Tax Convention and Arrangement Implementation Act, 2016

An Act to implement a Convention and an Arrangement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and to amend an Act in respect of a similar Agreement

Status

This bill has received Royal Assent and is, or will soon become, law.

Summary

This is from the published bill. The Library of Parliament often publishes better independent summaries.

This enactment implements a convention between the Government of Canada and the Government of the State of Israel for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and an arrangement between the Canadian Trade Office in Taipei and the Taipei Economic and Cultural Office in Canada for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. It also amends the Canada–Hong Kong Tax Agreement Act, 2013 to add to it, for greater certainty, an interpretation provision.

The convention and arrangement 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 convention and arrangement have two main objectives: the avoidance of double taxation and the prevention of fiscal evasion. Once implemented, they will provide relief from taxation rules in, or related to, the Income Tax Act. Their implementation requires the enactment of this Act.

Elsewhere

All sorts of information on this bill is available at LEGISinfo, provided by the Library of Parliament. You can also read the full text of the bill.

Tax Convention and Arrangement Implementation Act, 2016Government Orders

December 8th, 2016 / 1:55 p.m.
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Conservative

Garnett Genuis Conservative Sherwood Park—Fort Saskatchewan, AB

Mr. Speaker, it is great to see that so many government members have come to hear my speech. This is a good thing.

With respect to the trading relationship that happens between Canada and Taiwan, the main exports from Canada to Taiwan include mineral oil, asphalt, wood, coal, nickel, meat, railway vehicles, and metal ore. Canada is Taiwan's 24th largest trading partner. We import mobile devices, recording equipment, boilers, steel products, and plastic products. A lot of important economic exchange is happening between Canada and Taiwan.

The importance of Taiwan as a society is that it is Chinese-speaking—it obviously has a close relationship with China, in terms of cultural similarities—but it is also democratic. Some of these arguments we hear from the Peoples Republic of China are that it cannot have democracy there or that it has to have a different kind of a system because it reflects the culture. The reality is that democracy exists in Taiwan; it is very well and it is a strong example, in terms of what can work there.

I believe I will have a few minutes to continue later.

Tax Convention and Arrangement Implementation Act, 2016Government Orders

December 8th, 2016 / 3:05 p.m.
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Conservative

Garnett Genuis Conservative Sherwood Park—Fort Saskatchewan, AB

Mr. Speaker, I do want to take this opportunity while I am on my feet to particularly thank you for your involvement in hosting a great Christmas event yesterday for the children on Parliament Hill. My daughter was much more excited about meeting you than Santa Claus.

Just briefly, in my final few minutes, I will summarize what I have been talking about on this important bill. Bill S-4 would implement a tax treaty between Canada and the Government of Israel, Canada and the Government of Taiwan, and Canada and Hong Kong. It is important that we take this time to reflect on the importance of trade liberalization, in general, and certainly the benefits that have come to Canada and will continue to come to Canada as the result of our commitment to open trade.

I have called on the government to continue with what it has been doing, which is moving forward with the kinds of trade deals that we began under the previous government, but also to move from inertia from the continuation of these things to actually starting new initiatives when it comes to trade. We need now, more than ever, leaders who are prepared to recognize and speak to the benefits of trade.

I spoke about the importance of understanding the relationship between trade and our strategic interests, and how our relationships with the countries that are identified in this legislation are particularly important, because of the strategic dynamics that are at play—the kind of relationship we have with Taiwan as a democracy in the Asia Pacific region and certainly the relationship we have with Israel as a democracy in the Middle East.

Our desire to pursue stronger commercial ties reflects Canada's economic interests but also reflects our values and the benefits of working together, in particular at a commercial level, with countries that share our values.

We are pleased to support this bill and hope to see it pass.

Tax Convention and Arrangement Implementation Act, 2016Government Orders

December 8th, 2016 / 3:05 p.m.
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NDP

Pierre-Luc Dusseault NDP Sherbrooke, QC

Mr. Speaker, I thank my colleague for his speech on this very important subject.

