Finance Committee on June 17th, 2013

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Thank you.

I want to start out by saying that I understand that this meeting was only set and planned on Friday. A lot of people have had to do a lot of work quickly, and witnesses have had to agree to come on short notice, so thank you very much.

I just want to clarify this issue of the lack of automatic information exchange. For Hong Kong, information exchange is going to be on request only.

For these other new or revised treaties, which of them include provisions, or do any of them include provisions, for automatic information exchange? If not, what are the provisions? Is it on-demand, or spontaneous, or...?

[Alain Castonguay]

Of the six, two explicitly provide that it will be on-demand only.

For the others, in the case of Poland it doesn't say anything. If the Canada Revenue Agency thought it were worthwhile to entertain automatic information exchange with Poland, based on the criteria I identified earlier, and the possibility of having reciprocity—that is, getting good information for us too, because this is a two-way street, obviously—then nothing prevents the CRA from concluding an agreement with Poland to enter into an automatic exchange of information.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

The three other new ones are all on-demand?

[Alain Castonguay]

I think Serbia is also open to....

[Ted Hsu, Liberal, Kingston and the Islands, ON]

In the future.

[Alain Castonguay]

Yes.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

And Namibia, is it open?

[Alain Castonguay]

Namibia is open, yes. There's no restriction.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

All right.

I want to talk about the treaty with Luxembourg. Luxembourg sets a pretty high hurdle for an applicant country to meet before it can request tax information. You have to provide the name of the person, a description of the information, and so on.

I'm wondering, during the negotiations were there efforts to receive more lenient provisions to make it a little bit easier to ask for information if we needed to investigate something?

[Alain Castonguay]

In the case of Luxembourg, just like Hong Kong until 2009, Luxembourg was not prepared to override its domestic secrecy law. As of 2009, they decided they were prepared to incorporate in their treaty exchange agreements information that would override their bank secrecy law, but only to the extent that it was information on request.

That's their treaty policy. The choice for us is, well, do we go as far as they're prepared to go, and let's see what the future holds?

[Ted Hsu, Liberal, Kingston and the Islands, ON]

If you contrast Luxembourg and Hong Kong, say, with the tax treaties we have other western European countries, is it fair to say that for most of the western European countries we have some sort of automatic information exchange, but for these countries, where they have bank secrecy laws, we're not going to get any further than what we have?

[Alain Castonguay]

Only a minority of countries have bank secrecy laws. The vast majority of our treaty partners don't. The treaties we have with them do not contain any restriction on that, on whether it's on-demand or automatic. It's a case-by-case determination of whether it is worthwhile for us. We do have, obviously, automatic exchange with our major treaty partners.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Okay.

I understand that the idea of multilateral automatic information exchange came up during this committee's study on tax havens. I'm wondering if Canada's taking any steps towards moving in that direction.

[Alain Castonguay]

I can tell you that the OECD has started to do work on this. As an OECD member, we're very interested in that. They're examining the design issues around multilateral automatic exchanges of information. That work is just getting started, and we'll participate in it.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Okay.

[Alain Castonguay]

You have one minute left, Mr. Hsu.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Thank you.

There are different rates of withholding tax. In table 2 of this briefing note, it shows 0% with Namibia, 15% for Serbia and Poland, and 25% for Hong Kong.

Can you explain a little bit why it's different for different countries?

[Alain Castonguay]

You're referring to which kind of payment?

[Ted Hsu, Liberal, Kingston and the Islands, ON]

It's the maximum rate of withholding tax on pension payments. Sorry; I should have been more precise.

[Alain Castonguay]

Our treaty policy is to achieve shared taxation of pensions. We like to tax pensions from all sources. We also like to withhold on pensions paid to non-residents in Canada to the extent that they contributed to the pension system here in Canada, with tax-assisted RSPs and the like. We like to achieve 15%.

In the case of Hong Kong, we could not agree. The agreement reflects the fact that we will apply our domestic law, which in our case calls for withholding tax at 25%.

In the case of Namibia, tax at source is suppressed to the extent that the amount is taxable in a residence country. That's the treaty with Namibia.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Okay.

[The Chair, Conservative, James Rajotte]

You're right out of time, but we may have time for another round.

I will come back to Mr. Hoback, please.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair.

I have just a couple of brief questions. I'm going to pick up what Mr. Rankin was saying about the automatic portion of treaties, because I think he hit on some interesting things.

When you're working with a country that you don't have an automatic agreement with, is that because that country doesn't have the information that would automatically transfer over? Is that fair to say?

[Alain Castonguay]

In the cases where we do have explicit limitation in our treaties, it's because the other side wasn't prepared to go beyond on demand, and they wouldn't explain whether it was because they couldn't access the information. For them, they were prepared to go to the TIEA standard, which is on demand, but they were not prepared to go beyond that.

[Randy Hoback, Conservative, Prince Albert, SK]

So they might have some internal reasons on why that information...either they are not collecting it or they're not—