Mr. Speaker, I appreciate the great support I am getting from across the way. As a matter of fact, I will refer to the hon. member's support.
I thank the House for the opportunity to start the third and final reading on Bill S-3, and before continuing, let me quickly thank all fellow members of the House of Commons finance committee for their swift consideration of this legislation and their unanimous support of its passage.
This important legislation will implement Canada's tax treaties with Colombia, Greece and Turkey. Tax treaties like these are important for Canadians, as they protect taxpayers both by helping to prevent unfair double taxation as well as in the matter of tax evasion. Canada has nearly 90 tax treaties already in place with other countries, and Bill S-3 is simply part of our Conservative government's ongoing effort to update and modernize the already extensive network of tax treaties.
Before continuing, let me again emphasize that although Bill S-3 is important legislation, it follows closely in form to previous similar tax treaties adopted by this Parliament. For instance, in the 39th Parliament, tax treaties with Finland, Mexico and Korea were adopted. Additionally, in both the 38th and 37th Parliaments, under the previous Liberal government, numerous tax treaties with countries such as Gabon, Armenia, Mongolia, Moldova and Norway were also adopted.
Furthermore, let me again underline that Bill S-3, like the legislation related to tax treaties from previous Parliaments, is based on the commonly accepted international standard for such treaties, and that is the OECD model tax convention. This OECD framework has long been established throughout the world as the standard for tax treaties. Indeed, as the OECD itself points out:
Most bilateral tax treaties follow both the principles and the detailed provisions of the OECD Model. There are close to 350 treaties between OECD Member countries and over 1500 world-wide which are based on the Model, and it has had considerable influence on the bilateral treaties between non-member countries.
Likewise, Peter Barnes, the noted former U.S. Treasury Department tax counsel, has remarked, in a recent edition of the OECD Observer magazine:
the OECD model has achieved a consensus position as the benchmark against which essentially all tax treaty negotiations take place. [...] But make no mistake: the OECD is a vitally important organisation and the OECD Model Tax Convention is a tremendously important tool for smoothing the way of international business and global trade.
Canada maintains one of the world's largest networks of bilateral tax treaties, serving as a key feature in both our ability to compete and to ensure everyone pays their fair share of taxes. Without a doubt, parliamentarians and Canadians are strongly opposed to tax evasion. We all know that tax evasion by some only punishes honest, hard-working Canadians and job-creating businesses. This is simply not fair. To detect and deter tax evasion, we need to work with and share information with our international partners. That is why Canada participates in international tax information exchange agreements and encourages countries to do so, as demonstrated in Bill S-3 here today.
Indeed, our Conservative government has been very aggressive and proactive in that regard. For example, in 2007, we unveiled a policy that introduced incentives to have non-treaty countries enter into OECD-model tax information exchange agreements with Canada. It also requires that all new tax treaties and revisions to existing tax treaties include the OECD standard for tax information exchange.
I am happy to report that negotiations on tax information exchange agreements are all well under way with over a dozen jurisdictions. Indeed, Canada signed its landmark first tax information exchange agreement with the Netherlands Antilles last August.
Canada also contributes actively to the efforts of the OECD's Global Forum on Transparency and Exchange of Information, as well as in the G20, in order to push for further implementation of the previously mentioned OECD standard.
What is more, according to the director of the Centre for Tax Policy and Administration of the OECD, Jeffrey Owens, during his tenure as chair of the G7 and G20, Canada's Minister of Finance has, “shown leadership in getting G20 members to crack down on tax havens with new sanctions.”
Clearly Canada is serious about combatting tax evasion and is committed to advancing this effort internationally.
While tax treaties help guard against tax evasion, they also provide individuals and businesses in Canada and the other signatory countries with predictable and equitable tax results in their cross-border dealings.
I would now like to talk in a little greater detail about how these tax treaties will improve a number of areas, namely: reducing withholding taxes, avoiding double taxation, preventing tax evasion, and removing barriers to trade and investment.
First, let me briefly look at the withholding taxes. Withholding taxes are a common feature in international taxation. They are taxes imposed by a country on income arising in that country and paid to residents of another country. Indeed, Canada with respect to non-tax treaty countries usually taxes this income at a rate of 25%. Given that one of the principle functions of a tax treaty is to fairly allocate taxation powers between the respective treaty partners, tax treaties include provisions to properly determine the level of withholding tax that can be applied by the jurisdiction in which certain payments arise.
The withholding tax rates vary from one tax treaty to the next as they reflect the result of negotiations with Canada's tax treaty partners, as is the case in Bill S-3. Indeed, Bill S-3 provides for a maximum withholding tax on portfolio dividends paid to non-residents of 15% in the case of Colombia and Greece, and 20% in the case of Turkey. For dividends paid by subsidiaries to their parent companies, the maximum withholding rate is reduced to 5% in the case of Colombia and Greece, and 15% in the case of Turkey.
Withholding rate reductions also apply to royalty, interest and pension payments. The treaties in Bill S-3 cap the maximum withholding tax rate on interest at 10% in the case of Colombia and Greece, and at 15% in the case of Turkey.