I wonder if he, like me, became suspicious when he read the bill's title, which refers to preventing income tax evasion. Does he really believe that this bill and its scheduled conventions will fight tax evasion?

Granted, perhaps the information-sharing agreements between signatories could be of some use in that regard. However, the language used in these conventions is much weaker than what is usually found in international information-sharing agreements.

Does my colleague have any faith in the title, which says that these two conventions for the avoidance of double taxation will be enough to prevent fiscal evasion?

Tax Convention and Arrangement Implementation Act, 2016Government Orders

December 8th, 2016 / 3:05 p.m.
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Conservative

Garnett Genuis Conservative Sherwood Park—Fort Saskatchewan, AB

Mr. Speaker, I think this bill is an important step in the right direction. That is why our party will support it.

It is a step in the right direction. Certainly, the measures undertaken will make a significant and positive difference in combatting tax evasion. If the member has proposals for further enhancing co-operation between the countries identified here with respect to security and enforcement, those would potentially be good proposals. However, the provisions that are here are positive and absolutely worth supporting in light of the impacts they will have.

Tax Convention and Arrangement Implementation Act, 2016Government Orders

December 8th, 2016 / 3:10 p.m.
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Liberal

Robert-Falcon Ouellette Liberal Winnipeg Centre, MB

Mr. Speaker, this is a fine bill from the Senate. Taiwan is our 12th largest trading partner. It is a democratic jurisdiction that we need to support. We do a lot of trade and we need to find ways to build relationships to ensure Canadians can not only do business in Canada but in Taiwan as well, and eventually use the value chains that have been created into China to ensure we build relationships.

This type of agreement would not only allow Taiwan, Canada, and our citizens to truly benefit, but also China. A successful Taiwan is a successful China. This is why I am pleased to support the bill. I am pleased to hear that a lot of members in the House agree. I hope the hon. member for Sherwood Park—Fort Saskatchewan can also agree.

Tax Convention and Arrangement Implementation Act, 2016Government Orders

December 8th, 2016 / 3:10 p.m.
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Conservative

Garnett Genuis Conservative Sherwood Park—Fort Saskatchewan, AB

Mr. Speaker, the member made some very good points, especially about the Taiwan-China relationship. It is interesting how there are fundamental differences with respect to not only the kinds of systems that exist in those countries, but also in the way that the People's Republic of China views Taiwan. However, significant trade and commercial activity happens between those countries as well.

With respect to our relationship with Taiwan, it is important for Canada to deepen that partnership not only for our economic interests but also because of the benefits that come strategically from having stronger partnerships with other democracies within the Asia-Pacific region. That is important for China because of the potential commercial bridge that exists there. It is also important because of the way in which we can, through these partnerships with other like-minded Asia-Pacific countries, work to set the terms of trade in the Asia-Pacific region in a way that reflects our values, international human right, labour rights, environmental rights, and these sorts of things.

Incidentally, I have always been a strong supporter of the trans-Pacific partnership, which in the first round did not include Taiwan, but could potentially include Taiwan in a future round. Whatever form that co-operation takes, it is important that we emphasize the importance of collaboration among those democracies in that region.

Tax Convention and Arrangement Implementation Act, 2016Government Orders

December 8th, 2016 / 3:10 p.m.
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NDP

Pierre-Luc Dusseault NDP Sherbrooke, QC

Mr. Speaker, as a follow-up to the previous question about this important trading partner in the Asia-Pacific region that is Taiwan, could my colleague expand a bit on the fact that Taiwan could be a stepping stone for Canadian businesses in the Asia-Pacific region, not only with China but with Canada's other trading partners in the region, particularly given the intellectual property regulations that are in place in Taiwan but not in China?

Could the member tell us more about Taiwan being a potential economic stepping stone for our businesses in the Asia-Pacific region?

