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.

[Murray Rankin, NDP, Victoria, BC]

Okay.

The other thing we've talked about, aside from automatic information exchange, is the beneficial ownership rules. You're familiar with the notion of trying to find out who really is behind these shell companies that do business abroad and hide their money in tax havens.

Under the general provisions of Bill S-17, of article 25 and the like, which deal with information exchange, and the general broad rules, would it be possible without renegotiation to acquire beneficial ownership information?

[Murray Rankin, NDP, Victoria, BC]

I ask because some experts have said that they're really quite ineffective—and when we hear from them, I'm going to ask them this same question. “You don't know what to ask for, so how are you going to get anything back?” That's their simple position.

But you have no information. I'll ask the experts later.

I want to go back to the specifics of Bill S-17. You referred, for example, to Serbia and Poland, Mr. Castonguay, as being two countries with which we may be able to have automatic information exchange with. I just don't know how it works, if you will, bureaucratically or administratively.

We've negotiated this open agreement contemplating tax information exchange, as in article 25. We say that we'd like to now move to automatic exchange. They say they don't want to. What happens then?

[Alain Castonguay, Senior Chief, Tax Treaties, Department of Finance]

Thank you, Mr. Chair.

I would like to thank the committee for inviting us to appear this morning to talk about Bill S-17, Tax Conventions Implementation Act, 2013.

Canada has one of the most extensive networks of income tax treaties in the world, with 90 tax treaties currently in force. Bill S-17, once into force, will increase this number to 93, by implementing new treaties with Hong Kong, Namibia and Serbia. Bill S-17 will also implement a revised treaty with Poland, which will replace the existing treaty which dates back to 1987.

Further, Bill S-17 contains a protocol with Luxembourg and an agreement with Switzerland. In both cases, the agreements modify the provisions of the existing treaties with these countries relating to the exchange of tax information to ensure that they are consistent with the Organization for Economic Cooperation and Development standard for tax information.

Canada's tax treaties are generally patterned on the OECD model tax convention, modified to reflect the particularities of the Canadian tax system. Internationally, most tax treaties are generally patterned on the OECD model as well. Tax treaties are used for two main purposes: first, to eliminate tax barriers between two jurisdictions in order to promote bilateral trade and investment; and second, to prevent tax avoidance and evasion by encouraging the exchange of information for tax purposes between taxation authorities.

Allow me to expand slightly on each of these objectives and explain how the agreements in Bill S-17 support these objectives.

International double taxation can impose a barrier to cross-border trade and investment. Tax treaties prevent double taxation by providing greater certainty to taxpayers regarding their potential liability to tax in a foreign jurisdiction, by allocating taxing rights between two jurisdictions so that the taxpayers are not subjected to double taxation; by reducing the risk of "burdensome" taxation, which l will explain in a moment and which may arise because of high withholding taxes paid on certain payments; and, finally, by ensuring that taxpayers will not be subject to discriminatory taxation in the foreign jurisdiction.

Under our own domestic laws, payments of dividends, interest, and royalties made to non-residents are subject to rates of withholding equal to 25 per cent of the gross amount paid. Many of Canada's trading partners also have similar rates of withholding. Because the withholding tax does not take into account expenses incurred in generating the income, a taxpayer frequently will be subject to an effective rate of tax that is significantly higher than the rate that would be applicable if the income were taxed on a net basis. That's what I referred to earlier as “burdensome” taxation, which is clearly an impediment to cross-border trade and investment.

Tax treaties alleviate this burden by setting maximum levels of withholding tax that a treaty partner may impose on these types of payments or by providing, in some cases, for taxation exclusively in the state of residence. For example, the tax treaty with Hong Kong would impose limitations on the rates of withholding to 5% on direct dividends, 15% on other dividends, and 10% on non-arm's-length interest and on royalties.

Hong Kong is one of the largest financial markets in Asia in terms of trade and an important destination of Canadian foreign direct investment. Once the treaty is in force, it is expected that it will further encourage trade and investment and solidify our bilateral links.

The second objective that I mentioned at the outset was the prevention of tax avoidance and evasion. A key element our tax treaties is the provision authorizing the exchange of information between the respective tax authorities. Better transparency and access to information are important tools for tax authorities to enforce their own domestic tax law and to prevent international tax evasion.