Each treaty in Bill S-3 also caps the maximum withholding tax rate on royalty payments at 10% and on periodic pension payments at 15%.
Tax treaties like this one help ensure fairness for taxpayers, both domestic and international, and help ensure that they are not essentially overtaxed due to withholding taxes.
As the Liberal member for Scarborough—Guildwood, a former colleague on the finance committee and a former parliamentary secretary to a finance minister, has pointed out:
withholding taxes do not provide for the deductability of expenses incurred in generating income and are imposed on the gross amount of the payment. The taxpayer will therefore be subject to an effective rate that is significantly higher than the tax rate that applies to net income in either the source or the residence country. To remedy this, Canada's network of tax treaties limits the rate of withholding tax that can be withheld by the source country on various types of income so as to more accurately reflect the level of taxes that would be payable on a net income basis.
The second area that I would like to address is somewhat similar, that being double taxation. Double taxation in an international sense arises when two or more states tax the same income for the same period of time. Obviously, nobody should have to pay their income tax twice.
Tax treaties like in Bill S-3 help avoid double taxation and ensure that taxpayers pay tax on the same income only once. Again, in the words of the member for Scarborough—Guildwood, “Without a tax treaty in place to set out the tax rules, the same income can be taxed in both countries without consequential relief. This situation can have a negative impact on the expansion of trade, and the movement of capital and labour between countries”.
Tax treaties utilize numerous methods to address the potential for double taxation. This happens in one of three ways. First, the income may be taxable exclusively in the country in which it arises, that is the source country. Second, it may be taxable only in the country in which the taxpayer is resident, that is the resident country.
Third, it may be taxable by both the source country and the residence country, with double taxation relief provided in some form.
The treaties in Bill S-3 grant exclusive taxing rights to a number of items, meaning the other treaty partner cannot tax those items, thus avoiding double taxation.
For example, if a Canadian resident employed by a Canadian company is sent on a short-term assignment such as two to three months to any one of the three treaty countries contained in Bill S-3, Canada has the exclusive right to tax that person's employment income. Also, from an administrative point of view, this greatly reduces the paperwork and red-tape burden associated with multiple jurisdiction tax filing. However, in the case of most items, taxing rights are shared.
The third area I would like to elaborate on is tax evasion. Tax evasion and avoidance are also unfair and economically damaging. One of the most important benefits of increased co-operation between Canada and the other countries is preventing tax evasion.
Indeed, tax treaties are an important tool in protecting Canada's tax base in that they allow consultations and information to be exchanged between Canada and the countries with which we have tax treaties. What this means is that these treaties help ensure fairness and equity in our tax system by helping to ensure that taxes owed are indeed paid.
Equally important, as I mentioned earlier, international tax treaties help ensure that taxpayers do not pay more tax than they should. Treaties such as those found in Bill S-3 permit the exchange of tax information between revenue authorities, and in so doing, help them identify cases of tax avoidance and evasion and act on them.
Indeed, our Conservative government firmly believes all Canadians should pay their fair share of taxes and has aggressively targeted tax loopholes. We again confirmed that fact in budget 2010 when we rolled back nearly 10 tax loopholes in order to protect Canada's tax system. This included, for instance, better targeting tax incentives for stock options, as well as ensuring that businesses cannot inappropriately capitalize on differences between the tax systems of Canada and the other countries to artificially increase foreign tax credits in order to pay less tax.
Noted public policy commentator and co-founder of the Dominion Institute, Rudyard Griffiths, writing in the March 10 National Post in response to budget 2010's aggressive initiatives to close tax loopholes, said:
the Conservative’s snipping of a raft of erroneous tax loopholes met with near universal applause, and rightly so.
...it defies logic, in an era of fiscal restraint, to allow corporate mucky-mucks to use generous stock options to take gobs of cash out of their companies tax free.
The final area that I would like to discuss is how tax treaties help remove barriers to trade and investment. Investors, traders and others involved in the global marketplace want to know the tax implications associated with their activities both in Canada and abroad. Equally important, Canadians with business interests or investments abroad want to be sure that they also will receive fair and consistent tax treatment.
Tax treaties boost international trade in goods and services by providing individuals and businesses in Canada and the other signatory countries with predictable and equitable tax results in their cross-border dealings. This in turn helps Canada's economic performance at home by encouraging our exporters. Indeed, over 40% of Canada's annual GDP can be attributed to exports alone. Moreover, it helps attract new investments into Canada as well.
In short, the tax treaties contained in Bill S-3 will serve as a key step in solidifying Canada's economic links with Turkey, Colombia and Greece by eliminating tax barriers to bilateral trade and investment.
In the words of the Hellenic Canadian Association president, Theodoros Aslanidis, “The agreement is very positive”.
To summarize, the tax treaties covered in Bill S-3 comply with the international OECD standards. They would promote certainty, combat tax evasion, and promote a better business climate for taxpayers and businesses in Canada and in these treaty countries.
Additionally, these treaties would help to secure Canada's position in the increasingly competitive world of international trade and investment.