First, Mr. Speaker, I am somewhat disappointed in the hon. member's comments and some of his tone, because he is alluding to some comments here with regard to a fine, outstanding parliamentarian, the former minister of finance.
I think the issue he wants to talk about, which he really did not get to, is the issue of taxes and that I think is a legitimate question. I would like to focus on that rather than on what I would consider to be gossip, rumour-mongering and things that really have no place in this House.
Canada taxes not only the income of our Canadian resident corporations, whether they earn it in this country or abroad, but also in other situations the income of foreign subsidies, which is what I would like to talk about.
Canada's rules must therefore take into account the fact that those companies' incomes could be subject to foreign tax as well. There are two basic ways that countries around the world deal with foreign taxes in these circumstances. One way is to have the taxpayer claim a foreign tax credit, which reduces their home country tax by the foreign amount. The second way, as I am sure the hon. member knows, is simply to exempt the foreign source income from the home country tax.
Our Canadian tax system combines these two methods. A Canadian corporation's direct foreign source income and certain of the income of its foreign subsidies is eligible for foreign tax credits to reduce the Canadian tax on that income.
At the same time, Canada exempts certain kinds of foreign income of foreign subsidiaries from Canadian tax. The rules are complex, but essentially the exemption we are speaking of is given for the active business income of a foreign subsidiary that is resident in the country with which Canada has a tax treaty, provided the income is earned in such a country.
I believe the hon. member's question boils down to this. Why, when the government revised certain aspects of these rules several years ago, was the exemption left in place for a particular kind of subsidiary resident in Barbados that does not pay a substantial tax rate? The answer has several elements.
First, it is not clear that abruptly curtailing that exemption would have benefited Canada. In a world of tax planning opportunities, there is no assurance that corporate groups would not simply move the functions performed by, in this case, a Barbados subsidiary to another jurisdiction where similar results could be obtained. In fact, the corporations would not pay any more Canadian tax.
Indeed, forcing businesses out of Barbados could actually be counterproductive. As a tax treaty partner, Barbados gives Canada's tax authorities far more information and assistance than many other jurisdictions do.
Second, Canadian business is understandably interested in maintaining its international competitiveness. In this case, decisions that disrupt the operations of Canadian corporations abroad can have repercussions on their competitiveness. I am sure I will be able to expand a little more on that after the hon. member has a chance to comment.