Bill S-4 (Historical)

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

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.

Tax Convention and Arrangement Implementation Act, 2016

[Monique Pauzé, Bloc, Repentigny, QC]

Madam Speaker, I listened to my colleague with interest, and I can see how knowledgeable he is on this topic.

In his speech, he talked about the things that need to be taken into account in a treaty. I have two questions for him.

First, do we need to take into account Israel's borders? Are those living in the Israeli settlements part of Israel or not? I did not get a clear answer to that question earlier.

Second, my colleague talked about how urgent this treaty is. However, in 2009, when the Conservative government entered into treaties with 22 tax havens, it did so via regulation, never by means of a bill such as Bill S-4, so in my opinion, there is no urgency here.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Madam Speaker, I am very pleased to speak at this stage of the debate on Bill S-4. Before I get into the meat of the matter, I would like to thank the people of the provincial riding of Chauveau for honouring me with their trust and launching my wonderful career eight years ago to this day. I thank the people of Chauveau, whom I now represent to the best of my ability here in the House of Commons as the member for Louis-Saint-Laurent.

We are at second reading of Bill S-4, which, as the title suggests, is a Senate bill. This is basically a technical, not to say mechanical, bill about the application of certain trade agreements with Taiwan and Israel. To be precise, it is about a convention and an arrangement for the avoidance of double taxation and the prevention of fiscal evasion for people who do business in Canada and Israel or Canada and Taiwan.

As people keep saying during this debate, no one wants to pay taxes twice on the same income. Once is enough and sometimes even more than enough. A second time is unnecessary and can even make investors less keen. International trade and free trade agreements between our country and other parts of the world contribute to growing our country's economy. It is therefore important to have agreements that facilitate these exchanges. This bill seeks to facilitate the process for the two partner jurisdictions. I will come back to the benefits of free trade between different countries.

Let us look more specifically at what is going on in this bill with regard to Israel. Bill S-4 seeks to update an agreement that was concluded many years ago in 1975. A lot has happened since then. That was more than 40 years ago. In any international dealings, especially international trade, it is appropriate to comb through the previous piece of legislation to ensure that it meets modern standards and is adapted to the new realities that investors face in Canada and abroad.

For Israel the agreement dates back to 1975; for Taiwan, it is an entirely different story. A tax convention was drawn up by the previous government, but it had to be updated by Bill S-4, which has already been passed by the Senate. It is important to know that if the House of Commons does not pass the bill before the end of the fiscal year, December 31, the process will be delayed by one year. This could negatively impact our economy and trade between Canada and Israel and between Canada and Taiwan next year. That would mean one less year to stimulate our economy, which is not a good thing.

Furthermore, I would like to state that the Canada-Hong Kong Tax Agreement Act, 2013 is also affected by Bill S-4, which we are studying today.

As I was saying earlier, this bill is extremely technical. I read a little of it to ensure that it made sense, and I noted that all aspects were examined in great detail. To be honest it is rather well written. This kind of agreement is often a bunch of gibberish and can be difficult to deal with.

About ten years ago, when I was a journalist, I did a story on the Hon. Lawrence Bergman, who was the Quebec minister of revenue at the time, and who drafted laws concerning income. Those laws are really something. They are very thick documents that are technical in the extreme, so much so, that you cannot follow them. However, the Hon. Lawrence Bergman, who was a notary, took great pleasure in reading every word of the bills he introduced. Some would say that it was his work and that it was his duty to do a good job.

We understand that when it comes to more general laws. However, the details of trade agreements or agreements affecting income tax returns can be a very sensitive subject. That is why we need experts to draft these laws. That is exactly what happened with Bill S-4.

A few days ago, a parliamentary committee examined the issue. We were able to speak to experts, to those who helped draft the bill. We did our best to leave no stone unturned. We are not perfect, but we did the best we could. There were concerns on this side of the House.

Yes, these are direct agreements to avoid double taxation for those involved in trade between Canada and Israel and Canada and Taiwan. Taiwan is a territory that is central to the potential economic development that could occur under the trans-Pacific partnership agreement, if somehow everything goes well and this government supports the agreement that we signed a year and a half ago. It is at the heart of the economic development resulting from Canada's trade with its partners and hundreds of millions of customers.

