Bill S-17 (Historical)

Tax Conventions Implementation Act, 2013

An Act to implement conventions, protocols, agreements and a supplementary convention, concluded between Canada and Namibia, Serbia, Poland, Hong Kong, Luxembourg and Switzerland, for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes

This enactment implements four recent tax treaties that Canada has concluded with Namibia, Serbia, Poland and Hong Kong. This enactment also implements amendments to provisions for the exchange of tax information found in the tax treaties that Canada has concluded with Luxembourg and Switzerland.
The tax treaties with Namibia, Serbia, Poland and Hong Kong are generally patterned on the Model Tax Convention on Income and on Capital developed by the Organisation for Economic Co-operation and Development (OECD). The amendments to the treaties with Luxembourg and Switzerland ensure that their provisions for the exchange of tax information reflect the current OECD standard on this matter.
Tax treaties have two main objectives: the avoidance of double taxation and the prevention of fiscal evasion. Since a tax treaty provides relief from taxation rules in the Income Tax Act, it becomes effective only after being given precedence over domestic legislation by an Act of Parliament such as this one. Finally, for each instrument implemented by this Act to become effective, it must be ratified after the enactment of this Act.

Tax Conventions Implementation Act, 2013

[Linda Duncan, NDP, Edmonton Strathcona, AB]

Mr. Speaker, I listened to the speech with great interest. We have been criticized on this side for raising matters other than those in the bill. We heard a great deal about matters other than those in the bill and matters that probably should be in the bill.

I have taken the time to go through some of these treaties, with which the quite short statute deals. It raises a number of questions for me. For example, if we look at the treaty with Poland, article 24(3), it says:

In no case shall the provisions of paragraphs 1 and 2 be construed... to carry out administrative measures at variance with the laws and the administrative practice of that...Contracting State...to supply information which is not obtainable under the laws or...to supply information which would disclose any trade, business, industrial...secret or trade process... information...disclosure...contrary to public policy...

I see the same kind of provisions in the Luxembourg treaty.

It raises the question for me as to what mechanism does the government use to go about enforcing this statute against these countries and what has its experience been in trying to enforce these provisions with the other countries, for example, China? Does it have such an agreement with China?

[John Carmichael, Conservative, Don Valley West, ON]

Mr. Speaker, we have six agreements in place at this time, with Namibia, Serbia, Poland, Hong Kong, Luxembourg and Switzerland. Each of these is a bilateral agreement that has been established for multilateralists, as some of our colleagues opposite have referred to this evening. The goal is to enhance the quality of business in Canada for small businesses and to ensure that we grow our economy and investments.

The member opposite asked about China. Clearly the FIPA is designed to protect the parties on both sides of that agreement, in Canada and in China, and protect Canadian businesspeople doing business in China. It is new. We are hoping to have it completed shortly, but the reality is that it is designed to provide protection by Canadians for Canadians in their dealings overseas.

[Kevin Lamoureux, Liberal, Winnipeg North, MB]

Mr. Speaker, I will reserve my comments until tomorrow regarding the government House leader's attempt to get unanimous consent of the House with regard to forewarning us about time allocation.

The member is fully aware that all political entities in the House of Commons will support the bill for the vote coming up. However, the larger issue is ensuring that we get the necessary additional financial resources or other resources to the Canada Revenue Agency to ensure we can avoid tax evasion. I used the example of $150 million under the Paul Martin government a number of years ago and the positive impact it had in dealing with tax evasion.

Why would the Conservatives, at this point, be cutting back on the resources going to the CRA?

[John Carmichael, Conservative, Don Valley West, ON]

Mr. Speaker, tax evasion is something that we all abhor and would fight against. Clearly, as a government, it is something on which we are cracking down. My understanding is that the CRA is well within its resources to meet the demands and will meet the objectives of cracking down on tax evaders in our country.

[Mark Adler, Conservative, York Centre, ON]

Mr. Speaker, I would like to begin by thanking my colleague from Don Valley West, who gave a very technical approach to this very complicated issue of tax treaties.

