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STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, November 27, 2001

• 1607

[English]

The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call the meeting to order.

I welcome everyone here this afternoon to what I'm sure will be a very short meeting.

The order of the day is Bill S-31, an act to implement agreements, conventions, and protocols concluded between Canada and Slovenia, Ecuador, Venezuela, Peru, Senegal, the Czech Republic, the Slovak Republic, and Germany for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.

We're going to hear from Mr. John McCallum, parliamentary secretary to the Minister of Finance. Then we'll proceed to the clause-by-clause consideration.

Mr. McCallum.

Mr. John McCallum (Parliamentary Secretary to the Minister of Finance): Thank you, Mr. Chair.

[Translation]

Mr. Chairman, considerable work goes into these tax treaties. In theory, however, they are rather straightforward. I will be brief, given that they are modeled on the OECD model tax convention, with some variations.

[English]

Today we have eight countries to consider. Three of these countries involve the extension and improvement of previous tax treaties: Germany and, following the breakup of Czechoslovakia, the Czech and Slovak Republics. Then we have five other, new ones for Slovenia, Ecuador, Venezuela, Peru, and Senegal.

Now, these tax treaties are a good thing because they allow people to avoid double taxation. They reduce withholding rates. They help to grease the wheels of commerce and foreign investment, which are important to this country.

Thank you, Mr. Chairman.

The Chair: Thank you very much, Mr. McCallum.

Do you have a question, Mr. Epp?

Mr. Ken Epp (Elk Island, Canadian Alliance): I have a question for either Mr. McCallum or the officials. This is about page 122 of the bill, and it has to do with pensions and annuities. I would like you to explain to us exactly what it means when it says that

Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State may also be taxed in the State in which they arise.

I know that this question has come up from time to time from people who have either European pensions or American pensions here and are living in Canada. What does it actually mean when it says that you're going to tax it at 15%—which is, by the way, a single-rate tax, which is great—but that according to the bill here they may also be taxed in the other state? If that occurs, is the rate then harmonized between the two countries so it doesn't exceed 15%, or exactly what happens there?

• 1610

Mr. David Sénecal (Chief, Tax Treaties Section, Tax Legislation Division, Tax Policy Branch, Department of Finance): Yes, you are right to say that the pensions would normally be taxed. Or at least the country where the pensioner resides has the right to tax the pensions according do the domestic law of that country without any limitation as to the rate. However, the country where the pension arises also has a limited right to tax—as you mentioned, 15%. Insofar as the pensioner would pay tax in the country where he resides, that country is obligated to provide a credit for the taxes paid in the other country.

Mr. Ken Epp: Is that credit paid to the country, or is it given as a rebate to the actual individual receiving the pension?

Mr. David Sénecal: Normally, the pensioner would file a return and calculate the income or the tax payable. From that the person would then subtract the amount of taxes he or she's already paid in the other country, that 15%, and would normally pay only the difference to the country of residence.

Mr. Ken Epp: Where does it say that? I think it appears in several different places, but I read this and it does not specifically say that you do that.

Mr. David Sénecal: There's another article that applies for all provisions of the convention. Basically, it says that to the extent a resident of your country is taxed on an item of income and the other country has a right to tax that income, in accordance with the provisions of this convention you are obligated to provide relief in the form of a credit to that taxpayer.

Mr. Ken Epp: What I'm trying to get my head around here is this. Let's use a specific example. Let's say there's a person who in one of the other countries is receiving a pension, and they tax it at 25%, which they can do as I understand this. Then the person who receives that pension, say a resident of Canada, could reduce the amount payable in Canadian taxes by up to 15%, but the remainder would still be fully taxable. Is this correct?

Mr. David Sénecal: Yes. In Canada we would tax all pensioners who are resident in Canada on pension income wherever it arises. They shouldn't be treated any differently because they receive a pension from, let's say, a European country versus a pension they receive from a Canadian source.

Mr. Ken Epp: But they could actually end up paying considerably more tax in total on that income than they would on a pension arising from a Canadian source.

Mr. David Sénecal: No, because if it were a Canadian pensioner receiving the pension, Canada would tax, but then we would be obligated to provide a credit for the tax already paid to the country the pension was paid from.

Mr. Ken Epp: Okay. I thank you. That helps a bit.

The Chair: Are there any further questions?

Mr. Roy Cullen (Etobicoke North, Lib.): I just have a short question. It relates, Mr. McCallum and Mr. Sénecal, to the whole business since September 11 in terms of the fight against terrorism, the introduction of our money-laundering legislation last year, and the implementation now. Could you just comment briefly on whether there is any connection at all. Has it caused any review in terms of our tax-treaty arrangements, or are they totally unconnected?

Mr. John McCallum: Maybe I'll answer in part, and Mr. Sénecal might too.

I made the point in the House earlier that I don't think there's much connection, but if anything, the events of September 11 make tax treaties more important. Essentially what tax treaties try to do through removing double taxation is to make it easier to conduct transactions internationally, whether it's investment or trade. To the extent that September 11 raises barriers of other kinds to transactions between countries, it becomes even more important to reduce such barriers as are under our control, which is what we're doing through tax treaties. As a very general statement, I'd say that if anything, September 11 makes such things more important than they were before. But Mr. Sénecal might have another answer.

• 1615

Mr. David Sénecal: No, I don't. I fully agree with you. There is an exchange-of-information provision in all these treaties, as in all of our treaties, but there are a lot of rules governing the exchange of information. I know that the Canada Customs and Revenue Agency takes great care before exchanging any information. When we negotiate treaties, we ask to review their laws to make sure that there are secrecy laws relating to information we might give them and that there are sufficient guarantees in place that the information would be kept confidential and only used for tax purposes. I don't see any problem.

Thank you.

Mr. Roy Cullen: Thank you, Mr. Chair.

The Chair: We'll proceed to the clause-by-clause.

Pursuant to Standing Order 75(1), consideration of clause 1 is postponed.

Do I have the permission from the committee to proceed and deal with clauses 2 to 47 in block?