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Alain Castonguay
View Alain Castonguay Profile
Alain Castonguay
2013-06-17 11:02
Thank you, Mr. Chair.
I would like to thank the committee for inviting us to appear this morning to talk about Bill S-17, Tax Conventions Implementation Act, 2013.
Canada has one of the most extensive networks of income tax treaties in the world, with 90 tax treaties currently in force. Bill S-17, once into force, will increase this number to 93, by implementing new treaties with Hong Kong, Namibia and Serbia. Bill S-17 will also implement a revised treaty with Poland, which will replace the existing treaty which dates back to 1987.
Further, Bill S-17 contains a protocol with Luxembourg and an agreement with Switzerland. In both cases, the agreements modify the provisions of the existing treaties with these countries relating to the exchange of tax information to ensure that they are consistent with the Organization for Economic Cooperation and Development standard for tax information.
Canada's tax treaties are generally patterned on the OECD model tax convention, modified to reflect the particularities of the Canadian tax system. Internationally, most tax treaties are generally patterned on the OECD model as well. Tax treaties are used for two main purposes: first, to eliminate tax barriers between two jurisdictions in order to promote bilateral trade and investment; and second, to prevent tax avoidance and evasion by encouraging the exchange of information for tax purposes between taxation authorities.
Allow me to expand slightly on each of these objectives and explain how the agreements in Bill S-17 support these objectives.
International double taxation can impose a barrier to cross-border trade and investment. Tax treaties prevent double taxation by providing greater certainty to taxpayers regarding their potential liability to tax in a foreign jurisdiction, by allocating taxing rights between two jurisdictions so that the taxpayers are not subjected to double taxation; by reducing the risk of "burdensome" taxation, which l will explain in a moment and which may arise because of high withholding taxes paid on certain payments; and, finally, by ensuring that taxpayers will not be subject to discriminatory taxation in the foreign jurisdiction.
Under our own domestic laws, payments of dividends, interest, and royalties made to non-residents are subject to rates of withholding equal to 25 per cent of the gross amount paid. Many of Canada's trading partners also have similar rates of withholding. Because the withholding tax does not take into account expenses incurred in generating the income, a taxpayer frequently will be subject to an effective rate of tax that is significantly higher than the rate that would be applicable if the income were taxed on a net basis. That's what I referred to earlier as “burdensome” taxation, which is clearly an impediment to cross-border trade and investment.
Tax treaties alleviate this burden by setting maximum levels of withholding tax that a treaty partner may impose on these types of payments or by providing, in some cases, for taxation exclusively in the state of residence. For example, the tax treaty with Hong Kong would impose limitations on the rates of withholding to 5% on direct dividends, 15% on other dividends, and 10% on non-arm's-length interest and on royalties.
Hong Kong is one of the largest financial markets in Asia in terms of trade and an important destination of Canadian foreign direct investment. Once the treaty is in force, it is expected that it will further encourage trade and investment and solidify our bilateral links.
The second objective that I mentioned at the outset was the prevention of tax avoidance and evasion. A key element our tax treaties is the provision authorizing the exchange of information between the respective tax authorities. Better transparency and access to information are important tools for tax authorities to enforce their own domestic tax law and to prevent international tax evasion.
In order to enhance Canada's network of information sharing, budget 2007 required that all of Canada's new tax treaties and revisions to its existing treaties would include the standard developed by the OECD for the exchange of information. The six agreements in Bill S-17 contain exchange-of-information provisions that are consistent with the OECD standard. In fact, two of the agreements in the bill with Luxembourg and Switzerland deal exclusively with the exchange of information. These provisions mandate the tax authorities of the treaty partners to exchange information relevant to the administration of each country's respective tax laws in conformity with the standard. The provisions also ensure that the effective exchange of information is not impeded by bank secrecy laws that may exist in the other country.
I mentioned at the beginning of my remarks that Bill S-17 would contribute to increasing the extent of our tax treaties network, but it is as important to revise our tax treaties and to update them, where necessary.
The treaty with Poland is a good example. The need to negotiate and sign a new treaty with Poland was the fact that the existing treaty between Canada and Poland was signed in 1987, in a much different economic context than today. The new treaty with Poland reflects Canada's new policies regarding maximum withholding tax rates on payments of dividends, interest, and pensions. Of course, the agreement includes the most recent standards when it comes to the exchange of information.
Mr. Chair, this concludes my remarks. I am available to the committee to answer any questions.
Thank you.
View Murray Rankin Profile
NDP (BC)
View Murray Rankin Profile
2013-06-17 11:11
Thank you.