Tax Convention and Arrangement Implementation Act, 2016Government Orders

December 8th, 2016 / 3:10 p.m.
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Conservative

Garnett Genuis Conservative Sherwood Park—Fort Saskatchewan, AB

Mr. Speaker, my colleague raises a very good point. It is not that we should never or can never trade with countries that do not share our values or respect universal human values, but it is certainly much easier and, to a much greater extent, beneficial to be able to prioritize trade with those countries where there is a commonality in values, and also where we are able to work from similar rule of law standards. That is what makes trade easier with places like Taiwan, as well as other countries in the Asia-Pacific region, Australia, New Zealand and Japan. They have similar intellectual property standards to us when it comes to human rights, labour rights, and protecting the environment. My colleague is quite right that it is particularly important, easier, and also beneficial to us economically and strategically to engage with those types of countries in particular.

Tax Convention and Arrangement Implementation Act, 2016Government Orders

December 8th, 2016 / 3:15 p.m.
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Winnipeg North Manitoba

Liberal

Kevin Lamoureux LiberalParliamentary Secretary to the Leader of the Government in the House of Commons

Mr. Speaker, my friend and colleague has recommended I pose a question. Not wanting to disappoint him, I have a question for the member.

When we talk about the issue of taxation policies, which is a very important aspect of trade agreements in principle, and when we look at the countries in question today, Israel, Taiwan, etc., it is important that we recognize it further advances and formalizes an important aspect of an agreement that is already in place. By doing that, we reinforce those trade connections between Canada and other specific countries. I see that as a good thing. We have to recognize that Canada is in fact a trading nation and we are very dependent on world trade.

Tax Convention and Arrangement Implementation Act, 2016Government Orders

December 8th, 2016 / 3:15 p.m.
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Conservative

Garnett Genuis Conservative Sherwood Park—Fort Saskatchewan, AB

Mr. Speaker, I agree with my friend from Winnipeg North on the benefits that have come to Canada through trade. We are a trading nation. The benefits that come from that are not always obvious or are taken for granted in our political debates. However, the Conservative Party has really led the way in demonstrating the benefits of trade and in signing and negotiating new trade deals. As I said during my remarks, it is good to see some of the continuation of that policy in certain respects with regard to trade.

At the same time, we are not seeing nearly as strong a willingness on the part of the government to really defend the importance of trade. We see the Liberals completing some of the things that were started under the previous government, but we will wait to see whether there is actually a willingness to start new initiatives. It is at least encouraging to hear some of the words that have been said about this bill. Again, whether we will see actions follow from that on new initiatives remains to be seen.

We strongly affirm on this side of the House that, yes, Canada is a trading nation and indeed must be a leader in speaking out about and demonstrating the benefits that come from open trade.

Tax Convention and Arrangement Implementation Act, 2016Government Orders

December 8th, 2016 / 3:15 p.m.
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NDP

Pierre-Luc Dusseault NDP Sherbrooke, QC

Mr. Speaker, very quickly, I would like to ask the same question I asked my Liberal colleague earlier, who did not seem to think that conventions for the avoidance of double taxation can potentially facilitate tax evasion.

According to its title, the bill will fight tax evasion. However, let us look at the Canada-Barbados tax agreement. Taxation levels in Barbados are very low, and the agreement we have with that country is used by certain individuals to avoid paying their fair share of taxes.

Does the member see any danger with our 92 conventions? Could some of them potentially facilitate tax evasion?

Tax Convention and Arrangement Implementation Act, 2016Government Orders

December 8th, 2016 / 3:15 p.m.
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Conservative

Garnett Genuis Conservative Sherwood Park—Fort Saskatchewan, AB

Mr. Speaker, I am not going to comment specifically on the deal with Barbados. It is not what we are debating in front of us, and, honestly, I do not know the details on that agreement.

In general, though, sometimes we get this perspective that jurisdictional competition is necessarily a bad thing. I do not think we should assume that jurisdictional competition with respect to tax rates is always a bad thing. In fact, often it can be a very good thing. If jurisdictions are competing to offer a more efficient combination of public services and lower taxes, then many economists would tell us that this leads to better service delivery and a more optimal combination of services and taxes.