We asked questions about the consequences this could have on Japan and China, two major trading nations in the Asian economy. The officials we spoke with assured us that everything would be done properly, that Bill S-4 would have no negative consequences on potential trade with Japan and China. That is a good thing.

However, I did not get an answer to one of my questions. That is unfortunate, but that will not stop me from supporting the bill. It is always a good idea to examine the potential and the economic impact of every piece of legislation we are voting on. My question was quite simple. I asked if they had measured the economic impact that these new agreements could have on Canadian production.

The agreements were considered from a legal and political standpoint to make sure that diplomatic relations between the three countries—Canada, Taiwan and Israel—would carry on. The economic impact, however, was not assessed. Still, let us be confident that our investors and our business people will better be able to take part in rich and dynamic economic activity abroad, which is good for Canada's economy. That is very important for us.

We need to consider these things when examining a bill. We need to understand the real impact this will have on the economy, on businesspeople, and on those who will be directly affected, in other words, people who do international trade between Canada, Israel, and Taiwan.

Let us now look more carefully at what is really involved with these two jurisdictions. As the members know, Taiwan is a major economic player. It is known as one of the four Asian tigers. Yes, it is important that our country have strong economic relationships with all of them, and it does. Obviously, and as everyone knows, Taiwan exports a great deal and has limited natural resources compared to our magnificent and huge country, but it is doing well globally. In fact, it is nothing short of spectacular and impressive, economically speaking.

Imagine how many thousands of items we have held in our hands in our lifetimes that say, “Made in Taiwan”. Yes, we trade with Taiwan, but trade has to be a two-way street. There may have been some flaws in the previous agreements that might have led to double taxation. That is what we call a spoke in the wheels. That is the case for Taiwan.

For Israel, look at the deep, sincere, productive, and globally inspiring ties that exist between Canada and Israel. We know that this state was born in controversy after the second world war. Everyone knows it. The day after its creation, Israel was already at war. That is why I say it was created in controversy. I am not saying it was right or wrong, but obviously when a state is created one day and invaded the next, one might call that a rocky start. However, without rewriting history, everyone knows that today, Israel is the democratic state in the Middle East that can inspire all the other countries. Israel is our friend and ally. Canada is a friend and ally to Israel.

We know that Israel's population is eight million. It is the 38th-largest economy in the world, second only to the United States in terms of start-ups, brand-new companies with big potential and definite risk.

People go on and on about Israel's outstanding economic performance. Despite being the perpetual target of neighbouring enemies' hostile ambitions, Israel continues its extraordinary advance on all fronts and in all economic sectors.

I had the privilege of visiting this magnificent country in 2009 at the invitation of a charity very familiar to the member for Mount Royal, CJPAC. I would like to thank the group for inviting me. I went with my former colleagues from the National Assembly, and I learned so much about this magnificent democracy, an eternally optimistic country that is an inspiration to us all.

Like everyone else, I was impressed because anyone who visits Israel is impressed by its vitality and surprising agricultural capacity. Let us not forget that things can be hard to grow in that part of the world. It takes a lot of hard work because it is basically a desert. However, thanks to hard work and engineering together with Israeli ingenuity, a country that many thought of as basically a pile of sand is a place that creates jobs, wealth and remarkable agricultural output.

It seems, and I see my colleagues nodding, that dairy production is impressive. It is even said, and this may be a bit of folklore, that Israeli cows produce the most milk in the world. I know this because I have spoken with local farmers who told me that if the cows do not produce they are sent out into the desert. Members believe I am kidding. In some way, this illustrates the extraordinary will of the Israelis to develop the full potential of their country, which should inspire all of us here, in Canada, to develop our full potential in an orderly way.

In some areas, such as the environment, they do not have to take lessons from anyone. They are leaders in solar energy. Some will say that is obvious because it is always sunny in that country. Naturally, that does help. Nevertheless, they do not have a lot of water in Israel.

Israel is a world leader in water conservation, water desalinization, and water recycling. All that potential is extraordinary. We could talk at length about the economic vitality of this fascinating country.