In order to enhance Canada's network of information sharing, budget 2007 required that all of Canada's new tax treaties and revisions to its existing treaties would include the standard developed by the OECD for the exchange of information. The six agreements in Bill S-17 contain exchange-of-information provisions that are consistent with the OECD standard. In fact, two of the agreements in the bill with Luxembourg and Switzerland deal exclusively with the exchange of information. These provisions mandate the tax authorities of the treaty partners to exchange information relevant to the administration of each country's respective tax laws in conformity with the standard. The provisions also ensure that the effective exchange of information is not impeded by bank secrecy laws that may exist in the other country.

I mentioned at the beginning of my remarks that Bill S-17 would contribute to increasing the extent of our tax treaties network, but it is as important to revise our tax treaties and to update them, where necessary.

The treaty with Poland is a good example. The need to negotiate and sign a new treaty with Poland was the fact that the existing treaty between Canada and Poland was signed in 1987, in a much different economic context than today. The new treaty with Poland reflects Canada's new policies regarding maximum withholding tax rates on payments of dividends, interest, and pensions. Of course, the agreement includes the most recent standards when it comes to the exchange of information.

Mr. Chair, this concludes my remarks. I am available to the committee to answer any questions.

Thank you.

[The Chair, Conservative, James Rajotte]

I call to order meeting number 129 of the Standing Committee on Finance.

Our orders of the day, pursuant to the order of reference of Monday, June 10, 2013, are for the study of Bill S-17, 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.

Colleagues, I want to thank all of you for being here on very short notice. I sincerely appreciate it.

I also want to thank our guests, both here in Ottawa and by video conference, for appearing on very short notice. It is very much appreciated by our committee.

We have a three-hour meeting scheduled, from 11 till 2, and we are going to hear from officials from the Department of Finance first. Then we will have questions from committee members. I expect this will take 30 minutes minimum, or maybe a little longer. Then we will ask our witnesses to come forward and present their opening statements, and then we'll have questions from members.

At the time when members want to go to clause-by-clause consideration of the bill, they will indicate that to me, and we will do that.

For the other witnesses who are here with us and by video conference, you'll be able to hear the officials from the Department of Finance present their rationale for this bill as well.

First of all, from the Department of Finance, we have Mr. Ted Cook, who has been before our committee many times recently.

Welcome back to the committee, Mr. Cook.

We also have Monsieur Alain Castonguay.

Welcome to the committee.

Mr. Castonguay, I believe you have the opening statement for the officials. Then we'll have questions from members.

Please begin.

Business of the House

[Peter Van Loan, Conservative, Leader of the Government in the House of Commons]

Mr. Speaker, this time last week, I said that I hoped to have a substantial list of accomplishments to report to the House. Indeed, I do.

In just the last five days, thanks to a lot of members of Parliament who have been here sitting late at night, working until past midnight, we have accomplished a lot. Bill C-60, the economic action plan 2013 act, no. 1, the important job-creating bill, which was the cornerstone of our government's spring agenda, passed at third reading. Bill S-8, the safe drinking water for first nations act, passed at third reading. Bill S-2, the family homes on reserves and matrimonial interests or rights act, passed at third reading. Bill C-62, the Yale First Nation final agreement act, was reported back from committee and was passed at report stage and passed at third reading. Bill C-49, the Canadian museum of history act, was reported back from committee. Bill C-54, the not criminally responsible reform act, was reported back from committee this morning with amendments from all three parties. Bill S-14, the fighting foreign corruption act, has been passed at committee, and I understand that the House should get a report soon. Bill S-15, the expansion and conservation of Canada’s national parks act, passed at second reading. Bill S-17, the tax conventions implementation act, 2013, passed at second reading. Bill S-10, the prohibiting cluster munitions act, passed at second reading. Bill S-6, the first nations elections act, has been debated at second reading. Bill C-61, the offshore health and safety act, has been debated at second reading. Bill S-16, the tackling contraband tobacco act, has been debated at second reading. Finally, Bill C-65, the respect for communities act, was also debated at second reading.

On the private members' business front, one bill passed at third reading and another at second reading. Of course, that reflects the unprecedented success of private members advancing their ideas and proposals through Parliament under this government, something that is a record under this Parliament. This includes 21 bills put forward by members of the Conservative caucus that have been passed by the House. Twelve of those have already received royal assent or are awaiting the next ceremony. Never before have we seen so many members of Parliament successfully advance so many causes of great importance to them. Never in Canadian history have individual MPs had so much input into changing Canada's laws through their own private members' bills in any session of Parliament as has happened under this government.