You mentioned in your remarks just now that one of the ways in which tax evasion and the use of tax havens perhaps can be addressed is through the exchange of information provisions. Article 25 and the conventions before us deal with the exchange of information.
I was reading commentary on the OECD model tax convention to the effect that the language in this type of provision cannot just cover on-demand tax information exchange agreements, TIEAs and the like, but can also deal with automatic tax exchange information.
Is that your view as well, that this could accommodate automatic information exchange, if that's where Canada were to go?
Alain Castonguay
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Alain Castonguay
2013-06-17 11:12
That's correct. The article on exchange of information in our treaties accommodates on-demand, automatic, and spontaneous exchanges of information. Then it's up to the bilateral relationship to decide whether we're going to go to automatic. In our case, we have about 30 conventions where we have in place automatic exchanges of information.
There are two treaties in this bill where it's not the case, because the treaty itself explicitly limits it to on-demand. Treaty partners can decide to limit it if one treaty partner is not prepared to go beyond on-demand.
View Brian Jean Profile
CPC (AB)
Would you consider $2.5 billion in extra revenues in 2013-14 a good start in data collection? That's what I understand: that the 75 new measures we've brought in over the last five or six years have brought in extra moneys to that degree.
View Murray Rankin Profile
NDP (BC)
View Murray Rankin Profile
2013-06-17 11:36
Thank you.
Mr. Castonguay, in response to my colleague, Mr. Caron, you talked about tax evasion being a multi-faceted problem, of which these bilateral tax conventions are but one element.
Presumably, you talked about Canada doing its work at the OECD. There's also the G-8, which is meeting right now in northern Ireland. Mr. Cameron, the Prime Minister of England, seems to have a preoccupation with dealing with tax evasion and tax havens, but Friday's Globe and Mail had a headline that read, “Has Canada become the bad guy of the G8 by fighting tax transparency?” A headline in the Financial Post reads, “Canada slammed for lagging behind in fighting tax evasion as G8 summit looms”.
I don't get the impression that Canada is really doing the heavy lifting on this with Mr. Cameron and other colleagues. Is that your impression, or is it just the media in Canada?
Alain Castonguay
View Alain Castonguay Profile
Alain Castonguay
2013-06-17 11:37
The G-8 summit is on as we speak, and today and tomorrow, and I think we should await the conclusion of the leaders on that.
View Cathy McLeod Profile
CPC (BC)
Thank you, Mr. Chair.
Thank you to our witnesses today.
Through the chair, I want to assure Mr. Rankin that the media is not always accurate, and the suggestion that we are resisting efforts to combat tax evasion is completely false. We certainly do support Prime Minister Cameron's efforts to achieve a consensus in the G-8 on tax havens and tax evasion.
It would be absolutely absurd to think that there would be any approach that we would take as a country other than to work very hard on this issue. Certainly, our history and our work globally speak to our commitment to move forward and deal with this issue.
I just wanted to make that as a general comment, because it is a very important issue.
I think the bottom line is that today we recognize that this tool is not the be-all and end-all to tax evasion use of offshore tax havens. Would you describe it—just a quick yes or no—as a tool in the tool box?
View Mark Adler Profile
CPC (ON)
View Mark Adler Profile
2013-06-17 12:23
Thank you, Chair.
Thank you to all the witnesses for being here today.
I want to begin with Mr. Rosenbloom if I may.
Mr. Rosenbloom, the last time you were here before the committee during our study on tax evasion you spoke about the importance of rules and taking action to prevent tax evasion and create tax fairness. Specifically you said, “This is a rule-based system. This isn't just a lot of concepts and research: we have to have rules”.
With the legislation before us today, we are taking action. Do you think these tax treaties are a step in the right direction, in the fight against tax evasion?
H. David Rosenbloom
View H. David Rosenbloom Profile
H. David Rosenbloom
2013-06-17 12:24
I don't think you can look to treaties as a primary tool in the fight against tax evasion, because the function of a tax treaty is basically to relieve taxation. In the United States it's a constitutional matter that you can't use a treaty to increase taxation. To look to a treaty to solve the problem, at least at the corporate level, I think is just looking in the wrong place.
As I indicated in my statement, I am also really skeptical about whether the exchange of information provisions in the treaties—which I don't object to in principle—are capable of addressing the problem of mass evasion at the individual level, and certainly not at the corporate level. I don't think that problem at the corporate level is an absence of information; I think it's a failure throughout the world to adopt coordinated rules to address the problem. Frankly I have real doubts as to whether there's political will anywhere to take the measures that are necessary.