As my friend knows, Canada has been very aggressive in terms of negotiating tax treaties with other countries around the world. In fact, we have 90 tax treaties and 16 TIEAs that we have negotiated with other countries around the world. TIEAs, of course, are done in the absence of a tax treaty.

I would like to just raise a couple of ironies here and I would like to get the member to comment on them.

First, I would like the member to comment on the importance of individual Canadians paying taxes. I say that for two reasons. One reason is that I sit on the finance committee and we had the revenue critic for the NDP come before the finance committee and ask us to do a study on tax evasion. It turns out the member has not been paying his taxes.

Second, I would like the member to comment on the second NDP member who also has not been paying his taxes. He put forward a private member's bill to serve his own advantage in terms of averaging his income out over a number of years, claiming that he worked in the cultural industry and that it would be fairer to people who worked in the cultural industry to do that. In fact, he was doing it to benefit himself.

I would like to ask my friend if he could comment on the importance of what the NDP is claiming to be huge tax evaders, when the NDP has tax evaders within its own caucus. Could he comment on the importance of all Canadians paying their fair share of tax?

[John Carmichael, Conservative, Don Valley West, ON]

Mr. Speaker, clearly, our government is focused on balancing the budget, on meeting the obligations of the country, growing our economy and creating jobs for Canadians. In order to achieve all our goals, every Canadian has to do their fair share in meeting their tax obligations.

On my friend's comments, tax evasion is an offence. It is something to which we should take strong exception. I support his comment that whoever in the country is not paying their fair share of taxes should be held accountable and should be forced to meet their obligations. That is how we will meet our obligations as a nation.

I should add that over the period, Canada has had the strongest job creation record in the entire G7. We are recognized by the OECD as a leader in global economies. That is because we are doing things right, economically. Our banking system is solid and we are meeting our obligations in collecting our taxes. Therefore, absolutely, all Canadians have an obligation.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Mr. Speaker, my distinguished colleague from Ontario has given me the perfect opportunity to talk about fraudsters. Perhaps the member could tell us more about the following question. When someone uses $90,000 of taxpayers' money to pay back money stolen from the Senate, is that $90,000 taxable? When someone invoices $300,000 for personal expenses, that is income. Will senators also be taxed on that income? Will they declare that money on their tax returns?

We live in a glass house, and people who live in glass houses should not throw stones.

[The Acting Speaker, Conservative, Barry Devolin]

Before I go to the hon. member for Don Valley West, just a reminder to all hon. members to try to keep their questions, comments and answers related to the matter before the House.

The hon. member for Don Valley West.

[John Carmichael, Conservative, Don Valley West, ON]

Mr. Speaker, I have to reject the premise on which my hon. colleague placed his question. First, he talked about $90,000 of taxpayer money. The understanding of the House, to the best of our knowledge and the information we have, is that was paid by a private individual. It is being addressed through audits and through various sources, including the Ethics Commissioner, and those issues will be addressed.

I hear him on living in glass houses. The only problem is that tonight we are living in a glass House of Bill S-17 and talking about tax treaties. Quite frankly, his question has no bearing whatsoever on that.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

Mr. Speaker, it was unfair for the member for York Centre to attack the member for Jeanne-Le Ber. We all know that tax avoidance is not the same as tax evasion. During this debate, I have googled McCarthy Tétrault. It is already advising its well-heeled clients how to avoid the implications of various tax measures, whereas the artistic community, many of whom survive on less than $12,000 a year, but one year might have good earnings, has been working as a group for many years as a matter of good public policy to fix this by allowing averaging out for people in that community.

It is unfair and it is not just the member for York Centre. There is a continual effort to beat up on one member of the House who was very active in the ACTRA community before being elected. I just feel it is egregious.

[John Carmichael, Conservative, Don Valley West, ON]

Mr. Speaker, I did not hear a question per se, but within any tax system, there are provisions that allow and provide a road map for taxpayers to pay their taxes, in specific instances, within economic action plan 2013. The member mentioned McCarthy Tétrault as one example of a company that provides advice to its clients. Every auditing firm and legal firm across the county does, similarly, in helping their clients to meet their tax obligations in a fair and legal way.

[Chungsen Leung, Conservative, Parliamentary Secretary for Multiculturalism]

Mr. Speaker, I am thankful for this opportunity to speak at second reading of Bill S-17.