Hard-working members of Parliament are reporting the results of their spring labours in our committee rooms. Since last week, we have got substantive reports from the Standing Committee on Public Accounts, the Standing Committee on Foreign Affairs and International Development, the Standing Committee on Agriculture and Agri-Food, the Standing Committee on Health, the Standing Committee on Procedure and House Affairs, and the Standing Committee on Government Operations and Estimates.

We are now into the home stretch of the spring sitting. Since I would like to give priority to any bills which come back from committee, I expect that the business for the coming days may need to be juggled as we endeavour to do that.

I will continue to make constructive proposals to my colleagues for the orderly management of House business. For example, last night, I was able to bring forward a reasonable proposal for today's business, a proposal that had the backing of four of the five political parties that elected MPs. Unfortunately, one party objected, despite the very generous provision made for it with respect to the number of speakers it specifically told us it wanted to have. Nonetheless, I would like to thank those who did work constructively toward it.

I would point out that the night before, I made a similar offer, again, based on our efforts to accommodate the needs of all the parties.

Today we will complete second reading of Bill S-16, the tackling contraband tobacco act. Then we will start second reading of Bill C-57, the safeguarding Canada's seas and skies act.

Tomorrow morning we will start report stage of Bill C-49, the Canadian museum of history act. Following question period, we will return to the second reading debate on Bill S-6, the first nations elections act.

On Monday, before question period, we will start report stage and hopefully third reading of Bill C-54, the not criminally responsible reform act. After question period Monday, we will return to Bill C-49, followed by Bill C-65, the respect for communities act.

On Tuesday, we will also continue any unfinished business from Friday and Monday. We could also start report stage, and ideally, third reading of Bill S-14, the fighting foreign corruption act that day.

Wednesday, after tidying up what is left over from Tuesday, we will take up any additional bills that might be reported from committee. I understand that we could get reports from the hard-working finance and environment committees on Bill S-17 and Bill S-15 respectively.

Thereafter, the House could finish the four outstanding second-reading debates on the order paper: Bill C-57; Bill C-61; Bill S-12, the incorporation by reference in regulations act; and Bill S-13, the port state measures agreement implementation act.

I am looking forward to several more productive days as we get things done for Canadians here in Ottawa.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Mr. Speaker, it is nice to have that level of civility. I congratulate my friend across the way.

Before asking the usual Thursday question and before the government House leader across the way starts to talk about how he has been able to abuse Parliament over the past week, I would like to make a small observation for all those listening.

Of all the bills I am sure he is about to mention that are important, not a single bill passed through this legislative process in anything resembling a normal fashion. Bills S-8, S-15, S-17, S-2, S-6, S-10, S-16, C-56 and C-60, every single bill we have debated in the past week, operated under time allocation. I might parenthetically add that seven of them came from the Senate. It seems like a strange place for the government to get its agenda: a bunch of unelected, under-investigation senators, but so be it. It is the government's choice.

We tried to work with the government to find ways to allow the House to debate bills and to do so expediently. A good example is the Sable Island as a national park bill. For example, we offered up about five or six speakers who wanted to address the merits of the bill, which would have allowed the passage of that bill after they had spoken. The reaction from the leader from the other side was to move time allocation, which in fact ended up taking up more time in the House than the offer the NDP had made would have taken.

The Conservatives' strategy is sometimes bizarre. In fact, it is hard to figure out whether it is a strategy or not. I would like the Conservative member to enlighten me on this, even though the Conservatives' responses have no merit.

We have spent more than 14 hours debating and voting on time allocation motions in the past two weeks alone. I find it ironic that the government allots only five hours of debate to the content of the bill under time allocation, when the vast majority of our time is spent debating and voting on the time allocation motions and not on the bills. That is the Conservatives' way of doing business.

When will the Leader of the Government in the House of Commons learn that a hammer is not the only tool available for getting the work done?

Could the leader of the government tell us what his plans are for this week and the week following?

Tax Conventions Implementation Act, 2013

[Jasbir Sandhu, NDP, Surrey North, BC]

That is still missing. We do not even know about the $3.1 billion. We have asked, and we will keep asking. Hopefully in a few weeks, we will hear. The Conservatives have the whole summer to figure out where that $3.1 billion is. We are going to give them the summer to figure out if they can find that $3.1 billion.

