Thank you, Mr. Chair.
This is not unrelated to the previous case about foreign affiliate dumping rules. I'm surprised I heard so many “noes” in those votes, because as the TMX made very clear, this legislation could have important negative, unintended consequences for investment in mining in Canada. I think it is an important and totally non-trivial issue.
Clause 6 relates to deemed interest income, and new subsection 17.1(1) of the act provides the interest-deeming rules for the new elective pertinent loan or indebtedness, in these notes referred to as PLOI regimes, in the context of subsection 15(2) and section 212.3.
More specifically, subclause 17.1(1) applies to pertinent loans and indebtedness as defined either in new subsection 15(2.11), discussed above, or subsection 212.3(11), discussed below.
Subclause 17.1(1) generally requires that the interest inclusion for a corporation resident in Canada, the CRIC, in respect of such loans and indebtedness, be at least equal to the amount determined by computing that interest at the rate prescribed under subparagraph 4301(b)(i) of the income tax regulations, or, where the CRIC has incurred one or more debt obligations in order to fund the loan or indebtedness, the amount of interest payable on that debt obligation if it is greater than the amount determined using the prescribed rate.
The references to indirectly funded and to interest payable by persons or partnerships other than the CRIC are intended to deal with situations where, for example, a corporation resident in Canada that does not deal at arm's length with the CRIC borrows money, makes an equity contribution to the CRIC, and the CRIC then makes the loan to the relevant non-resident debtor. In such a case, the imputed interest under subclause 17.1(1) is intended to be based on the interest payable by the other corporation if that actual borrowing cost exceeds the interest determined using the prescribed rate.
I turn now to the issue of acquisition of control. New subclause 17.1(2) of the act provides 180 days of transitional relief from the application of the interest imputation rules in subclause 17.1(1) where a non-resident acquires control of a CRIC that was not controlled by a non-resident corporation immediately before the acquisition of control.
New subclause 17.1(2) applies to taxation years in fiscal periods that end after March 28, 2012, but additional transition relief is provided for acquisitions of control that occur before October 15, 2012.
The last section refers to tax treaties, but since I might be running low on time, I thought I'd skip that and move on to deal again with this very important testimony from the TSX. I would like to read a little more where they say “Capturing lost tax revenue by penalizing legitimate business activity is not the answer”. That's a pretty clear statement.
This is the TMX speaking:
We believe that the Proposed Rules, in their current form, cast too wide a net and risk impacting or diminishing legitimate and entirely appropriate activity by hundreds of publicly listed companies on our markets.
That's a pretty strong statement. I hope I won't hear just “noes” to our amendments this time around. They say:
Should the rules be introduced without further appropriate amendment, Canada's world-leading position and reputation as a market for resource issuers may be negatively impacted by creating inefficiencies in accessing capital and harming corporate valuations.
Based on our preliminary research....
I again emphasize that this is the TMX speaking, not the Liberal Party, legitimate though we are. They say:
Based on our preliminary research, we estimate that in excess of 700 publicly-traded Canadian corporations with operations in a foreign jurisdiction could potentially be inadvertently and inappropriately impacted by the Proposed Rules, in particular by the “indirect acquisition” rule. At a minimum the provisions in the Budget Bill introduce uncertainty in how legitimate investments in foreign affiliates and certain mergers and acquisitions will be treated under the Income Tax Act....
As you know—
I hope you do.
—market activity is influenced by reputation and confidence....
That's a good note to end on.
Thank you.