Israel is a leading nation in research and development, in terms of the R and D-to-GDP ratio. Of course, there are bigger economies. We need only think of our American friends, who invest a lot more money than Israel in R and D. Still, a country like Israel, with a population of 8 million people, has the best R and D-to-GDP ratio in the world. That is inspiring.

I will digress a little bit while we are on the subject of to-GDP ratios. I remind members that Canada had the best debt-to-GDP ratio in the G7 when our government left office, and that allowed the current government to make a few foolish economic decisions. Still, the fact of the matter is that we left the house in order.

Let us return to the subject of Israel, a country where high technology is front and centre. Beyond the capacity to take advantage of its natural resources, when a country puts its most brilliant minds to work, then that country really shines because it is generating pure wealth. Israel is such a country, a high-tech hub where what does not yet exist is being invented and created. Microsoft, Intel, Appel, Google and all the other high-tech communications corporations have highly specialized and developed research facilities. That is where the action is, where things happen.

In closing, what is happening in Israel is inspiring and must be acknowledged. We especially need to recognize that these people are able to fully realize their potential, particularly when it comes to natural resources. They managed to draw from their arid land a tremendous amount of potential, and the potential they are drawing from their minds—which are anything but arid—is just as amazing. That is why Canada needs to be friends with Israel.

Here is one last interesting figure: Israel has the best ratio of scientists to workers in the entire world. In Israel, there are 140 scientists for every 10,000 workers. That is the best record on the planet, and it explains why these people are such great leaders in research.

Israel is our friend, and we should do everything we can to make sure that trade with that country goes well. Bill S-4 will help with that.

Let us now talk about the importance of free trade. I think that it is important to talk about free trade when it comes to international relations and international trade. The government and the official opposition agree on the principle of free trade. We sometimes disagree, are divided, or have different views on some aspects of it, but overall, we agree that free trade is the future and will drive economic development.

We cannot talk about free trade without remembering the epic battle that took place in the House of Commons and across Canada about 30 years ago in 1986, 1987, and 1988 under the leadership of the Right Hon. Brian Mulroney. At the time, Canada had entered into negations that were difficult at first but that produced an extraordinarily successful result, and that is the Canada-U.S. Free Trade Agreement.

The facts are the facts. We must remember that, in 1983, the man who gave us the free trade deal, Brian Mulroney, was against free trade. During the 1983 Conservative Party leadership race, John Crosbie, a Newfoundland MP running for the leadership, said that he was in favour of free trade. Mr. Mulroney, a Montreal businessman originally from Baie-Comeau, said it was not a good idea because it would be like an elephant sleeping with a mouse. Guess which one would crush the other. That was Brian Mulroney's analogy. I feel like I am channelling him here.

Mr. Mulroney, an intelligent man capable of recognizing when his opponent landed a good blow, was inspired by John Crosbie and said that Canada would do free trade. France even recognized his extraordinary leadership just a couple of days ago by inducting him into the Legion of Honour. I had the privilege of attending the event. What a great moment. The current Prime Minister, the member for Papineau, toasted him graciously.

This goes to show that Canadians have no political stripes. When great Canadians are honoured, we all win.

Sorry, I went from Quebec City to Ottawa via Sept-Îles. I went on a little detour. Since we were talking about Brian Mulroney, I could be even nicer and say that I went from Quebec City to Ottawa via Baie-Comeau.

On September 13, Brian Mulroney delivered a wonderful and very interesting speech at the University of Calgary. In his speech, he talked about free trade's track record over the past 30 years. I will quote from that speech:

“The statistics alone speak to the success of the FTA. Trade volumes more than tripled in less than 20 years – from $235-billion...[to $800 billion today]...Trade exploded into the largest bilateral exchanges between any two countries in the history of the world”.

We are more than just good friends with the Americans. We are also the Americans' best trading partner. We are also their biggest competition. We should be proud of that.

In the two hours or so, $250 million in goods and services will be exchanged by Canada and the U.S. This is more than $1 million every minute of every hour of every day, more than $2 billion in total each and every day of every week of every month of every year.

