Madam Speaker, I am pleased to speak to the motion moved by the member for Montarville.
The fight against tax evasion and aggressive tax avoidance is one of this government's priorities. As we have said from the start, the tax system must be fair, and everyone must pay their fair share of taxes.
With that in mind, I have read the motion tabled by the hon. member with great interest. Unfortunately, it has some flaws, and other initiatives that are already under way would be more effective.
I note that the motion proposes to “review the tax regime applicable to digital multinationals...to tax them based on where they conduct business rather than where they reside”. It is not quite right to say that corporations currently pay tax based only on where they reside. Current rules also pay attention to where they have their physical operations. However, I think we can all agree that companies, including digital corporations, need to pay their fair share of tax on the money they earn from their activities in Canada, even if remotely controlled. In this area, the government has made clear that it would prefer a multilateral solution.
For that reason, Canada is actively working with our international partners to achieve a global agreement. Progress was made at the recent G7 finance ministers meeting in London. Multinationals need to pay their fair share of taxes, and the G7 has outlined a path to make that possible. We are encouraged by the progress being made at the G7 and the OECD. However, it is important to recognize that a global agreement would take time to be enacted and ratified. Therefore, our government plans to move ahead in the interim.
I encourage all members to take a close look at budget 2021, which proposes to implement a digital services tax at a rate of 3% on revenue from digital services that rely on data and content contributions from Canadian users. The tax would apply to large businesses with gross revenue of 750 million euros or more. It would apply as of January 1, 2022, until an acceptable multilateral approach comes into effect.
In addition, the budget confirms the government's intention to proceed with changes announced in the fall economic statement 2020 pertaining to e-commerce. These measures will ensure that the GST and HST apply to all goods and services consumed in Canada regardless of how they are supplied or who supplies them.
Bill C-30, currently before the House, would implement these changes and ensure that the Canadian sales tax system is fair. Foreign digital corporations supplying digital products or services to consumers in Canada would be required to collect and remit GST/HST. I hope we can count on the member's support to approve Bill C-30.
Motion No. 69 also calls on the government to work toward establishing a global registry of actual beneficiaries of shell companies as a way to more effectively combat tax evasion. Again, I agree with the member opposite that it is necessary to strengthen corporate beneficial ownership transparency. The government is committed to continuing to take action in that regard. Specifically, budget 2021 announced the government's intention to create a publicly accessible beneficial ownership registry. Authorities need to know who owns which companies in Canada to be able to catch those who attempt to launder money, evade taxes or commit other complex financial crimes.
That said, in Canada, responsibility for corporate law is shared between federal, provincial and territorial governments. Only a small portion of Canadian companies are federally incorporated. Most are registered at the provincial or territorial level. Governments should prioritize these national efforts before working to establish a global registry.
That said, what concerns me most about the motion is that in certain cases, the proposed measures could have negative consequences. Take, for example, the proposal to change the rules concerning income that Canadian corporations repatriate from some of their international subsidiaries.
The motion, it appears, seeks to change the tax rules for what is called “exempt surplus”, the earnings of a foreign subsidiary of a Canadian company from carrying on an active business in a foreign country. These active business earnings can be repatriated to the Canadian company as dividends, free of Canadian income tax, where the foreign subsidiary is resident and carries on business in a country with which Canada has a tax treaty or a tax information exchange agreement.
The proposal would be a major change to Canada's international tax policy. It would not be well targeted and could have negative consequences.
First, the proposal would put Canada out of step with international norms. Canada's tax rules in this regard are consistent with those of most other developed countries.
Second, it could hurt Canadian companies that are foreign subsidiaries operating in a country with which Canada has a tax treaty or a tax information exchange agreement. The current rules ensure that a subsidiary carrying on an active business in one of these countries is subject to similar tax rates as other corporations operating in the same country and therefore competes on an equal footing. Canada has tax treaties and tax information exchange agreements with several countries, including some that have low tax rates. If we change the rules here, we could adversely affect the competitiveness of Canadian businesses operating abroad by increasing their overall tax burden.
Third, at the end of the day, the proposed change may not generate significant revenues, if any at all, for Canada. In some cases, it could simply encourage Canadian companies to keep their foreign profits offshore, and in other cases it could cause them to pay more taxes, but to other countries, not to Canada.
The hon. member would also like to review the concept of permanent establishment, so that income reported by shell companies created abroad by Canadian taxpayers for tax purposes is taxed in Canada. The goal is laudable, but the motion would not help to achieve it.
For one, the concept of permanent establishment generally has no application in relation to Canadian taxpayers shifting income into foreign shell companies. Rather, it applies in the context of foreign companies operating in Canada. Modifying the concept of permanent establishment would therefore not have the intended effect of taxing in Canada income shifted by Canadian taxpayers into foreign shell companies. Two, this concept cannot be modified unilaterally because the concept is defined in Canada's bilateral tax treaties.
To sum up, Motion No. 69 has the noble objective of fighting tax avoidance and tax evasion. Unfortunately, some parts of it are not properly targeted, which could have a number of negative consequences.
I invite the members of the House to reject the motion. The goals the hon. member is trying to set would be better addressed by other initiatives, including budget 2021 and Bill C-30.
