Mr. Speaker, I am please to have the opportunity to speak at third reading of Bill S-17, the 2004 tax conventions implementation bill.
The proposed legislation contained in the bill will put into force four new tax treaties that Canada has already signed with Gabon, Armenia, Oman and Azerbaijan. It also implements a new tax treaty with Ireland, replacing an older treaty that is already in effect.
I would like to emphasize that the treaties contained in Bill S-17 are not controversial. In fact, the bill's proposed legislation is standard and routine.
Indeed, these treaties, similar to the ones that Canada has with other countries, are patterned on the OECD model tax convention which is utilized by all member countries. Moreover, the provisions in the treaties contained in Bill S-17 comply fully with the international standards that apply to such treaties.
Canada already has tax treaties in place with 83 countries. With passage of Bill S-17, that will increase to 87 countries. In the last three years alone Canada has signed treaties or amended protocols with 14 countries.
In an ever increasing and competitive global marketplace, these treaties are important for Canada to compete internationally. Tax treaties benefit Canada's international trade in goods and services and in doing so, have a direct impact on our domestic economic performance.
That impact is very significant. Over 40% of Canada's annual gross domestic product can be attributed to exports. Moreover, Canada's economic well-being depends on regular foreign investment as well as the influx of information, capital and technology.
By eliminating tax impediments and by creating more predictable tax results for Canadian traders, investors and other taxpayers with foreign source income, our tax treaties promote opportunities in international trade and investment at home and abroad. In this regard, tax treaties combined contained in Bill S-17 are no exception. These are crucial considerations in today's global economy.
The promotion of trade and investment stimulates the growth of Canada's economy. This in turn allows us to pursue the social objectives that have made our country one of the best places in the world to live.
I would like to take a moment now to comment generally on how this legislation supports the promotion of international trade through a fair and competitive tax system.
The importance of making the tax system more competitive has been underscored in recent years by reductions in the corporate tax rates in many of our major trading partners.
Given the mobility of investment capital globally, a competitive tax system is critical to fostering business investment in Canada. Investment supports economic growth and job creation. With more and better equipment embodying the latest technology, workers are more productive.
Increased investment and higher labour productivity in turn leads to increased employment, higher wages and a higher standard of living. Tax treaties are also an integral part of tax fairness initiatives introduced by the government's efforts to make the system fairer.
I would like to expand on that point by outlining two tax fairness objectives that are kept in mind in the design of tax treaties such as the ones before us today. The two objectives are: first, to prevent double taxation; and second, to prevent tax evasion and avoidance.
First, what is double taxation? Double taxation occurs when a taxpayer lives in one country and earns income in another country. If there were no tax treaty in place to allocate the taxing rights and to provide various mechanisms to grant relief where both countries retain the right to tax certain items of income for that individual, income is at risk of being taxed in both jurisdictions. This situation would produce unfair results and have adverse economic impacts on Canada.
It is only natural that investors, traders and other international dealers want to know how they will be taxed before they commit to doing business in any given country.
Tax treaties establish a mutual understanding of how the tax regime of one country will interrelate with that of another, thus helping remove the uncertainty about the tax implications associated with doing business, working or otherwise earning income from abroad. Preventing double taxation is accomplished by first defining the rules for establishing jurisdiction for tax purposes between the country where the taxpayer resides and the country where the income arises.
Another method of reducing the possibility of taxation involves the reduction of withholding taxes. These are the taxes countries generally impose on certain types of income paid to non-residents. For example, without a tax treaty or various other legislative exemptions Canada taxes various categories of income paid to non-residents at a rate of 25%. Most of our trading partners impose a withholding tax at a similar level to that of Canada.
A problem arises because withholding taxes does not provide for the deductibility of expenses incurred in generating that income. This is because the tax is imposed on the gross, not the net amount. A situation therefore occurs where the taxpayer is subject to an effective tax rate that is significantly higher than would be applicable to net income in either the source or the resident country. To resolve this situation, Canada's network of international tax treaties provides reciprocal withholding tax rate reductions for a number of types of income such as dividends, interests and royalties.
Let us go to the second objective of the tax treaties with many countries around the world. The second objective is to prevent tax avoidance and evasion. Canadians who pay their fair share of taxes would not want corporations or people to avoid or evade taxes simply by doing business internationally.
The hon. members can no doubt appreciate the negative effect caused by loss of revenue from tax avoidance and evasion. This is not only clearly unfair but potentially damaging economically. Moreover, the resulting revenue loss can adversely affect the government's ability to support a broad range of federal programs that benefit all Canadians, including health, support to the elderly, support to the disabled and money for education. Ultimately, tax avoidance and evasion also places an unfair tax burden on honest taxpayers. This runs contrary to the Canadian concept of a fair and equitable tax system.
Treaties like the ones contained in Bill S-17 allow for improved and expanded mechanisms for international cooperation and information sharing. This exchange of information between revenue authorities helps governments to identify cases of tax avoidance and evasion and take the actions necessary to recover the lost revenue.
To sum up, tax treaties open the door for international cooperation which in turn provide a mechanism for improving tax fairness by combatting tax avoidance and evasion. Treaties covered in Bill S-17 also address a number of other important issues for the consideration of hon. members.
For one, each treaty contains provisions to ensure that cross-border investors do not suffer discrimination based on nationality. Also, each treaty contained in the bill has provisions that limit the potential for double taxation arising from the application of Canada's taxpayer migration rules.
As I mentioned at the outset, Bill S-17 is not controversial. Rather, it is routine legislation with clear benefits to all Canadians.
Following on the government's approach to tax fairness, these treaties will provide fair and equitable solutions to the taxation problems that currently exist between Canada and the five countries named in this bill. I therefore ask that all hon. members pass this bill quickly.