All that to say how important trade is between our two countries. That is why we need to support and promote free trade. We also know that we signed the trans-Pacific partnership just a year and half ago, and that agreement will also help create wealth. We should also support that. Other negotiations are under way, and we should encourage them because Canada is an export country.

I went to Vancouver for the Special Committee on Electoral Reform. To make a long story short, I was on the 27th floor of the hotel I stayed at. I had a magnificent view of the Vancouver harbour, and I counted no less than 12 container ships bound for Asia stacked full of merchandise. That is what it means to create wealth. When our goods and services can be exported overseas and other countries buy them, that means money coming into Canada. Let us hope that Bill S-4 will help create jobs and wealth.

[David Graham, Liberal, Laurentides—Labelle, QC]

Madam Speaker, I do not know the answer to that question. I read through what I could, and I know that pensions were specifically addressed, but I do not know the specific details and cannot answer in a helpful way.

However, I know that Bill S-4 will be a positive bill for us in working with these other countries.

[David Graham, Liberal, Laurentides—Labelle, QC]

Madam Speaker, Bill S-4 implements two treaties. For reasons unknown to me, those treaties are being implemented by a bill, which is perfectly fine.

In that regard, I do not see how Bill S-4 is problematic.

[Monique Pauzé, Bloc, Repentigny, QC]

Madam Speaker, I thank my colleague for his speech.

I am tempted to ask him why we are debating Bill S-4, when the government is regulating things well enough through the regulations. For instance, in the case of Barbados, the regulations make it easy to avoid taxes. There are currently 22 tax havens with which we do not have a treaty, but the government treats them as though we do.

If the government is running everything through regulations, why brother with Bill S-4?

[David Graham, Liberal, Laurentides—Labelle, QC]

Madam Speaker, I thank my colleague from Vaughan—Woodbridge for sharing his time with me.

I am pleased to rise in the House to address the important matter of Bill S-4. As members will know, this bill implements a convention and an arrangement on double taxation that were recently signed and announced. The convention was concluded with the State of Israel, and the arrangement with Taiwan.

Canada now has 92 tax treaties in force, and it continues to work on developing other such treaties with other jurisdictions. Bill S-4 builds on Canada's ongoing efforts to update and modernize its network of tax treaties, which helps prevent double taxation and tax evasion.

Indeed, Canada currently has one of the world’s largest networks of tax treaties. This is an important feature of Canada’s international tax system, a feature that is key to promoting our ability to compete. At the same time, the system needs to ensure that everyone pays their fair share of taxes. We do not want certain foreign and domestic firms to be able to take advantage of Canadian tax rules to evade taxes, or for certain wealthy individuals to turn to foreign countries to hide their income and avoid paying taxes.

Every time that happens, workers and small businesses in Canada end up having to pay more taxes than they should have to. It is not right. The Canada Revenue Agency needs information from foreign countries in order to identify and discourage the hiding of income.

To that end, the convention and the arrangement on double taxation in Bill S-4 implement the current international standard on tax information exchange on request established by the Organisation for Economic Co-operation and Development, thus enabling Canadian tax authorities to obtain the necessary information for the administration and enforcement of Canadian tax laws, while helping them prevent international tax evasion.

Here at home, the Government of Canada continues to work to keep our tax system up to date and competitive, so that Canada can remain a leading player in the global economy. It is essential to take measures in support of a more competitive tax system in order to foster conditions that allow Canada's entrepreneurs and industries to excel, thus clearing their path to success.

Clearly, having modern tax conventions, such as those contained in Bill S-4, is a key component of that goal. Canada remains committed to maintaining a tax system that will continue to help Canadian businesses in their drive to be world leaders, while ensuring that everyone pays their fair share of taxes.

The tax conventions complement our government's broader commitment to implementing a more competitive tax system that will raise the standard of living of all Canadians. The convention and arrangement for the avoidance of double taxation set out in Bill S-4 directly support and encourage cross-border trade in goods and services, which in turn helps Canada's domestic economic performance.

Moreover, every year, Canada's economic wealth depends on foreign direct investment, as well as the entry of information, capital, and technology. In short, the convention and arrangement for the avoidance of double taxation set out in Bill S-4 provide individuals and businesses in Canada and the other countries involved with predictable and equitable tax results in their cross-border dealings.