As members know, this bill would implement Canada's recently concluded tax treaties with Namibia, Serbia, Poland, Hong Kong, Luxembourg and Switzerland. These new and updated fees would augment Canada's strong network of tax treaties.

Indeed, currently Canada has comprehensive tax treaties in place with 90 countries, one of the world's largest network of bilateral tax treaties. This is an important feature to Canada's international tax system, a feature that is key to our ability to compete.

As part of Canada's ongoing effort to update and modernize our network of income tax treaties, Bill S-17 would achieve two important objectives.

First, it would help combat tax evasion by ensuring Canada works with other countries to stop tax cheats. Clearly, I would hope that all parliamentarians and Canadians would agree that everyone should pay their fair share of taxes.

Second, it would help encourage global trade by preventing double taxation.

In my time today, I would like to focus specifically and in greater detail on what the tax treaties with Namibia, Serbia, Poland, Hong Kong mean.

First I will speak about Namibia.

Canada's proud and active engagement with Namibia dates from 1977 to 1982 negotiations on the United Nation settlement plan. Canada actively supported Namibia's independence in 1989-90 and provided military peacekeepers, police monitors, election supervisors and technical experts.

On the global stage, there are a number of areas in which Canada and Namibia actively co-operate. These include the Kimberley process, to control the trade in conflict diamonds, initiatives to control high seas overfishing and the commercial seal harvest.

Bilateral merchandise trade between Canada and Namibia was $238.2 million in 2011, with Canadian imports from Namibia accounting for $230.3 million of that, largely uranium oxides and Canadian exports to Namibia include cereals and machinery.

There are significant opportunities for investment in Namibia. Currently, the major focus for Canadian investors is mining, particularly diamonds and uranium. Cumulatively, Canada's foreign direct investment in Namibia reached $20 million at the end of 2010, most of which was in the mining sector.

The impetus for the convention with Namibia, signed on March 25, 2010, the official term for tax treaty, was to contribute to the elimination of tax barriers to trade and investment between Canada and Namibia and to help solidify the existing economic and financial dealings between the two countries.

It is consistent with the government's commitment, as announced in the 2008 Speech from the Throne, to seek out new investment and trade opportunities for Canadians and to promote greater global prosperity.

The convention generally follows the pattern of other tax treaties already concluded by Canada. Accordingly, it generally follows the format and language of the Model Tax Convention on Income and on Capital of the Organisation for Economic Co-operation and Development, OECD.

Most countries, including Canada and Namibia, tax their residents on their worldwide income. Moreover, where a resident of a particular country, known as the “country of residence”, derives income from sources in another country, for example, from a business located there, it is not uncommon for that other country, known as the “country of source”, to subject that income to tax.

The convention recognizes this international taxation dynamic and sets out under what circumstances and to what extent Canada and Namibia may tax the earnings of one another's residents.

The convention also provides that where income, profit or gains may be taxed in both countries, the country of residence, if it taxes, is to allow relief from double taxation against its own tax for the tax imposed by the country of source.

In the case of Canada, effect is given to the relief obligations arising under the convention by application of the general foreign tax credit system provisions of Canada's domestic law or relevant exemption provisions of the law where applicable.

Again, let me recap and expand the highlights of the convention.

The convention sets a maximum withholding tax rate of 5% for dividends paid to a company that holds directly at least 25% of the share capital of, or controls directly or indirectly at least 25% of the voting power in the company that pays the dividend and a maximum rate of 15% in all other cases.

The convention also limits to 10% the maximum withholding rate on interest and royalties, except that no tax may be withheld on interest paid to the government or a pension fund or in respect of debt finance by Export Development Canada or a debt of a government.

It also includes a provision that limits the potential for double taxation arising from the application of Canada's taxpayer migration rule without restricting Canada's ability to tax its departing residents on their pre-departure gains. It also includes the latest standard of the OECD on exchanges of tax information in order to assist Canadian tax authorities in the administration of the Canadian tax law.

