Thank you.
Good afternoon. It's an honour and privilege to be here today to address this committee and to provide for your consideration on behalf of Deloitte some input regarding budget 2015.
Budget 2015 will provide the government the opportunity to continue its commitment to improving economic prosperity for Canadians. Canada has maintained relative stability despite the global economic challenges of the past number of years. We strongly support and applaud the government's focus on achieving and maintaining a balanced budget. We also applaud the approach that Canada has taken in recent years of reducing Canada's corporate tax rate to improve its competitiveness relative to other countries.
The specific topic that I'll be addressing today is around improving Canada's taxation and regulatory regimes. I will highlight the issues we raised in our August 2014 submission to this committee on this topic, which was supplemented by a prior submission that we did on May 9, 2014, to the Department of Finance.
Canada, along with pretty much of the rest of the world, is concerned with protecting its tax base. Tax revenue is needed in order to maintain the standard of living that Canadians enjoy while actualizing core Canadian values of quality education, health care, and human dignity, to name but a few. Plus, Canada has taken some unilateral steps to protect the tax base and has also been participating in the OECD's base erosion and profit shifting, or BEPS, initiative.
However, taxation alone is not the only element to ensure a well-supported Canadian society. Canada's competitiveness in terms of attracting inbound investment must also be protected. We are concerned that the anti-treaty shopping proposals contained in the 2014 budget will, if enacted in their current form, hurt Canada’s ability to attract such investment by being too far-reaching and creating significant uncertainty as to the tax consequences of inbound investment. As such, foreign investors may choose to invest elsewhere.
Since the announcement of the anti-treaty shopping proposals, we have observed that this uncertainty has negatively affected the investment decisions and may discourage inbound investment into Canada. Canada is a relatively small open economy that needs capital well beyond that which Canadian residents can provide.
Foreign investors have a broad range of opportunities as to where they will invest their capital. Thus, introducing Canadian tax policy changes—such as the anti-treaty shopping proposals—that create uncertainty and potentially reduce investment yields will undermine foreign inbound investment into Canada. To attract foreign capital, Canadian projects generally must support higher potential yields than comparative investments located in the home jurisdiction where the capital is. The U.S. is one of those sources of capital. This is a particular issue for the energy and resources sector, given the sector’s significant need for, and difficulty in accessing, capital.
Our detailed comments and recommendations are outlined in our May 9, 2014, submission to the the Department of Finance, which accompanied our submission to this committee. We're encouraged by the fact the Department of Finance announced at the end of August that it was not proceeding at that time with releasing detailed draft legislation regarding the anti-treaty shopping proposals; rather, it would await further work by the OECD in this area as part of the BEPS initiative.
On the topic of BEPS, the goals of the BEPS initiative, which is supported by the G-20, include the curtailing of international tax planning that is perceived to be inappropriate and increasing its transparency. We are supportive of Canada's participation in this international initiative.
The Canadian tax base must be preserved; however, we would offer some specific suggestions. Clearly drafted, specific, and targeted provisions are preferable to broadly worded legislative amendments that are subject to interpretation and thereby increase uncertainty. Canada must continue to encourage growth. We cannot afford to remove all tax features that might be perceived by some countries as challenging to those country's tax bases. While international cooperation is important, it cannot be at the expense of our own country's competitiveness. A balance must be struck.
In the context of the BEPS initiative as well as the domestic context, we would recommend that actions that could adversely impact competitiveness should not be undertaken unless Canada's trading partners are in fact implementing corresponding changes at the same time.
Thank you very much for the opportunity to make these comments.