Tax Convention and Arrangement Implementation Act, 2016Government Orders

December 8th, 2016 / 3:15 p.m.
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NDP

Pierre-Luc Dusseault NDP Sherbrooke, QC

Mr. Speaker, I am pleased to rise in the House at second reading stage of Bill S-4. The bill passed third reading in the Senate on Monday. It was sent to us, and it is important that we debate it here in the House.

I understand that the government is rather eager to pass Bill S-4. If it receives royal assent by January 1, the two tax conventions that are listed in the bill, specifically with Israel and Taiwan, will come into effect. The ultimate goal of those conventions, as other members have said in their speeches, is to avoid double taxation. When you pay taxes in one jurisdiction and repatriate money that has already been taxed by another jurisdiction, it goes without saying that Canada does not tax that income a second time.

The bill contains two conventions. The one with Israel is in fact an update, since we have had a convention with Israel since 1975. We are simply updating it today, adding new OECD standards based on its model agreement for the avoidance of double taxation. The bill therefore aims to bring the previous convention with Israel in line with current OECD standards.

The second convention in the bill is completely new. We have never had this type of convention with Taiwan. It is something that did not exist before, which is rather positive.

The bill also includes a technical change to the Canada–Hong Kong Tax Agreement to clarify the situation of the convention with Hong Kong to make it parallel to that of Taiwan. These two territories have special status with respect to China. Since we are adopting a convention with Taiwan, we have to update the terminology used in the description of the convention with Hong Kong to ensure that it is identical to that of Taiwan.

I will not spend too much time on the convention with Hong Kong except to say that we have to be careful in this case because according to one expert who testified on the matter on Monday at the Standing Committee on Finance, the proposed change in the convention with Hong Kong could be interpreted as a reopening of the tax treaty. In a way, we might agree that the current convention with Hong Kong is not in force because of the inaccurate terminology. This could be looked at more closely. I believe that the technical change for ensuring consistency with the Taiwan convention is entirely appropriate.

I will also mention that we will support Bill S-4, introduced in the House today. It comes to us from the Senate because, traditionally, tax conventions come from the Senate. Last year, we saw this a number of times. As hon. members know, there are 92 tax conventions in Canada. Currently, some are being negotiated, while others are in line to be ratified, like the ones we are talking about today.

Traditionally, bills on such conventions originate in the Senate. They are subsequent to negotiations between the jurisdictions. I cannot use the term “country“ in this context, because we are talking about Taiwan. We have to be careful about the words we use. I know that we could make diplomatic mistakes with the status of Taiwan.

We need only think of what happened last week when the U.S. president-elect put his foot in his mouth on this issue. In diplomacy, we must pay attention to the words we use.

To summarize, these conventions are negotiated between two authorities, and that can take some time. In Taiwan's case, among others, negotiations were lengthy. We were discussing it back when the Conservatives were in power. This convention was finally signed in January 2016 by the Taipei Economic and Cultural Office in Ottawa and the Canadian Trade Office in Taipei.

This was done intentionally so that this arrangement would not be negotiated nation to nation, which could be perceived as a diplomatic faux pas. China could have believed that we recognized Taiwan as a separate state. We had to be careful and that is why it was the two offices that negotiated the Canada-Taiwan agreement, by following the instructions of their own governments, of course. These negotiations lasted a long time, and the agreement was finally signed on January 21, 2016, if my memory serves me correctly.

Nearly a year later, the government is now proposing to implement it. The Parliament of Taiwan ratified it fairly quickly in February 2016. It has taken us a little longer. I tried to find out why, but the government has not yet explained why it is only bringing this forward in December 2016. The government is saying that this is practically a national emergency because if the arrangement is not ratified before the end of December, it cannot be implemented until January 1, 2018. The reason is that the text of the arrangement stipulates that the arrangement will take effect on the first day of January in the year following its ratification. That is why the government is saying that it is urgent that the arrangement be ratified so that it can take effect on January 1, 2017.

As the parliamentary secretary mentioned, the convention with Israel has unfortunately not yet been ratified by Israel's parliament. We will see whether it can be ratified before December 31 so that it too can take effect before January 1, 2017.