Let me talk about Serbia. Relations between Canada and Serbia, formerly with Montenegro, part of the Federal Republic of Yugoslavia, and the state union of Serbia and Montenegro, redeveloped quickly following the overthrow of Slobodan Milosevic's regime in October 2000. In 2006, Canada welcomed Serbia's admission into NATO's partnership for peace program and to La Francophonie as an observer.

Canada is encouraged by the democratic and economic transformation of Serbia and its commitment to achieving greater integration and co-operation with the European Union and its institutions. The international community, including Canada, is helping Serbia make a successful transition to a free market democracy, develop strong regional co-operation with its neighbours and maintain its own citizens' security. Canada and Serbia enjoy strong people-to-people relationships and benefit from cultural and academic exchanges. In 2006, Canada and Serbia signed a readmission agreement and later that year an air transport agreement, which allowed for the resumption of direct flights between the two countries in June 2007.

In 2010, the two countries signed a memorandum of understanding on the prosecution of war crimes, crimes against humanity and genocide.

Canada-Serbia trade has increased almost tenfold over the past five years. In 2009, bilateral trade in goods totalled just under $60 million. In addition, Canada's investment commitments in the region, including Montenegro, reached more than US$500 million in 2007 and have been increasing steadily. Important Canadian investments have recently been made or committed in the areas of real estate and construction, tourism, agriculture, informatics, and energy and mining, among others. Opportunities for further Canadian investment include road, rail and urban transportation infrastructure upgrading and construction.

As such, the impetus for the convention with Serbia signed on April 27, 2012, which is the official term for the tax treaty, was to contribute to the elimination of tax barriers to trade and investment between Canada and Serbia and to help solidify the economic links between the two countries. It is also consistent with the Canadian government's commitment, as outlined in the 2008 Speech from the Throne, to seek out new investment and trade opportunities for Canadians and to promote global prosperity.

Like Namibia, the convention generally follows the pattern of other tax treaties already concluded by Canada. Accordingly, it generally follows the format and language of the model tax convention on income and on capital of the Organisation for Economic Co-operation and Development.

Also like Namibia, most countries, including Canada and Serbia, tax their residents on their worldwide income. Moreover, as I described earlier, where a resident of a particular country derives income from sources in another country it is not uncommon for that other country to subject that income to tax. The convention recognizes this international taxation dynamic and sets out under what circumstances and to what extent Canada and Serbia may tax the earnings of one another's residents.

Let me recap the highlights from the convention: it sets the maximum withholding tax rate of 5% on dividends paid to a company that controls directly at least 25% of the voting power of the company that pays the dividends and a maximum withholding tax rate of 15% will apply to dividends paid in all other cases.

The convention also limits to 10% the maximum withholding tax rate on interest and royalties, except that no tax may be withheld on interest paid to the government or the central bank. The convention also limits to 15% the maximum withholding tax rate on payments of pension income.

Clearly, members will notice that the provisions for both Namibia and Serbia were very similar, if not identical, and this is an extremely important point as it demonstrates how routine and standard this legislation and its provisions are and what they represent.

However, I would like now to conclude by talking about Hong Kong and here we will notice some minor variations on what I have laid out for Serbia and Namibia. Let me first talk about Canada's special relationship with Hong Kong. Our bilateral relationship with Hong Kong reflects long-standing and comprehensive political, commercial and people-to-people ties.

I should also note that even though Hong Kong is a special administrative region of the People's Republic of China, it is governed under the “one country, two systems” approach set out in the Basic Law, a document often referred to as the Hong Kong mini-constitution. Under this approach, Hong Kong is guaranteed its own legislature, legal and judicial systems and economic autonomy under a capitalist system and a way of life for at least 50 years.

Overall, the Basic Law provides Hong Kong with a degree of autonomy. Indeed article 151 of the Basic Law provides that Hong Kong may on its own conclude and implement an agreement with foreign states in fields such as economic, trade and financial fields, including tax treaties.

Canada and Hong Kong enjoy good co-operation on a large range of topics including public health, legal matters, and trade and investment. Relations are further bolstered by formal agreement initiatives on issues such as mutual legal assistance in criminal matters, air services, film and television co-operation and Internet learning. Canada and Hong Kong also enjoy productive co-operation in the context of multilateral organizations to which they are both members such as the Asia-Pacific Economic Co-operation forum, APEC, and the World Trade Organization.

