Honourable senators, I rise with great honour to speak a final time on Bill C-82, and Act to implement a multilateral convention to implement tax treaties, related measures to prevent base erosion and profit shifting, a convention also known as the MLI. Before I dive more deeply into my speech, allow me to express my sincere gratitude to Senator Mary Coyle for ushering this government legislation through the Senate. Without repeating the details of the bill as she eloquently did during her third reading speech, I will focus my remarks, as the critic of the bill, on major takeaways that stem from the committee sessions.

Senator Coyle and I sat on the Standing Senate Committee on Foreign Affairs and International Trade to examine Bill C-82 in greater detail. I’m happy to report the committee did a fantastic and efficient job. The committee received informative testimony from various experts, starting with senior officials from Finance Canada and the Canada Revenue Agency who appeared to share their significant tax expertise. Through their presentations, the committee understood that this bill is the product of an international tax treaty involving not only OECD and G20 countries but 120 jurisdictions known collectively as the Inclusive Framework on BEPS, a term used to describe aggressive legal tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift income to low- or no‑tax jurisdictions.

Overall, it was made very clear to the committee members that the convention represents a big step forward in strengthening Canada’s international tax integrity and fairness. More specifically, Bill C-82 would allow Canada to address treaty abuse in accordance with the minimum standards established by the OECD, G20 and BEPS project.

We further understand that this bill would allow Canada to swiftly modify the application of our numerous bilateral tax treaties, including BEPS countermeasures, without the need for Canada to hold separate bilateral negotiations. It was also brought to the committee’s attention that ratification of this new treaty would allow Canada to incorporate provisions in its existing tax treaties dealing with the resolution of tax disputes in accordance with a minimum standard and to adopt mandatory binding arbitration with many of our key treaty partners.

The committee also heard from law professor Arthur Cockfield from Queen’s University, who explained the need for this convention, on an interesting note, about the recent global financial crisis in 2008.

He said:

. . . a lot of governments were worried about the implications of aggressive international tax avoidance on revenues and all the various revenue losses.

Many of you will recall we had a phenomenon with PIIGS, Portugal, Italy, Iceland, Greece and Spain, that were near bankruptcy as a result of the crisis, the economic slowdown and the resulting revenue loss. Governments then began to cooperate and think about better ways to maintain their revenues. Thus, the G20/OECD BEPS Project, or base erosion and profit shifting, was born in 2013.

His testimony and historical perspective of gross tax erosion provided an appropriate background for the committee about why this convention is an essential incremental step that will gain greater importance as long as Canada continues to adopt BEPS provisions beyond this convention.

I believe the committee agreed with his general assessment and that although this bill, and herewith this convention, is an incremental step, it is certainly a leap forward to tackle tax avoidance through a concerted effort by agreeing to minimum standards to prevent erosion of the tax base and profit shifting that takes place when companies and individuals go “tax treaty shopping” or unfaithfully seek opportunities to exploit legal loopholes.

He further stated:

. . . Canadians actually care about international tax possibly for the first time ever. We have to do a lot more hard thinking about real changes to the system.

Honourable senators, other testimony from Canadians for Tax Fairness, Bennett Jones and Gowling WLG Canada acknowledged the many pros of this bill and recognized the need to prevent tax treaty shopping and the abuse of treaties.

During these testimonies, the committee focused on a valid interim provision regarding the introduction to article 7, the principal purpose test, which is an anti-treaty abuse measure in the convention.

As I mentioned briefly, one of the main abuses of treaties is “treaty shopping,” which involves establishing residency in a country to benefit from the favourable tax treatment provided by a tax treaty.

Therefore, the instrument requires all countries to agree to adopt a minimum standard with respect to the rules against treaty shopping.

Canada chose to adopt this minimum standard by establishing a principal purpose test, which is a rule against treaty abuse whereby it refuses to grant the benefits of a treaty to a taxpayer if one of the main objectives of a transaction is to obtain these benefits in a manner that is not in keeping with the purposes and goal of the relevant provision of the treaty.