We are going to support the bill because of these two agreements, but we have serious reservations regarding the tax conventions. I spoke about the risk associated with tax conventions when I asked my colleagues questions. I wanted to comment on it further because, in this case, the disparity between the tax rates of the countries and authorities with whom we are ratifying conventions for the avoidance of double taxation and our own are not necessarily problematic.

Thanks to the research done by the Library of Parliament staff, whom I would like to thank, we were able to find out the specific tax rates of individuals, businesses, and trusts in the two jurisdictions in question, Israel and Taiwan. They are very similar to those in Canada. Tax rates are a bit lower in Taiwan, but Israel has more progressive tax rates, which means that they are a bit higher than ours, so there is not necessarily a problem in this case.

However, tax conventions can be dangerous when they are signed with low or no tax jurisdictions. Indeed, there are countries that require no income tax to be paid whatsoever and that take part in this tax competition that puts downward pressure on tax rates. It is a serious problem for our society, and one that needs to be resolved. We need to pay particular attention to those countries. In this particular case, there is no problem.

However, as I was saying earlier, we have a tax treaty with Barbados. One of my colleagues in the Bloc Québécois raised this issue a few months ago and moved a motion to have this tax treaty with Barbados reviewed. That treaty is of the same nature as the ones we are studying today and very similar to the Organization for Economic Co-Operation and Development model, a convention adopted in 1980, and similar to the ones we are studying today. There are a few differences, because at the time, the OECD model was a little less detailed, but it is essentially the same model used today.

What might suggest that the tax treaty with Barbados is perhaps being used for the wrong reasons is that, in 2014, Barbados ranked second in terms of Canada's foreign investments abroad, after the United States of course, which is our largest trading partner given its proximity and the fact that our administrations are similar from a legal standpoint for both corporations and individuals. It goes without saying that the U.S. is our most important economic partner.

It is surprising, however, that according to Statistics Canada figures, Barbados ranked second in 2014—and not only in 2014, since Barbados was also near the top of the list in 2015, in third place. It also ranked second in 2013.

There is reason to wonder why the second largest recipient of Canadian foreign investment is Barbados, a tiny Caribbean country that has no major economic activity to speak of. It does raise questions.

Looking at the numbers, one cannot help but wonder what is going on there, what could possibly attract so much Canadian investment in Barbados, and whether an investigation is in order. However, there is no need to dig very deep to find out why Barbados is the number two destination for all of our foreign investments in the world. The main reason is that we have an agreement with Barbados to avoid double taxation.

That allows companies who decide to take advantage of this agreement to send money from their subsidiary in Barbados to Canada and then declare to the Canadian tax authorities that they have already paid their 0.5% tax in Barbados. As a result, they do not pay taxes in Canada because, according to the agreement, when a party pays taxes in another country and brings the money back to Canada, there is no second taxation.

As I said earlier, there is no problem with Taiwan and Israel. In other cases, however, there are huge issues because we allow companies to pay a lot less in taxes than what they would pay if taxation levels were similar to Canada's.

That is why it is with a note of caution that I support Bill S-4 today. I want to highlight the problem and raise a red flag for the government's benefit. The parliamentary secretary did not seem to know what the problem was when it was raised by my colleague—he did not seem to know what the problem was or want to consider it. Unfortunately, the Liberals voted against a motion to review the Canada-Barbados tax treaty. I would like to remind my honourable colleagues of that, and I call upon the government to at the very least commit to reviewing the 92 conventions we have with other governments around the world, because problems could arise.

If today we say yes to a treaty with Taiwan to avoid double taxation and if, a few years later, Taiwan decides to modify its regulations to become a competitor in the race to the lowest tax rates, then maybe our conventions would need to be reviewed.

That is the crux of the message I wanted to send the government today. It should start taking a close look at the tax situation in every country with which we have a convention because there could come a time when such conventions are used to subvert the very ideals underpinning them.

The title of the bill mentions preventing tax evasion. We have to ensure that these conventions stand the test of time as tools to prevent tax evasion, not to facilitate it. In some cases, they facilitate tax evasion.

