed to “cooperate on initiating consultations on making beneficial ownership information more transparent through initiatives such as aligning access through public registries, while respecting jurisdictional responsibilities with respect to corporations.” The ongoing collaboration has resulted in, among other things, the majority of the provinces making amendments to their corporate statutes to create and maintain a beneficial ownership registry of their individuals with significant control. These amendments largely emulated the 2019 legislative amendments made to the CBCA. This means that, for most businesses operating in Canada, there will be information available on their beneficial owners.
Our ongoing collaboration with the provinces has also culminated in the establishment of a common platform called the multi-jurisdictional registry access service, or MRAS for short. MRAS is a common front-end portal that provides access to all the corporate registries in the country. It was a project adopted many years ago among the provinces, the territories and the federal government, and it represents one of the options to build on in creating a pan-Canadian registry.
Our efforts to harmonize federal and provincial beneficial ownership regimes are an ongoing initiative. To illustrate this, it is notable that, on June 5, Minister Champagne and Deputy Prime Minister Freeland sent a joint letter to their respective provincial and territorial ministerial counterparts, asking them to once again join the federal government's effort to create a pan-Canadian beneficial ownership registry and seeking specifically to understand each—
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- Jun/16/23 10:23:08 a.m.
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I must interrupt the member.
The hon. member for Joliette is rising on a point of order.
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- Jun/16/23 10:23:12 a.m.
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Madam Speaker, with all due respect, it is the practice of the House that we do not refer to ministers by name but by their title of office.
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- Jun/16/23 10:23:20 a.m.
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I completely agree. I was distracted. The hon. member is quite right; we do not use the names of members.
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- 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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- Jun/16/23 10:27:23 a.m.
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Madam Speaker, Mission—Matsqui—Fraser Canyon is Canada's number one riding.
I will just note that, during the witness testimony, we heard from Transparency International and the RCMP that the standard practice the government keeps talking about was not actually a standard practice; it was just a norm that became adopted.
I fail to see why the government sees such an impediment to decreasing the threshold, as if it were going to suddenly stop us from doing more work. The RCMP wants it. The leading experts in Canada on money laundering think lowering the threshold is a good idea. As well, in conjunction with lowering the threshold, more businesses, under the federal corporations act, would be included. I should point out that we did not even have a chance to discuss the stacking of corporations in conjunction with the change in thresholds as well.
I do not know why the government is so stuck on not doing this. The RCMP thought it would be a good—
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- Jun/16/23 10:28:36 a.m.
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The hon. member for West Vancouver—Sunshine Coast—Sea to Sky Country.
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- Jun/16/23 10:28:39 a.m.
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Madam Speaker, I would say my riding is the most beautiful riding in the country.
I talked quite a bit about the rationale for keeping the disclosure threshold at 25%. It is important for it to be seamless in order to operate and communicate with all jurisdictions around the world that are implementing this system. Making sure we are consistent would be very helpful and seamless for the sharing of that information.
I think there are always opportunities to see if this might be changed down the road. I know some jurisdictions are actually now thinking of lowering the threshold. If that were to take place around the world, then I think there would be good rationale for us to emulate that; however, I think, as it stands right now, this is the standard, and it is important for us to be consistent.
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- Jun/16/23 10:29:28 a.m.
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Madam Speaker, first of all, I invite my two hon. colleagues to come and visit the riding of Joliette. I am certain they will change their minds about how they rank the ridings by beauty.
I would like to congratulate my colleague on such a wonderful, informative speech. He also pointed out that this government's process of working with the provinces has been beyond reproach, and I am grateful for that, as it seems quite rare these days.
In my opinion, this is really a step in the right direction. However, we are going to have to go further. For example, we need to know the identity of the companies' real beneficiaries, who could be in tax havens. What does my colleague think about that?
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- Jun/16/23 10:30:14 a.m.
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Madam Speaker, I thank my colleague from Joliette for his question. I look forward to seeing his riding as well.
That is a good question. We need to be able to determine the identity of the true owners of companies that come from other countries. As I said in my speech, this is a subject that could be researched in anticipation of future amendments to the act. I think this could present problems, because criminals are starting to use very sophisticated methods and they operate in several countries. We need to find ways to fight them.
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- Jun/16/23 10:31:12 a.m.
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Madam Speaker, there is no debate that I do live in the most beautiful riding in the country.