I would now like to talk about two things that this bill proposes to do, namely reduce withholding taxes and prevent double taxation. Withholding taxes are a common feature of the international taxation system. They are levied by a country on certain items of income earned in that country and paid to the residents of the other country. The types of income normally subjected to withholding taxes would include, for example, interest, dividends, and royalties.

Without tax treaties, Canada usually taxes this income at the rate of 25%, which is a set rate under our own legislation for income tax, more specifically, the Income Tax Act. Withholding tax rates in other countries are often as high or even higher.

Since one of the main functions of a tax convention is to divide the powers of taxation among the signatory partners, the conventions contain provisions that reduce and, in some cases, eliminate withholding taxes that could be applied by the jurisdiction where certain payments originate.

For example, the convention and the arrangement for the avoidance of double taxation in Bill S-4 provides for a maximum withholding tax rate of 15% on portfolio dividends paid to non-residents in the case of the State of Israel and Taiwan. The maximum withholding tax rate for dividends paid by subsidiaries to their parent companies is reduced to a rate of 5% for the State of Israel and 10% for Taiwan.

Withholding rate reductions also apply to royalty, interest, and pension payments. The convention and the arrangement for the avoidance of double taxation covered by this bill caps the maximum withholding tax rate on interest and royalty payments to 10%, and the maximum withholding tax rate for periodic pension payments to 15%.

The other issue I want to talk about is double taxation. Double taxation at the international level happens when taxes are collected on the same taxable income for the same period in at least two jurisdictions. The convention and arrangement regarding double taxation in Bill S-4 will help prevent double taxation so that any given income is taxed only once.

Generally speaking, the Canadian tax system applies to the income earned by Canadian residents anywhere in the world. However, foreign authorities can also invoke their right to tax any income earned in their jurisdiction by Canadian residents. Canada usually gives a credit for foreign tax paid on that income. This duplication of taxes paid in the jurisdiction where the income was earned and in the taxpayer's country of residence can have unfair negative consequences for taxpayers. No one should have to pay taxes twice on the same income.

Without any convention or arrangement for the avoidance of double taxation such as the ones provided for in Bill S-4, that is exactly what happens. Both countries could claim taxes on the income without providing the taxpayer with any measures of relief for the tax paid in the other country.

In closing, the convention and arrangement for the avoidance of double taxation proposed in the bill will provide certainty and stability and create a favourable climate for trade, to the benefit of taxpayers and businesses in Canada and in the partner countries.

What is more, the convention and arrangement for the avoidance of double taxation proposed in the bill will strengthen Canada's position in an increasingly competitive global trade and investment environment.

Those are the reasons why I ask my colleagues to vote in favour of the bill.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Madam Speaker, this type of treaty encourages greater links between Canada and the State of Israel, and greater investment and trade flows between Canada and Taiwan. That is what is important and what we need to focus on within this bill. It would allow Canada and Israel to continue to create stronger links between the two entities, and that is very important.

I had the pleasure of visiting the State of Israel this summer. It was a learning experience, indeed. I was in Ramallah as well, and it Tel Aviv and Jerusalem. It was an eye-opening experience and a learning experience, and I am the better for it.

Bill S-4 would allow our government to move the needle forward in creating a strong economy for Canadians and strong middle-class jobs. Overall, it is a win-win for us.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Madam Speaker, parts 1 and 2 of Bill S-4 include provisions dealing with the issues my hon. colleague mentioned: part 1 deals with Israel, and part 2, Taiwan.

I sit on the Standing Committee on Finance and I am proud to state that I was a member of the committee when it presented a motion on tax avoidance and tax evasion so the committee could to examine those issues. It is something that is paramount to our government. We have invested $444 million over five years to ensure that the CRA has the resources and tools to ensure that all Canadians and all Canadian companies, organizations, and foreign subsidiaries operating in Canada are paying their fair share; that Canadians have confidence in the tax system; and that the revenues coming into our coffers are then used to fund programs that Canadians value and are dear to their hearts.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Madam Speaker, I am pleased to rise today to speak on Bill S-4.