I hope there will be at least one mechanism that enables the government to examine and monitor the tax situation in the jurisdictions with which we have tax conventions. It would be very disappointing if the government did not commit to monitoring the situation in those jurisdictions because such neglect could lead to serious problems. We know that tax evasion is an extremely serious problem, and it is definitely one of my priorities as the national revenue critic.

This is a problem for every country in the world and every person on the planet seeking better government services. The government's role is to provide services to citizens, but when companies and individuals have more and more ways to avoid paying their fair share, our societies pay the price. The honest ones who pay their fair share end up having to pay more every year. They have to contribute more because some taxpayers decide to play by different rules and avail themselves of the services of unscrupulous tax experts who have no ethical qualms about trying to make their clients pay as little tax as possible. Sometimes they use questionable schemes that the Canada Revenue Agency disputes, thankfully. More often than not, it turns out that these schemes are perfectly legal.

These conventions to avoid double taxation are one of the components of the Income Tax Act that make tax evasion legal. There are many other ways to review our policies and legislative measures to fight tax evasion. The government should make this bill and this file a priority instead of talking only about investments. We are told repeatedly that $444 million has been invested in fighting tax evasion.

If tax evasion continues to be completely legal in some cases, tax experts will be able to defend their cases before the courts by saying that they obeyed the law and that there is no problem. The Canada Revenue Agency will challenge this by holding that they did not obey the spirit of the law. The tax experts will win and manage to find new ways every time to get around our tax measures and ensure that their clients do not pay their fair share in society. That is unacceptable.

It is the issue of the day, and I would like to see the government take it more seriously, not only by investing money to find the guilty parties, but also by making the necessary effort to make tax evasion as difficult as possible for the dishonest people who engage in it.

There is something relatively positive in these conventions that is not necessarily something we want to see, and that is a tax information exchange. For example, in this convention with Taiwan, it is good that a section of this agreement talks about a tax information exchange, but the best solution would have been a tax information exchange agreement that was separate from the convention on double taxation. This is a much more robust mechanism for exchanging information, even though any such exchange is on request, which is a major drawback. In fact, the government has to have its suspicions before it can request information from the jurisdiction with which it has an agreement. It is not an automatic exchange. I know we are heading toward an automatic information exchange, but that is not in the bill and it is something we would like to see in the future.

We would like to see more investments, legislative measures, and information exchanges that are truly effective and allow for information to be obtained in real time. We would like to see a shift from on request to an automatic exchange.

I would be pleased to answer my colleagues' questions.

Tax Convention and Arrangement Implementation Act, 2016Government Orders

December 8th, 2016 / 3:35 p.m.
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Liberal

David Graham Liberal Laurentides—Labelle, QC

Madam Speaker, I thank my colleague from Sherbrooke for his rather interesting speech.

During the debate and in his speech, he talked about risk a number of times. Bill S-4 applies to current treaties that have already been signed. I believe that if we intend to sign treaties with other countries we will.

I question the sincerity of his concern since he is looking at this bill through the lens of countries with which we have no agreement.

Tax Convention and Arrangement Implementation Act, 2016Government Orders

December 8th, 2016 / 3:35 p.m.
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NDP

Pierre-Luc Dusseault NDP Sherbrooke, QC

Madam Speaker, I gladly go back to the issue of risk and potential danger.

There are two treaties before us. The one with Taiwan is brand new since we started from scratch. The one with Israel is only an update to apply the OECD model. That being said, there is a potential danger. I remind my colleague that we have 92 similar tax treaties.

Of course, I keep mentioning the ones that we often hear about, the ones that seem problematic. Therein lies the potential danger, and that is why I recommend that the Parliamentary Secretary to the Minister of Finance establish a mechanism to monitor the tax situation of the countries we sign conventions with. That would ensure that, over time, treaties like the ones with Taiwan and Israel remain reasonable and do not facilitate tax evasion like others do.

I want to emphasize that there is a potential danger and encourage the government to closely monitor the situation in every jurisdiction to make sure that our tax treaties do not defeat the purpose of this bill.