OTTAWA — A senior partner in the global accounting giant KPMG, which has been accused of being behind a tax avoidance scheme in the Isle of Man, says a lot of international tax rules “are broken” — and they need to be fixed.
Gregory Wiebe, speaking before the House of Commons finance committee on Tuesday, addressed concerns about the “disconnects” between Canada’s tax system and those Canadians may encounter elsewhere. Speaking in the wake of both the Isle of Man reports and the “Panama Papers” revelations, Wiebe said the public has come to question the fairness of global tax systems.
“The tax system is pretty good in Canada, it’s maybe O.K. around the world, but it’s got a long way to go before it gets that trust back, into it, frankly,” Wiebe told members of parliament.
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“I think the international tax rules need to change. A lot of them are broken. Businesses is now global,” Wiebe said.
“For the average Canadian, tax is way too complicated,” he added. “There are parts I still don’t understand, and I’ve been doing it for a long time.”
KPMG clients were reportedly granted amnesty by the Canada Revenue Agency over a controversial offshore tax scheme based on the Isle of Man, off the coast of England. Wiebe told the committee that KPMG had not engaged in tax evasion plans with clients in those offshore accounts, which dated back to 1999, and fully complied with tax laws at the time.
“The tax shelter regime in Canada is just something we’re not part of,” Wiebe said. “Something becomes a tax shelter if it has a contingency fee or a confidentiality agreement. We don’t do tax shelters.”
The issue of tax avoidance gained additional prominence with the leak last month of the so-called “Panama Papers,” which revealed the extent of global efforts to hide income — whether by individuals or corporations.
An investigation by journalists found the Panama law firm Mossack Fonseca had registered more than 100,000 shell companies in cheaper tax jurisdictions like Barbados, the Cayman Islands, the Isle of Man and the British Virgin Islands, and implicating clients including celebrities and politicians.
In response to a question from the finance committee on Tuesday, Wiebe focused on activities in Barbados, saying Canadian-based multi-nationals locate operations in that country “because Canada has a trace treaty with Barbados.”
“The profits earned in that particular jurisdiction are taxed at a rate of 2.5 per cent, instead of the 25 per cent that they would have if it was profit from Canada,” he said. “Barbados doesn’t have a lot of natural resources. The only way they’re going to get jobs or create a finance industry or whatever is to create an advantage — that advantage is a very low tax rate, which Canadian businesses take advantage of.”
The Canadian government has earmarked more than $444 million over five years to seek out tax evaders in this country and internationally.
As well, the Organization for the Economic Co-operation and Development in October of last year announced new rules aimed to closing many loopholes in international taxation rules — changes that had been in the works for two years.
“I like the work that the OECD is doing around the future of taxation,” Wiebe said.
“For trust, there needs to be transparency and there needs to be a perception of fairness,” he added. “The only way for society to work is for everyone to comply.”
CRA officials are scheduled to address the House of Commons finance committee on Thursday.