Canada has included in the interim list that this rule is only a temporary measure and that it intends, in the long term, to adopt a provision on limiting benefits in the negotiation of these bilateral tax treaties.

Laura Gheorghiu, a partner at Gowling Canada, expressed her concerns to the committee about the test, stating the following:

As one can expect that all prudent investments take tax costs into account, there is potential for the PPT to be raised in many instances where tax was not the principal driver behind the investment decision.

This reluctance regarding the introduction of the principal purpose test rule as a condition for benefiting from a convention is a legitimate sign of great uncertainty around the issue, and I would even say that this requirement seems unfair for taxpayers.

However, government officials stated that Canada adopted the rule because it relates to one of the sections that is part of the mandatory provisions of the convention. In fact, that section does allow parties to either choose the principal purpose test or lodge a reservation and opt for bilateral negotiation.

Stephanie Smith, Senior Director with the Tax Treaties, Tax Legislation Division, Tax Policy Branch at the Department of Finance explained why Canada adopted this rule, and I quote:

The whole reason for having this multilateral convention was to avoid the need to bilaterally negotiate our network of 93 tax treaties, soon to be 94. That would be a very long time in coming, so it was decided to adopt the principal purpose test. It is the test that has been adopted by every other signatory to the treaty, which is another 88 signatories as of yesterday afternoon.

On the same topic, Toby Sanger, Executive Director of Canadians for Tax Fairness, said that a consistent set of measures, including the principal purpose test, could function as strong, anti-tax avoidance rules for those who use countries such as Luxembourg or the Netherlands, which have already ratified the convention, to get out of paying taxes.

He concluded his speech on an important point saying, and I quote:

. . . while this bill is a positive step and I urge you to support it as it is, we can and must take much bigger steps forward to develop a much more functional international corporate tax system.

Honourable senators, I believe the purpose of the principal purpose test is similar to that of the general anti-avoidance rule already included in the Income Tax Act and with which Canadian taxpayers are already comfortable when it comes to its implementation.

The principal purpose test is a subjective measure that gets Canada out of having to bilaterally negotiate its network of 93 — soon to be 94 — tax treaties every time a problem arises.

Nonetheless, I urge the government to keep in mind that this interim reservation with regard to the principal purpose test expressed at the committee remains valid and should continue to represent an “issue to watch” lest it become a tremendous barrier for capital investors or a heavy burden for Canadian taxpayers.

Honourable senators, after studying this bill I can confirm that I’m not a tax expert and I have a lot to learn on international tax treaties. However, I’m pleased to have had the opportunity to act as a critic on this bill and I’m grateful for the expertise that the witnesses shared with us.

Honourable senators, from what I gathered during our meetings and during debate, we need to monitor sovereign debt crises like the Lehman Brothers collapse in 2008 and the subsequent crisis in 2009, as well as other tax-avoidance revelations, whether it’s the Panama Papers or another paradise version. These troubling developments were justly raised by Senator Boehm during the committee meetings.

Such unprecedented mega tax haven leaks, among these serious developments, are calls for us to pay more attention and possibly take significant future actions on international fiscal matters.

I agree wholeheartedly that recent history has taught us that that can be a threat to our liberal democracies.

Honourable senators, as I conclude, the MLI represents a big step forward in strengthening international tax integrity and fairness. As I mentioned at second reading, the impact of unfair tax avoidance schemes in Canada could be several billion dollars annually. It has been estimated that several hundred billion dollars of corporate tax revenue may be being lost to countries collectively as a result of profit shifting.

Bill C-82 is an incremental step that will allow Canada to address treaty abuses and dispute resolutions. I encourage you all to support the implementation of this convention and to vote in favour of the swift adoption of this bill. Thank you.

Are senators ready for the question?

It was moved by the Honourable Senator Coyle, seconded by the Honourable Senator Moncion that the bill be read a third time.

Is it your pleasure, honourable senators, to adopt the motion?

Some Hon. Senators: Agreed.

An Hon. Senator: On division.

(Motion agreed to and bill read third time and passed, on division.)