The facts are that we could use this tax money to reduce our deficit, which is the largest under the Conservative government. However, the Conservatives have put no proposals forward. They are laggards in the G7 in coming up with progressive policies to go after these cheats so that we can recoup the money that has been lost by Canadians.

At the end of the day, it is Canadians who will end up paying for the mismanagement by the government.

I know that the Conservatives do not answer, but I asked them who was going to pay for the debt they have accumulated over the last six or seven years. In fact, they have not had a surplus budget. They call themselves fiscal conservatives. They have not had even one surplus budget. Who is going to pay for this? It will be my children, their children, their grandchildren and my grandchildren. It is unfair to leave the largest debt to our children.

We have ways we can collect this. Again, Conservatives have a chance to recoup some of the money being siphoned off to offshore accounts.

We talked about fiscal conservatives and their ability to manage budgets. They have not had a surplus.

Let me talk about their trade deficit. When the Conservatives came in, they had a $26-billion trade surplus. That means that we sold $26 billion more than we bought from other countries. That is good for Canada. It creates jobs. If we sell more of our products overseas, we create local jobs here. That is good. However, under the Conservative government, we have had a trade deficit of over $50 billion. That means that we are buying $50 billion more in goods coming into Canada than we are selling to other countries.

Not only that, under the Conservative government, our merchandise trade deficit is the largest ever. I mention that because that is how we create secondary well-paying jobs. However, under this government, we have had failure.

That is the Conservatives' record, whether it is on deficits or on trade. These are the two things they often talk about, but they do not tell us about the other side. They tell us that they have signed this or that trade deal, but the trade deficit just keeps growing. We asked on the trade committee to look at why we have a large trade deficit. They did not want to study that.

Not only that, getting back to Bill S-17, my hon. colleagues, the NDP finance committee members, offered a number of suggestions as to how we could go after these tax evaders. One of the suggestions we offered was the following:

That the federal government study and measure, to the greatest accuracy possible, Canadian tax losses to international tax havens and tax evasion, in order to the determine the Canadian federal “tax gap”.

They do not even want to go there. They do not even want to look at the deficit.

[Jasbir Sandhu, NDP, Surrey North, BC]

Mr. Speaker, I will try to sum up my thoughts for my constituency in the 16 minutes I have. It is an honour to speak to Bill S-17 on behalf of my constituents of Surrey North.

Basically the bill would bring into being bilateral income tax treaties with a number of countries in accordance with the OECD tax treaty standards. Basically we support harmonization and greater clarity of taxation laws, as well as bringing tax treaties into line with OECD standards, and therefore we will support the bill at this stage.

The Conservatives would have us believe that somehow the bill would address the elephant hiding here. The elephant is tax evasion, and the bill does not address tax evasion at all.

Before I get to the big elephant in the House, the one the Conservatives do not want to talk about, let me tell a story. My daughter was here about a month ago during her recess, and she had a chance to spend about three days with me.

She asked me what time allocation was. A 16-year-old was asking me what time allocation was, and I tried to explain it to her by telling her that time allocation was basically shutting down debate. It is a word I learned when I got here from my friends the Conservatives. They have now used it about 43 or 44 times.

I explained to my daughter that it was used when the Conservatives wanted to shut down debate and did not want to debate the bill before them. They do not want MPs who represent their constituents to give their views, so they basically shut down debate.

My daughter said, “That is not democracy. You should be able to represent our constituents and speak freely in this House”.

A 16-year-old understands that it is important to have the views of constituents and what they want in their constituency represented by their members of Parliament. A 16-year-old understands it.

We have seen time allocation after time allocation used by Conservatives in shutting down debate. That is not right whether we support the bill or not, and of course we support the bill. We want to highlight how we can improve the bill, and we would encourage the Conservatives to take some of those ideas to make the bills better and improve them.

One of the elephants that has not been addressed in the bill is tax evasion. We have heard reports. I have listened to very informative debate by my NDP colleagues highlighting what needs to be done and what is being done around the world, yet we have the Conservatives dragging their feet on addressing the big elephant in the room, which is tax evasion.

