- Member of Parliament
- Member of Parliament
- Bloc Québécois
- Joliette
- Quebec
- Voting Attendance: 65%
- Expenses Last Quarter: $132,165.46
- Government Page
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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Madam Speaker, I thank my hon. colleague for his very interesting speech. We obviously agree on Bill C‑42. With regard to the fight against tax havens, my colleague talked about the Panama papers scandal. Does he agree with me that, despite all the money that has been invested and all the laws that are in place to give us the power to intervene, Canada is still lagging behind other countries on this?
The Canada Revenue Agency recovered less money than Revenu Québec. Let us compare the numbers. The United Kingdom recovered $317 million, Germany recovered $246 million, Spain recovered $209 million, France recovered $179 million, Australia recovered $173 million, and Canada recovered $21 million. Is that acceptable?
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Madam Speaker, during the first part of my speech, in March, I spoke in favour of this bill. It is a good bill. It is a step toward transparency that will help fight tax evasion and fraud.
The bill is respectful of the provinces. In fact, Quebec's registry has been in place for almost a month.
However, the tax cheats who were exposed in the Paradise papers did not create their shell companies in Canada; they created them in tax havens. The bill does nothing to address that. The work has only just begun.
Cracking down on fraudsters who use tax havens requires a global registry—not just a registry of the real company owners, but also a registry of real beneficial owners of trusts. I am thinking, for example, of the real beneficial owners of the Isle of Man trusts that KPMG Canada created for Canadian tax evaders, the ones who were granted amnesty by the Canada Revenue Agency. It sounds like a huge undertaking, but it is not. In fact, this registry already exists to a large extent, and it is maintained, for one, in Luxembourg by a consortium of financial institutions. Even tax cheats like their banks to know they have assets somewhere; it is good for their credit.
This registry is available to financial institutions, but not to governments that want to go after fraud. I think we can all agree that there is something wrong with that. Transparency, public registries and so on are excellent tools against fraud, but they do nothing against profiteers, against those who take advantage of all the loopholes in the Income Tax Act to use tax havens legally. Those individuals do not need to hide their income. All they need is a good accountant to make sure their income is not taxable, even when it is declared.
The United States forced Canada's hand by imposing its idea of endorsing a 15% minimum global tax rate at the G20. The latest budget introduces Joe Biden's minimum global tax rate. Using tax havens will become less attractive, but the government is doing the bare minimum to fight tax havens. Income repatriated from tax havens that have information exchange agreements with Canada remains tax-free. This has to stop.
Yes, we will support Bill C-42, but it does not go far enough. A registry is good, but tax fairness is better.
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Madam Speaker, what do the Panama papers, the Pandora papers and the Paradise papers all have in common? They are leaks that revealed who was hiding behind shell corporations in tax havens, those anonymous companies for which it would be otherwise impossible to determine actual ownership. Without those leaks, it was only possible to identify the names of the administrators, typically a big corporate law or accounting firm.
By lifting the corporate veil, these leaks helped identify wealthy fraudsters hiding money from the tax man or criminals hiding dirty money out of sight. When it is impossible to identify who is hiding behind a shell company, that opens the door for profiteers and fraudsters of all kinds, people who refuse to pay their fair share of taxes at the expense of everyone else, people who recirculate ill-gotten gains in the real economy by hiding behind secret companies. It is not normal to need to rely on leaks, whistle-blowers, hackers or journalists to find out what is behind these companies. That information should be public.
There is nothing like transparency for combatting fraud. That is essentially what Bill C-42 addresses. It amends the Canada Business Corporations Act to force the directors of federally incorporated businesses to report their real owners to Corporations Canada. Then, Corporations Canada can create a registry of the real company owners, a public registry that anyone can consult. Bill C‑42 will introduce a bit of transparency, which is a good thing. The Bloc Québécois supports the principle of Bill C‑42, and I encourage all parliamentarians to do the same.
Before I get into the details of the bill, I want to tell members a secret. When I saw that the government had introduced a bill to amend the Canada Business Corporations Act, I was worried. As members know, business ownership and property rights fall under provincial jurisdiction. In Quebec, these things are governed by the Civil Code. Every province has its own securities commission. In Quebec, we have the Autorité des marchés financiers.
However, over the last several years, Quebec and the provinces decided to coordinate and harmonize their respective laws. Since they all have very similar legislation, registration with the Autorité des marchés financiers is automatically recognized by all of the provinces. That means that a Quebec company can easily raise capital and do business outside Quebec through mutual recognition under what is known as the passport system.
Since this works well, Ottawa has no reason to interfere, there is no need for federal securities regulations, and Quebec's jurisdiction over financial matters would be respected. Without that respect, we would likely see Toronto become the centre of financial activity at the expense of Quebec, particularly Montreal's financial sector.
However, this is viable only if governments continue to work together and essentially harmonize their laws. That is why I was concerned when I saw that the government wanted to change the Canada Business Corporations Act. If Ottawa acts unilaterally, as this government all too often does, if it has not aligned its efforts with Quebec and the Canadian provinces, if the laws are no longer similar, the mutual recognition system will not be as successful. Ottawa will then have the excuse it is looking for to justify its desire to centralize everything, as it has been trying to do for three decades.
However, I did breathe a huge sigh of relief when I saw Bill C-42. As I mentioned earlier, Bill C‑42 will establish a searchable public registry of the real owners of businesses. This commitment to transparency reflects a unanimous decision made at the G20. It has been implemented properly in Canada in a manner that respects each party, so I say bravo. The federal government and the finance ministers of Quebec and all the provinces have coordinated their efforts and agreed to work together, while respecting one another's independence.
In 2017, they all independently agreed to change their respective laws to require companies to collect, in their own registries, the data needed to identify the real owners. At the federal level, this was done in June 2022 with the passage of Bill C-19, a budget implementation bill. This data is beginning to be collated and made available to the authorities in the event of suspected fraud.
In 2018, they came to an agreement on how companies were to share this data with their respective governments and how the governments were to make the data public. That is what we are debating today. There was no need for federal standards where Ottawa would put itself in charge and tell Quebec what to do. Everything was done respectfully.
The National Assembly of Quebec passed Bill 78 in June 2021. This legislation reflects the agreements made in 2017 and 2018. Quebec was the first government in America to pass such legislation. It is interesting that this debate is being held today, on March 31, 2023, because Quebec's Bill 78 goes into force today. Since nine o'clock this morning, the registry of real owners can be consulted in Quebec on the site of the Enterprise Registrar.
Since not all businesses have provided their information as yet, the search engine is not yet active, but it will be soon. It will be operational within the year. With the passage of Bill C‑42, the federal government will do the same for federally incorporated businesses. The provinces have passed or are preparing to pass similar legislation.
I see that members' statements will commence momentarily. I will continue my speech once we resume debate on this bill.
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Madam Speaker, I thank my colleague for his speech. I want to point out that his French is very good, and tell him that I really appreciate the fact that he gave part of his speech in French.
I was also impressed with the quality of his speech and the research and thought that went into it. Like him, I recognize that Bill C‑42 is a step in the right direction, but that there is still much to do to tackle money laundering, crime and the use of tax havens.
My colleague raised certain concerns. He spoke about possible amendments to be made to Bill C‑42 to improve it. I would like him to present them again and provide a brief explanation.
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