Thank you, and good morning.
I am the general director of taxes for General Motors of Canada Limited, and I am here today as the international president of the Tax Executives Institute.
TEI is the pre-eminent association of business tax professionals worldwide. Our 7,000 members work for 3,000 of the largest companies in Canada, the United States, Europe, and Asia. My comments today are endorsed by both TEI's Canadian members and others whose firms have significant operations and investments in Canada.
During the past decade, the government has focused on making Canada's business tax structure more competitive. By reducing the federal corporate income tax rate from 21% to 15%, the government has confirmed its commitment to keeping Canada competitive, enhancing the prospects for sustainable economic growth, and increasing the attractiveness of investments in Canada. But Canada must remain vigilant, especially as other countries restructure their tax systems, implement rate reductions, and lower marginal effective tax rates. Thus, TEI welcomed the 2010 commitment to consider changes to the taxation of corporate groups, and we are pleased to participate in the Department of Finance's consultation.
In our April 8, 2011, comments, we explained that the implementation of a corporate group taxation system will both improve the competitiveness of the system and better align it with the rest of the world. More than two-thirds of OECD countries provide legislative or regulatory regimes for loss transfers, with Canada being the only G-7 country that lacks such a feature.
History shows that following a financial crisis, economic stagnation may occur as credit markets tighten. Permitting corporate groups to offset profit and losses and share other tax attributes in an efficient, straightforward fashion will moderate the attendant effects by improving corporate liquidity, reducing borrowing costs, and eliminating transaction costs that are incurred today. As important, Canada Revenue Agency will no longer have to devote considerable resources to issuing advance income tax rulings and ensuring transactions are onside with CRA guidelines. TEI has provided detailed recommendations for a group loss transfer system to the Department of Finance.
In summary, we believe that an annual elective tax loss or attribute transfer system will be the simplest and most flexible to adopt, requiring the fewest modifications to the Income Tax Act. Attributes that should be part of the system include non-capital losses, capital losses, carry-forward of such amounts, and investment in other tax credits.
Next, in December of 2008, the Advisory Panel on Canada's System of International Taxation issued a report with recommendations for enhancing the competitiveness, efficiency, and fairness of Canada's tax system. We highlight two recommendations dealing with withholding taxes under regulations 105 and 102 for the committee's consideration.
First, with respect to regulation 105, the advisory panel found that service providers commonly gross up their fees to offset the withholding tax, which raises costs for Canadian businesses and hampers their ability to engage skilled workers from outside Canada. The costs associated with complying are significant and the waiver process is so cumbersome that it is not used as often as it should be. The advisory panel also determined that regulation 102 places significant administrative burdens on non-residents as well as Canadian corporations that carry out the administrative duties on behalf of related non-resident employers to account for and report non-resident employment earnings.
To improve access to skilled services, the advisory panel recommended replacing the current advanced waiver requirement with a system whereby non-residents will self-certify their eligibility for reduced withholding taxes, especially where the non-resident is exempt under a treaty such as the Canada-U.S. treaty. TEI endorses those recommendations.
Finally, TEI urges the government to consider a broader, even a full, exemption system for dividends from active business income from foreign investments. A broader exemption will enhance the inherent economic advantages of foreign investments, with significant savings to taxpayers because of the cost of complying with the foreign affiliate tracking and reporting rules, and that would be eliminated or substantially reduced.
The Department of Finance recently released a legislative package to streamline foreign affiliate reporting. TEI is studying the package and expects to comment by the consultation deadline. The proposals, however, do not provide a full exemption system for active business income. We urge the committee to embrace the advisory panel's recommendation for a broader exemption system.
In conclusion, TEI thanks the committee for the opportunity to participate in the pre-budget consultations. I would be pleased to respond to any questions you have.