At first glance, members might ask why a bill dealing with international tax treaties and measures would be of much importance. On the face of it, Bill S-4 does not appear to have much to do with economic growth, but if we look at it a little, the thrust of the bill is entirely consistent with our government's commitment to growing the middle class and to help those looking to join it.

Canada is a trading nation and improving economic growth in our country is highly dependent on international trade and investment. Removing barriers to incoming business and capital is essential to these efforts. Let me reiterate, our government has been relentless in its efforts to produce economic activity and has made historic investments in infrastructure.

In addition to the investments made in budget 2016, the Minister of Finance recently announced the creation of an infrastructure bank, which will help to leverage federal government commitments even further.

Our government recognizes that to further grow the economy, we need to attract investment and talent to our country. International tax competitiveness is a key element of Canada's economic performance that we must not overlook. A tax agreement with other jurisdictions, including Taiwan and Israel, is an important part of attracting new investments and talented individuals, boosting economic growth, and creating jobs.

While large-scale tax measures generally get more attention in terms of their efforts on Canada's international competitiveness, there are many other components that can be easily integrated into the tax system and strengthen Canada's tax advantage.

Tax treaties with other countries and jurisdictions play an important part in the goal of making Canada's tax system as efficient as possible, and thus more competitive. Canada currently enjoys the benefits of a network of bilateral double taxation conventions currently enforced with 92 foreign jurisdictions, one of the largest such networks in the world.

I will be splitting my time with the hon. member for Laurentides—Labelle.

There is an ongoing to need to expand and modernize this network, and we are continually working to secure additional agreements and update existing ones. These treaties of mutual benefit to both signatories and to their respective taxpayers provide clarity on the rules relating to cross-border trade and investment, and remove barriers to augmenting them.

Furthermore, these agreements help to combat tax avoidance and evasion through the exchange of information that permits our government to uncover income that may be concealed elsewhere. It is very important, and our government has spent a lot of time and energy on this, ensuring that Canadians have a tax system that they can have confidence in and that all Canadians and Canadian corporations are paying their fair share.

To these ends, Bill S-4 implements a double taxation convention and a double taxation arrangement recently concluded and publicly announced with the State of Israel and with respect to the jurisdiction of Taiwan. Bill S-4 also adds an interpretation provision to the legislation that implemented the Canada-Hong Kong double taxation agreement, for greater certainty.

Relief from double taxation is desirable because of the harmful effects double taxation can have on the expansion of trade and the movement of capital and labour between countries. Double taxation conventions require countries to clarify the respective jurisdiction to tax income and provide certain forms of relief from double taxation. There is currently no double taxation arrangement between Canada and Taiwan, Canada's fifth-largest Asia-Pacific trading partner and 12th overall in 2013. This means that Taiwan is one of the few remaining of Canada's larger, and I would say one of the most important, trading partners to enter into our tax treaty network.

The bill also implements a revised double taxation convention with the State of Israel. This replaces an existing tax treaty that was signed here in Ottawa in 1975. The revised double taxation convention has been updated to make it consistent with Canada's current tax treaty policy.

This revised double taxation convention with the State of Israel builds upon strong, multi-dimensional, bilateral relations, as evidenced by our close political, economic, social, and cultural ties.

Underlying the strength of the Canada-Israel bilateral relationship is a breadth of personal connections between the two countries. There are approximately 20,000 Canadian citizens living in Israel and many Canadians, of course, have family in Israel. The Canadian Jewish community, which stands at around 350,000, acts as an important bridge between Canada and Israel. These informal ties have led to significant co-operation in business, philanthropy, and tourism.

Canada and Israel have a number of bilateral agreements in place, including the air transportation agreement from 2015; a renewed and funded science and technology agreement; the Canadian Space Agency and Israeli Space Agency memorandum of understanding for space co-operation, dated 2005; and the 1975 convention.

On the trade side, Canada-Israel merchandise trade totalled approximately $1.4 billion in 2015, comprising $342 million in Canadian exports to, and $1.2 billion imports, from Israel. Israel was Canada's forty-fourth-largest export destination worldwide in 2013. In that year, it was Canada's forty-third-largest source of imports globally.