To my colleague, who is also from British Columbia, I say that there was a really important study done by the Standing Committee on Fisheries and Oceans, called “Sharing Risks and Benefits”, and it was by commercial fishers, to ensure that their needs are being met, because we have a broken commercial fishing industry in Canada. On the east coast, we have a local ownership model. On the west coast, we have a concentration of commercial interests.
One of the top asks of commercial fishers in this study was to ensure that we know who owns the quota in our public fishery.
Can my colleague assure that commercial fishers in Canada would know, through this legislation, who owns the quota, so we can better manage our fisheries and ensure that the concentration of wealth actually ends up in the hands of those fishing—
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- Jun/16/23 10:32:11 a.m.
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The hon. member for West Vancouver—Sunshine Coast—Sea to Sky Country.
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- Jun/16/23 10:32:14 a.m.
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Madam Speaker, I want to wish my hon. colleague from Courtenay-Alberni well. I know there have been some serious issues with forest fires impacting transportation throughout his riding. I wish him the best, and it is good to see him here.
I very much agree with the premise of his question. The fact that we do not know how the quota is allocated is something of significant concern. I certainly support looking into what it might look like to have that quota allocated to the fishermen themselves, not to companies that are perhaps reselling that quota.
Now that we have created this beneficial ownership registry, it would be interesting to see how that might be able to be expanded to the owners of the quota as well, so we can better understand—
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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 10:42:33 a.m.
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Madam Speaker, my riding of Nepean has two rivers, farmland, a greenbelt and a high-tech processing and testing facility. Best of all, we have the best people in Canada, who speak 120 different languages. It is not only beautiful but it is also a mini-Canada.
These days, with the number of corporations being set up, sometimes there is no difference between tax avoidance and tax evasion. The hon. member mentioned the tax havens around the world. I want to pick his brain and get his comments on the global corporate minimum tax that is being proposed, and which would be implemented soon.
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- Jun/16/23 10:43:24 a.m.
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Madam Speaker, I would really enjoy visiting my colleague's wonderful riding.
I think that the plan to establish a global minimum tax rate is a good solution. I think people were waiting for the OECD or the G20 to endorse it before they moved ahead with implementation. In my view, the fact that the Biden administration is using its influence could help the proposal pick up steam. As far back as 2009, after the last economic crisis, the President of France at the time, Sarkozy, said that playtime was over. Since then, nothing has changed.
It will take something big for words to turn into action. Maybe this time is the right time. Even though 15% is not enough, it is a step in the right direction.
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- Jun/16/23 10:44:17 a.m.
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Madam Speaker, I thank my colleague for informing us, like a good teacher, about the tax evasion issue. I would like him to go into greater detail about one of the points he raised in his speech. I am referring to international lobbying and the large corporations that set up tax evasion schemes.
Is there any way to raise their awareness or simply enact legislation to prevent them from doing these things?
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- Jun/16/23 10:44:45 a.m.
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Madam Speaker, just looking at the registry of lobbyists reveals how many times big players like Google, big accounting firms and large multinationals meet with members of this government. It is the same elsewhere. It is astounding.
One has to wonder whether the minister spends more time with them than he does with his children and his family. That definitely needs to change. Obviously, it is going be difficult. Legislation is needed, but to make these legislative changes, the government has to serve the people, not these big multinationals.
When we think of Paul Martin, who made Barbados a legal tax haven while he was building his clubhouse there, when we think of Bill Morneau, who was the finance minister and whose company Morneau Shepell boasted of selling advice on how to use tax havens on its website, one has to wonder who this government serves.
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- Jun/16/23 10:45:44 a.m.
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Madam Speaker, we know that arrangements that allow for tax evasion are made in secret, but we also know that the consequences are not secret when governments do not have enough revenue to pay for the services Canadians rely on.
I wonder if my colleague could elaborate on the consequences of not having the tools to expose the arrangements that allow for tax evasion.
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- Jun/16/23 10:46:19 a.m.
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Madam Speaker, that is an insightful comment and question. I thank my hon. colleague, with whom I am fortunate to serve on the Standing Committee on Finance.
When a Toronto bank reports its profits in the Caribbean, this means unpaid taxes, longer hospital wait times and less school funding. These are directly linked. This is so important. We all remember the tragic fires in Fort McMurray. The IMF said that these fires were causing a recession in the Caribbean, where Canadian corporations and Canadian banks report their profits, because there was a direct impact. That gives us an idea of the situation. It is opaque, but we can indirectly see the scale of the problem. This has to change, but it takes political will. I implore the government to do something about it.
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