I had a chance to cruise through a number of headlines while listening to speaker after speaker this evening. I looked up tax evasion in Google News, and the first seven articles were about France taking on tax evaders, Italy taking on tax evaders. A headline from India said that the Indian government is going after tax evaders. I saw a headline from the United States to the effect that they are going after virtual tax evaders. These are headlines within the last six or seven hours.

Then I saw a Canadian headline about tax evasion. The headline from the Ottawa Citizen was basically that the Conservatives are dragging their feet in tackling tax evasion.

Our partners around the world, the G7 countries, our closest allies—Japan, the United States, Italy, Germany and the United Kingdom—have taken a leadership role in tackling tax evaders and getting additional revenue for the government.

My friend from Burnaby—New Westminster asked a very valid question. The Canadian government was offered information on hundreds of tax evaders, as my friend from Burnaby—New Westminster said. The Conservative government was being handed this information on a platter so that it could look at these tax invaders and go after them. What did the Conservative government do? Nothing. It did nothing.

There is another report, and we can look at some of the facts and figures. I know my Conservative friends do not believe in facts and figures, but $170 billion is being invested by Canadians in 12 of the largest tax haven countries, so there is a lot of money being invested in tax havens offshore by Canadians. It used to be a figure in the single digits back in the 1980s and 1990s, but under the Conservative government it has gone up to double digits. In fact, it is about 24%.

There is $170 billion going offshore, and the tax that we could collect from this, estimated by Canadians for Tax Fairness, is calculated at about $7.8 billion. That is what the Canadian government is losing because it is not going after the tax billionaires.

In this House, I have heard member after member talk about tax fairness and paying our fair share. I can assure members that hard-working people, people such as plumbers, electricians, taxi drivers, truck drivers and the professionals in my community, pay their fair share of taxes.

It is time for the millionaires to pay their fair share. The average person does not have the ability, or enough money, to put money offshore. Average working Canadians pay their fair share of taxes, but those with resources, those with tens of millions of dollars, are able to put this money offshore. That is $7.8 billion that we could have collected this year alone.

Why are my Conservative colleagues not going after this revenue? In fact, the money we could collect from offshore, the $7.8 billion, is being put on the backs of Canadians. We could use that money to reduce the largest deficit ever, a deficit that has occurred under the current government.

Let us talk about that. It is under the current government that we have had the largest deficit. It is not only a large deficit; we have also increased our debt by $200 billion under the Conservative government.

A few weeks ago I had a chance to stand up and ask a question. It was a very simple question. I asked who was going to pay for that $200 billion, the debt that Conservatives have accumulated over the last number of years. I did not get an answer. I would still like to get an answer on who is going to pay for that.

[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.

[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.

The House resumed consideration of the motion that Bill S-17, 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, be read the second time and referred to a committee.

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

Mr. Speaker, I am honoured to add my voice in support of today's important debate on the 2013 income tax convention implementation bill, Bill S-17, another step toward lower taxes for all Canadians.

Today, on tax freedom day, I would like to place Bill S-17 into the larger context. Over the years, our Conservative government has really devoted considerable effort to keeping taxes low for Canadian families and small business. Indeed, since 2006, we have cut taxes over 150 times, reducing the overall tax burden to its lowest level in 50 years. We have cut taxes in every way government collects them—personal taxes, consumption taxes, business taxes, excise taxes and much more. We cut the lowest personal income tax rate to 15%, increased the amount Canadians can earn without paying tax, introduced pension income splitting for seniors, which was certainly well received by seniors in this country, and reduced the GST from 7% to 6% to 5%, putting an estimated $1,000 back in the pockets of an average family.

Clearly, we believe that Canadian families should keep their hard-earned money. They know better what to do with it than does government.

We introduced and enhanced the working income tax benefit. We introduced the tax-free savings account, the most important personal savings vehicle since RRSPs. We increased the age credit amount by $2,000. We doubled the pension income credit to $2,000. We increased the amount recipients of the guaranteed income supplement, the GIS, can earn through employment, without any reduction in GIS benefits, from $500 to $3,500. Finally, we increased the age limit for RRSP to RRIF conversion to 71 years of age from 69.

Our strong record of tax relief has meant savings for a typical family of four of over $3,200 annually. Not only that, but this action has resulted in over one million low-income Canadians being removed from the tax rolls.