Even though Israel's trade numbers with Canadian may not be in the top 10 or top 20, I would still certainly say, after having the honour of visiting the State of Israel this past summer, that expanding trade and investment ties between Canada and the State of Israel is very important.

What Israel has done with venture capital funding, specifically in Tel Aviv, is very impressive. Its venture capitalists are world-renowned. There are a lot of exciting things happening in the State of Israel that Canada needs to look at and emulate.

With respect to Bill S-4, the intention of this convention signed with the State of Israel on September 21 is to contribute to the elimination of tax barriers to trade and investment between Canada and Israel and to help solidify the economic links between the two countries. It is consistent with the government's commitment to seek new investment and trade opportunities for Canadians and to promote foreign investment in Canada.

As with the double taxation arrangement with Taiwan, the convention with the State of Israel generally follows the pattern of other double taxation conventions already concluded by Canada. Accordingly, it generally follows the format and language of the OECD model tax convention on income and on capital.

Most countries, including Canada and Israel, tax their residents on their global income. Additionally, when a resident of a country derives income from sources in another country, such as from a business located there, it is typical for the source country to subject that income to tax.

The convention recognizes this international taxation dynamic and sets out in which circumstances and to what extent Canada and Israel may tax the earnings of one another's residents and non-residents.

The convention also implements the current internationally agreed standard for the exchange of tax information upon request, as developed by the OECD and, therefore, allows Canadian tax authorities to obtain information relevant to the administration and enforcement of Canadian tax laws, and assists them in the prevention of international tax evasion and avoidance.

Bill S-4 would also reduce double taxation and encourage investment by reducing the withholding tax. It would provide for a maximum withholding tax rate of 15%, in the case of the State of Israel and the jurisdiction of Taiwan, on portfolio dividends paid to non-residents. This would help encourage and foster innovation and trade between Israel and Canada, and Taiwan and Canada.

For dividends paid by subsidiaries to their parent companies, the maximum withholding tax rate is reduced to 5% in the case of the State of Israel, and 10% in the case of the jurisdiction of Taiwan.

Again, these measures would encourage and facilitate trade and investment and increase ties between Canada and Israel, and Canada and Taiwan.

The bill would also cap the maximum withholding tax rate on interest and royalties at 10% and on periodic pension payments at 15%.

The provisions of the convention and arrangement contained in the bill are an excellent example of our government's efforts to create a more equitable and competitive tax system.

Bill S-4 would allow us to continue to grow our economy and create good middle-class jobs. It would allow for more predictable and fairer tax treatment of cross-border transactions and help the government to combat tax avoidance. We look forward to securing additional agreements such as these, and I encourage all members to support this legislation to help Canada become a more competitive jurisdiction for international business and investment.

[Kevin Lamoureux, Liberal, Parliamentary Secretary to the Leader of the Government in the House of Commons]

Madam Speaker, the member across the way talked a great deal about tax evasion and avoidance, and even at one stage referenced the government providing literally hundreds of millions of dollars to deal with the issue. It is important to recognize that this government takes tax avoidance and evasion very seriously, and the budget clearly demonstrates that.

When we look at the trade file, we can talk about the investment agreements with Mongolia and Hong Kong that have been signed in the last year and we are debating the Ukraine and CETA agreements today. Those are some of the most obvious ones. Then there is Bill S-4 itself, which deals with the taxation policy, along with trade.

My question to the member is this. I thought I heard the member say he supports the bill. Does he not recognize that the bill is important and that there would be value in passing the bill in a relatively timely fashion so we can put in place the measures encompassed in this legislation?

[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.

[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.

[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.

The House resumed consideration of the motion that Bill S-4, 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, be read the second time and referred to a committee.

Business of the House

[Bardish Chagger, Liberal, Leader of the Government in the House of Commons and Minister of Small Business and Tourism]

Mr. Speaker, for the rest of today, we will debate Bill S-4, on tax conventions.

Tomorrow, we will call Bill C-25, the business framework legislation, followed by Bill C-30, regarding CETA.

Monday and Tuesday we will proceed with Bill C-31, an act to implement the free trade agreement between Canada and Ukraine. In the days following, we will put Bill S-4 at the top of the Order Paper so that we can pass it before the Christmas recess.