Yes, thank you.
My background is that I have over 40 years of experience in dealing with international tax issues. I have the privilege of being a former chair of the Canadian Tax Foundation, the Canadian Institute of Chartered Accountants, and the professional firm of Price Waterhouse. My views, however, are my own.
Tax avoidance is not an easy subject to deal with or even define. It relates largely to the legal use of tax minimization opportunities that go beyond the intention of the legislators. One definition is that tax avoidance is just an overenthusiastic response to tax incentives.
Tax havens are just as hard to define. Each country chooses its own tax system with its own rules, its own rates, and its own exemptions. A country may resemble a tax haven for some purposes because it does not tax certain types of income, but for other purposes it may have a well-developed and heavy tax system. Switzerland, Barbados, and the Netherlands may be examples.
Tax havens of all sorts offer major opportunities for tax avoidance through the growing ability of corporations and individuals to move income to such jurisdictions without actually moving operations.
Canada wisely does not tax most profits earned abroad and repatriated to Canadian parent companies. If a Canadian company decides to operate in Ireland, which has a 12.5% corporate tax rate, it is then competing with Irish and other foreign companies subject to this relatively low rate. Requiring Canadian investors in Ireland to pay more taxes in Canada would simply mean that Canadians would not do business in Ireland. Rather, the central concern of Canadian tax policy must be that the foreign operations of Canadian companies should not erode the Canadian tax revenue base or create incentives for the inefficient allocation of resources.
While I believe the present structure of the Canadian system is sound, nevertheless there are instances in which the system is being abused. An example would be the infamous double-dip, which gives you two deductions for interest expense. Then there is the fact that Canada has a relatively high corporate tax rate, which along with other features induces foreign parent companies to artificially move interest and other deductions into Canada.
The legitimate foreign operations of Canadian companies offer substantial advantages to Canada. They support Canadian exports and they give Canadian corporations the ability to grow and reach a critical mass so as to compete against the enterprises of other countries. Canada would be the poorer if our companies did not have a supportive tax system to enable them to operate and compete. We need to be careful before disallowing the costs that Canadian companies incur to finance such operations abroad. However, I believe that the following broad actions are required so that we can continue to support the legitimate needs of Canadian enterprises investing abroad while maintaining the integrity of our tax system.
Our tax system is a high-maintenance structure. Due to changes in tax rules abroad, the growing complexity of business organizations, and the increasing sophistication of taxpayers, new tax planning techniques are constantly emerging, with adverse affects on the revenue base.
We need better enforcement of the present system and we need a greater willingness, after consultation, to modify our rules in order to achieve fairness. Our system should concentrate on seeking to defend the Canadian revenue base while facilitating the legitimate needs of international operations.
Our overall tax system needs to be competitive internationally. This does not mean a race to the bottom in taxes on business, but it does mean we should recognize that our overall tax burdens on business are getting out of line and hampering the ability of Canadian companies to compete. While we are lowering our corporate rates, other countries are doing so faster, and our aggregate tax burden on business investment is high. We must emphasize that a broad and neutral tax base with low rates is preferable to a system with distorting incentives and loopholes.
We need to work cooperatively with other countries to block tax avoidance and tax haven abuses through tax and information-sharing treaties and through international alliances.
Thank you, Mr. Chairman.