However, the good news does not end there. Our government has introduced a number of tax relieving measures for small business. After all, our Conservative government recognizes the vital role small business plays in the economy and job creation. That is why we are committed to helping them grow and succeed. Over 90% of business in Canada is small business.

Indeed, since 2006, our government has taken significant action to support small businesses, including reducing the small business tax rate from 12% to 11%; increasing the small business limit to $500,000; and eliminating the corporate surtax for all corporations in 2008, which was particularly beneficial to small business corporations, as the surtax represented a larger portion of their overall payable tax. There was much more.

Overall, our Conservative government low-tax plan has resulted in savings of $28,600 for a typical small business since 2006. That is about a 34% cut in their total tax bills.

There is another part of this low-tax plan, and that includes establishing tax treaties to help improve our system of international taxation, and this is precisely what Bill S-17 will do.

Bilateral income tax treaties, such as the one before us today, are utilized to eliminate tax barriers to trade and investment. Such treaties achieve that purpose in a number of ways. Allow me to explain how. First, they provide greater certainty to taxpayers regarding their potential liability to tax in foreign jurisdictions. Second, they allocate taxing rights between the two jurisdictions so that the taxpayer is not subject to double taxation. Third, they reduce the risk of burdensome taxation that may arise because of high withholding taxes. Finally, they ensure that taxpayers are not subject to discriminatory taxation in the foreign jurisdiction.

These are the great benefits Bill S-17 would bring to the market. It would provide benefits to both taxpayers and governments by setting out clear rules that would govern tax matters relating to cross-border trade and investment.

This is extremely technical legislation, and I apologize in advance. Nevertheless, it is important for the flow of predictable global commerce. For instance, tax treaties permit a multinational business based in one country to be taxed in another country if that business has a substantial presence in that other country. In general terms, if the branch operations in a foreign country are well established and significant, the country where those activities occur will, in most cases, have primary jurisdiction for that taxation. In other cases, where the operations in the foreign country are relatively minor, tax treaties provide that the home country retains the exclusive right to tax its residents. Tax treaties also allocate taxing rights between the two countries as a means of protecting taxpayers from potential double taxation.

This takes several forms, and again, this is all very technical. First, treaties generally include a mechanism for resolving the issue of dual residency of an individual or company, where the individual or company would otherwise be considered to be a resident of both countries. Second, treaties assign the primary right to tax to one country, usually the country in which the income arises, and the residual right to tax to the other country, usually the country of residence of the taxpayer. Third, treaties provide rules for determining which country will be treated as the source country for each category of income. Fourth, and finally, treaties provide rules limiting the rate of tax the source country can impose on each category of income and establishes the obligation of the residence country to eliminate double taxation that otherwise would arise from the exercise of concurrent taxing jurisdiction by the two countries.

In addition to these substantive rules regarding allocation of taxing rights, tax treaties also provide a mechanism for dealing with disputes or questions of application that arise after the treaty enters into force. In such cases, designated tax authorities of the two governments consult with a view to reaching a satisfactory solution under which the taxpayer's income is allocated between the two taxing jurisdictions on a consistent basis, thereby preventing the double taxation that might otherwise result.

In addition to reducing potential double taxation, treaties also reduce burdensome taxation by reducing withholding taxes that are imposed at source. Under Canadian domestic law, payments to non-resident persons of certain passive forms of income, such as dividends, interest and royalties, are subject to withholding tax equal to 25% of the gross amount paid. Many of Canada's trading partners also impose, under their domestic tax laws, similar levels of withholding tax on these types of income. Because the withholding tax does not take into account expenses incurred in generating the income, a taxpayer frequently will be subject to an effective rate of tax that is significantly higher than the rate that would be applicable to net income in either the source or residence country. The taxpayer may be viewed, therefore, as having suffered burdensome taxation. Tax treaties alleviate this burden by setting maximum levels for the withholding tax the treaty partners may impose on these types of income or by providing for exclusive residence-country taxation of such income through the elimination of source-country withholding tax.

Our government's goal is simple, to establish tax treaties that substantially reduce or, in the case of certain types of income, eliminate withholding taxes by the source country. In addition, we must include provisions that ensure that cross-border investors do not suffer discrimination in the application of the tax laws of the other country.

By delivering a favourable tax environment for Canadian businesses, we help them to compete and win internationally, increase investment and create jobs for Canadians.