So my general feeling is that looking to the treaties to solve this problem is just not looking in the right place.
Mr. Mark Adler: Oh, okay.
Mr. H. David Rosenbloom: Treaties are there to address double-taxation. That's their principal function. For me, the main reason that a treaty exists is that it establishes an international dispute-resolution mechanism to resolve cross-border disputes. Because we don't have a world tax court, we need to have some method of resolving cross-border disputes. Treaties create that mechanism; nobody has mentioned that yet today. That's the value of a treaty to a taxpayer.
Mr. Mark Adler: Okay.
Mr. H. David Rosenbloom: You need treaties because you don't want double taxation, but they're not going to solve the tax-haven problem.
View Guy Caron Profile
NDP (QC)
Thank you.
My next question is for Mr. Rosenbloom.
You mentioned that the purpose of the information agreement was to prevent double taxation. My concern is that the government could say that it did its part in fighting against tax evasion and tax avoidance. But that is not the case at all. That is a whole separate issue. In addition, the current bill and the ratification of tax conventions do nothing to address the issue of tax havens.
Could you confirm that?
H. David Rosenbloom
View H. David Rosenbloom Profile
H. David Rosenbloom
2013-06-17 12:42
I don't think I would endorse nothing at all. The exchange-of-information provision is useful. It has a limited utility. It's basically designed to produce information in specific cases. If a tax administration has a particular taxpayer and the information is in the treaty partner's jurisdiction, a request can be made and you can get the information. It's useful. It's not useless. But it is neither an answer to mass evasion at the individual level nor in any way an answer to the use of tax havens. They're just different subjects, as far as I'm concerned.
View Shelly Glover Profile
CPC (MB)
Thank you, Mr. Chair.
We've talked an awful lot outside the scope of Bill S-17. Mr. Howlett has in particular.
You continue to talk about G-8, Mr. Howlett, and you speculate as to what may or may not occur. I always enjoy listening to you. I particularly enjoy when you make reference to my policing background, as you did with regard to search warrants. But one thing I might say is that when we receive information that leads to a search warrant, it's not obviously public, but it is recorded information, as far as informants go.
So as you sit here today and refer to, you know, “I've heard people in the U.S. say”, or “I've heard other countries say this about what Canada's proposing to do at G-8”, I take issue with it, because you haven't divulged who said this.
To be very frank with you, it's somewhat selective listening, so I'd like you to hear once again what the Prime Minister himself said about the G-8, which you haven't referenced. You have referenced people you haven't identified, but here in fact is what the Prime Minister of Canada said just yesterday.
The question by the reporter was about the fact that combatting international tax evasion would be one of the main themes discussed at the G-8 summit, with two key issues: the public registry on beneficial ownership and the automatic tax information-sharing agreements. The reporter asked the Prime Minister to give his thoughts or reservations, if any, on either of these two particular issues.
Here's what the Right Hon. Stephen Harper had to say about those two things, which you've talked about at great length here today, sir, without ever referencing this.
Here's what he said, and of course I'm reading from the transcript:
We’re very supportive of all three Ts of Prime Minister Cameron’s agenda.
The three Ts, of course, as everyone knows, are tax, trade, and transparency.
He goes on to say:
You know, tax evasion, there’s no upside to tax evasion. It’s bad policy, it’s bad politics, and governments lose revenue that governments should be getting.
He continued that we obviously believe in low tax rates in Canada, but that people need to pay the tax rates that we actually have. He added:
The only reservation we will obviously express is that in terms of implementation in Canada, we’re going to have to consult with our provinces because we are a federal state and they have taxation powers.
....It is important that we do it and that we do it together because when we’re dealing with tax evasion, we’re dealing with problems that cross borders. Even the most powerful governments of the world can’t deal with these things by themselves so I look forward to being part of the declaration and to making progress on this as we leave the summit.
I hear Mr. Rankin asking whether or not I have a question for him.
My intervention is basically to correct the record, sir, because you have mentioned absolutely nothing about what the Prime Minister of Canada has said. He has clearly said he intends to address the things that you question whether or not he intends to address.
So I think it's beneficial for Canadians to hear exactly what the Prime Minister of Canada has said, and to ask you, sir, to please divulge who these informants are that you continue to say have said he will not address it.
Dennis Howlett
View Dennis Howlett Profile
Dennis Howlett
2013-06-17 13:13
I did earlier acknowledge that I heard that there seems to be some movement forward from Canadians' position—
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