In terms of trade with Canada, Hong Kong is the third largest financial market in Asia and an important source of foreign direct investment to Canada. As of 2011, Hong Kong was the second largest destination in Asia after Japan for Canadian foreign direct investment, larger than both China and India. Hong Kong is Canada's tenth largest export market and is also Canada's third largest export market in the world for beef and fourth largest market for fish and seafood.

In addition to natural resources and agricultural products, Canadian exports to Hong Kong include everything from telecommunications devices to train signalling systems, to educational and financial services. I should also note that the Canadian Chamber of Commerce in Hong Kong is one of the largest Canadian chambers outside Canada with over 1,200 members. There are over 180 Canadian companies in Hong Kong, 15 of which have established their regional headquarters in the city with a further 33 maintaining regional offices and 44 more with local offices.

Like Serbia and Namibia, the impetus for the agreement with Hong Kong signed on November 11, 2012, was to contribute to the elimination of tax barriers to trade and investment between Canada and Hong Kong and to help solidify the economic links between the two jurisdictions.

The new agreement also generally follows the pattern of other tax treaties already concluded by Canada and the OECD model, like Serbia and Namibia. The agreement also provides that where income, profits or gains may be taxed in both countries, the country of residence is to allow double tax relief against its own tax for the tax imposed by the country of source like Serbia and Namibia. The one variation is on resident taxation.

Unlike most jurisdictions, which tax their residents on their worldwide income, Hong Kong administers a territorial tax system under which residents and non-residents are taxed only on income arising in, or derived from, Hong Kong. Consequently, the residence articles of the treaty as regards Hong Kong reflects this state of affairs.

Capital gains are generally not taxable in Hong Kong, unless they are derived from a transaction in the nature of trade, in which case they are taxed as ordinary income at the regular applicable corporate or personal income tax rate. Moreover, there is no withholding tax imposed in Hong Kong on interest payments or dividend distributions made to non-residents.

Royalty payments made to non-residents are deemed to be taxable in Hong Kong if such payments are for the use of, or a right to use intangibles in Hong Kong or outside Hong Kong and where such royalty payments are deductible for income tax purposes in Hong Kong. In such cases, a withholding tax of 17.5% is imposed on 30% to 100% of the gross amount of the royalty payment.

For these reasons that I have highlighted today related to the three countries I have mentioned and many others, Bill S-17 will increase our ability to compete and to harness the opportunities of a vibrant, modern global economy. I urge the House to support this bill.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

Mr. Speaker, I thank the member for trying to make this topic interesting. As he spoke, I appreciate that he gave a lot of detail about why these particular nations have been chosen for Canada to enter into agreements with. I think the obvious question that arises is why these particular nations? Is it Canadian corporations interested in shale gas activity in Poland and the mining in Namibia? Why have these particular nations been singled out and are similar agreements being sought with nations where we also send aid workers to ensure that their revenues are similarly protected?

[Chungsen Leung, Conservative, Willowdale, ON]

Mr. Speaker, the member opposite is quite right in what she mentioned. When we negotiate tax treaties for our country, it is like two business partners. We have to arrive at an understanding of how we are prepared to do it. There may be a lot of conditions that lead up to the reason why we would negotiate a tax treaty. One of them, in the case of Namibia, had to do with Canadian companies mining there for diamonds and uranium oxide. In another case, there are Canadian aid workers in those areas to help better the country after natural disasters or human conflicts.

[Kevin Lamoureux, Liberal, Winnipeg North, MB]

Mr. Speaker, I have had the opportunity to express this thought to other members of the Conservative Party. Yes, the legislation is good and Liberals want all members to vote in favour of it. At the end of the day, we can set up a legislative framework, but we have to have the financial resources to ensure that we can get the tax evaders. It is important to recognize that a vast majority of Canadian businesses or individuals around the world are quite straightforward and honest, and pay their taxes. A relatively small percentage go out of their way to participate in tax evasion.

The issue is this. Does the government recognize that cutting financial resources to the CRA is not going to result in more prosecutions of individuals or companies that participate in tax evasion?