Tax treaties like those in Bill S-17 would directly support cross-border global trade in both goods and services, which in turn would help Canada's domestic economic performance. The more foreign direct investment that flows into our country, the more investment in capital and in technology. This, in turn, results in more high-quality jobs for Canadians.

In fact, during the committee's examination, Nick Pantaleo, of PricewaterhouseCoopers LLP, remarked that:

...a key objective of the Canadian government is to pursue new and deeper international trade and investment relationships. This is not surprising given that more than 60 per cent of the Canadian economy and one in five jobs in Canada are generated by trade. In my view, tax treaties contribute toward the success of such global trading agreements.

He went on to add that:

It is important that Canadian businesses be provided with greater unfettered access to foreign markets, foreign investment protection and fair tax treatments in foreign nations.... These factors are critical to Canadian business decision making and competitiveness. Access to more and bigger markets will help Canadian companies simply to be more productive.

It would seem clear that the tax treaties contained in Bill S-17 are a critical tool in strengthening Canada's trade and investment relationships and in helping Canadian businesses stay competitive and successful.

However, there is another critical part to these tax treaties. I have already mentioned that keeping taxes low is an important objective for our government and an important part of these tax treaties. However, keeping taxes low also means that all taxpayers should pay their fair share of taxes owing and not be able to hide their income offshore.

Better transparency and the effective exchange of information for tax purposes between taxation authorities are key to ensuring that Canadian taxpayers report their foreign income and pay the right amount of tax in Canada.

We are absolutely committed to combatting tax evasion through the negotiation of tax treaties, as well as tax information exchange agreements or TIEAs. Under the tax treaties and the TIEAs, the competent authority of one country may request from the competent authority of the other country such information as may be necessary for the proper administration of the country's tax laws.

The requested information will be provided, subject to strict protections on the confidentiality of taxpayer information. Because access to information from other countries is critically important to the full and fair enforcement of Canada's tax laws in order to combat tax evasion, the inclusion of an information exchange provision that is consistent with the standards set out in the Organisation for Economic Co-operation and Development, OECD, is an important component of Canada's tax treaty policy.

While TIEAs and tax treaties are critical tools in combatting tax evasion, our government has a number of other tools in its arsenal and a proven record. Overall, since 2006, and including the measures announced in economic action plan 2013, our government will have introduced more than 75 measures to improve the integrity of the tax system.

These measures will help close tax loopholes, address aggressive tax planning, clarify tax rules and combat international tax evasion. In fact, this action will result in closing $2.5 billion in tax loopholes.

Additionally, economic action plan 2013 announced the stop international tax evasion program. This new program would allow the CRA to pay individuals with knowledge of major international tax non-compliance a percentage of the tax collected as a result of information provided. Other measures include, one, requiring Canadian taxpayers with foreign income or properties to report more information and extending the amount of time the CRA has to reassess those who have not properly reported this income; two, streamlining the process for the CRA to obtain information concerning unnamed persons from third parties, such as banks; and third, requiring certain financial intermediaries, including banks, to report their clients' international electronic funds transfers of $10,000 or more to the CRA.

It is measures like these that would help to maintain the integrity of Canada's income tax system. This is important because, when everyone pays their fair share, Canada's tax rates can remain competitive and low. This means that Canadian families and businesses would pay less tax overall, keeping more of their hard-earned money.

To conclude, in an increasingly globalized economy where investment capital is highly mobile, a competitive business tax system is crucial. While Canada has performed relatively well in today's uncertain global economy, we cannot afford to become complacent. The treaties covered in this proposed legislation would promote certainty, stability and a better business climate for taxpayers and businesses in Canada and in the treaty countries. More importantly, these treaties would help to secure Canada's position in today's increasingly competitive world of international trade and investment.

For the reasons I have highlighted today and many others, Bill S-17 would increase our ability to compete and harness the opportunities of a vibrant modern economy. For these reasons, I urge hon. members opposite to support this bill.

[Pierre Jacob, NDP, Brome—Missisquoi, QC]

Mr. Speaker, I will use Bill S-17 to talk about tax evasion.

People take advantage of our excellent economy, our extraordinary education system and our infrastructure to make money, but some refuse to pay their fair share. They keep their profits in offshore bank accounts in order to avoid paying taxes in Canada. According to the OECD, an estimated $10 trillion is hidden in tax havens around the world.

Every year, this scourge deprives Canada of $5 billion to $8 billion in revenues. According to Statistics Canada, between 2003 and 2008, Canadian investment in tax havens went from $94 billion to $146 billion. This is a quarter of our direct foreign investment.

As I already said, this is money that is owed to Canada. It is money that is not being spent here to renovate infrastructure or pay for services that would allow Canada to have a better social safety net. In the meantime, those who do not have the means to use tax havens are the only ones paying the bills. That is what my colleague calls tax fairness. Those who do not pay their fair share are often those who say we need to reduce spending. It is a great injustice that undermines the very foundation of our society. Tax evasion is one of the greatest challenges the federal government must face. Bill S-17 is a step in the right direction, but the step is far too small. Even though we will vote in favour of the bill, it is woefully inadequate.

Bill S-17 implements four tax treaties with Namibia, Serbia, Poland and Hong Kong. It also implements amendments to the treaties between Canada and Luxembourg and Canada and Switzerland. The purpose of the tax treaties is to avoid double taxation and prevent tax evasion. We support harmonizing tax laws and complying with OECD standards, and that is why we will support the bill. However, the government could do more.

Bill S-17 does not make any changes to Canada's policy. It is considered standard legislation of a routine nature.

To hear the Minister of Finance tell it, this bill is a major step forward in the fight against tax evasion. While it does contain provisions that will be useful to the government, it does not make up for the government's failure to take the major tax haven problem seriously.

The last budget was proof that the government is not taking the problem seriously. On March 20, 2013, 900 Canada Revenue Agency employees, including 400 tax auditors, received notices that they were in danger of losing their jobs because of budget cuts.

The Canada Revenue Agency's budget will be cut by about $460 million by 2015. How is the agency supposed to fight tax evasion with fewer employees and resources?

My NDP colleagues on the Standing Committee on Finance proposed several recommendations to combat tax evasion. I would like to share some of those recommendations.

First, the Canada Revenue Agency should require Canadian corporations and all of their subsidiaries to disclose all taxes paid in other countries. This measure would result in greater transparency concerning their activities in offshore tax shelters.

Second, the auditor general should evaluate, on a regular basis, the success of the Canada Revenue Agency in prosecuting and settling cases of tax evasion.

Third, the federal government should create an efficient system to identify tax evasion enablers including accountants, lawyers and other professionals.

Last, the federal government should to move towards a system of automatic tax information exchange with other countries. This would be a much more effective way to fight tax havens than the bilateral agreements covered in this bill.

We made clear recommendations to ensure tax fairness for all Canadians. They deserve to know how much tax evasion is going on.

Despite our repeated requests, the Conservatives are refusing to measure how much tax fraud costs us. The Conservatives' failure to collect lost revenue means that Canadians who do pay their taxes are on the hook for a larger share of the cost of government programs.

Why do the Conservatives insist on doing the bare minimum with respect to the serious problem of tax evasion and tax havens?

We hope that the government will introduce major changes to solve this serious problem instead of giving us routine measures like Bill S-17. This bill will not solve the problem. As I illustrated earlier, tax evasion is serious. The government must act now. I urge the government to consider our recommendations.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Mr. Speaker, we are speaking about Bill S-17. The reality is, as the member full well knows, that it is also a question of how the Conservative government implements these tax treaties. That is why we want to have a full discussion.

As well, the reality is that the government has been a colossal failure both in terms of uncollected tax debt and tax havens. We have seen a skyrocketing. Over the seven years of the Conservative government's watch, we have seen a 57% increase in uncollected tax debt because the government is fumbling the whole file. We have seen a doubling, almost $170 billion, of money that is invested in 12 global tax havens.

Given the government's massive failure on both files, the question is very simple. In terms of Bill S-17, how can we trust the Conservative government to implement it properly when it has failed every other time?

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

Mr. Speaker, my question for the member for Souris—Moose Mountain is this.

I am well aware that we are here tonight to debate Bill S-17 and that it deals with tax treaties. I have not heard a single member of this place suggest that they do not want to vote for it. I find it strange that on a treaty and a bill of no consequence, which everyone supports, we have time for debate and we have committee hearings, but on something that threatens the sovereignty of Canada, such as the Canada-China investment treaty, we have neither had hearings nor adequate time for debate.

Would my hon. friend from Souris—Moose Mountain like to join me in urging that we still have time for debate before that treaty is ratified?