Evidence of meeting #200 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was madagascar.

A video is available from Parliament.

On the agenda

MPs speaking

Also speaking

Trevor McGowan  Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance
Stephanie Smith  Senior Director, Tax Treaties, Tax Legislation Division, Tax Policy Branch, Department of Finance
Clémence Thabet  As an Individual
Annie Hsu  As an Individual
Tasnim Hasan  As an Individual
Cyara Bird  As an Individual
Annie Yeo  As an Individual
Andréa Szafran  As an Individual
Yasmin Dini  As an Individual
Rabiah Dhaliwal  As an Individual

11:05 a.m.

Liberal

The Chair Liberal Wayne Easter

We'll come to order.

Pursuant to the order of reference of Wednesday, February 27, 2019, we are considering Bill S-6, an act to implement the convention between Canada and the Republic of Madagascar for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. We have Department of Finance officials with us to start. Mr. McGowan is the director general, tax legislation division, tax policy branch, and Ms. Smith is senior director, tax treaties, tax legislation division, tax policy branch.

Mr. McGowan, I believe you have an opening statement, and then we'll go to questions from there.

11:05 a.m.

Trevor McGowan Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance

Thank you, Chair.

We're appearing before the committee today to speak about Bill S-6, an act to implement the convention between Canada and the Republic of Madagascar for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. This bill is intended to enact into law the Canada-Madagascar tax convention, or simply, the convention.

The substantive provisions of the convention are largely based upon the Organisation for Economic Co-operation and Development's Model Tax Convention on Income and on Capital. The OECD model represents the collaborative efforts of the member states of the OECD, including Canada, and is intended to provide a uniform basis on which to conclude tax treaties.

Bill S-6 would build on Canada's extensive network of tax treaties which includes 93 comprehensive tax treaties currently in force.

These tax treaties, including the convention, are intended to benefit Canadians by encouraging cross-border trade and investment. As a trading nation, Canada has implemented tax policies that are designed to assist individual Canadians and Canadian businesses in taking advantage of the opportunities that international trade and investment can offer.

The convention contains a number of specific provisions that support the overall objective of encouraging trade and investment. ln particular, it provides greater certainty to taxpayers regarding their liability to tax in the other country. It prescribes a method for the elimination of double taxation. It ensures that taxpayers will not be subject to discriminatory taxation in either country. It contains a mechanism to resolve disputes involving cases where a taxpayer may have been subjected to taxation not in accordance with the convention. Finally, it reduces the risk of burdensome taxation that may arise because of high withholding taxes.

With respect to withholding taxes, payments originating in one country and paid to a resident of the other country of certain passive forms of income, such as dividends, interest and royalties, may be subject to withholding taxes as high as 25% of the gross amount paid. Because the withholding tax does not take into account the expenses incurred in generating the income, the recipient of the payment may be subject to an effective rate of tax that is higher than the rate that would be applicable if such expenses were taken into consideration.

The convention alleviates this potentially burdensome taxation by setting maximum levels of withholding tax that each country may impose. For example, the convention limits the rate of withholding on direct intercorporate dividends to 5% if the recipient controls 25% or more of the voting power of the payer. It limits the rate of withholding on interest to 10% and eliminates withholding entirely in respect of interest paid to certain pension, retirement, and employee benefit plans. It also limits the rate of withholding on certain copyright royalties and royalties paid in respect of computer software to 5%.

ln addition to encouraging cross-border trade and investment, tax treaties such as the convention play an important role in preventing tax evasion by facilitating the exchange of information for tax purposes between the tax authorities of the two contracting states.

ln this respect, the convention allows the respective tax authorities of Canada and Madagascar to exchange information relevant to the administration of each country's tax laws, in conformity with the standards developed by the OECD for the effective exchange of information for tax purposes.

These standards provide that the exchange of tax information between the two countries is not impeded by bank secrecy laws or domestic interest requirements—that is, a country's need to have a domestic interest in the information requested by the other country before providing the information.

ln summary, the convention contained in Bill S-6 is intended to improve the economic links between Canada and Madagascar. lt is intended to promote certainty, stability and a better business climate for residents and businesses in both Canada and Madagascar and to assist both countries in addressing potential cases of tax evasion.

This concludes our introductory remarks. My colleague, Stephanie, and I would be happy to answer any questions you may have.

11:05 a.m.

Liberal

The Chair Liberal Wayne Easter

Thank you very much, Mr. McGowan.

We'll turn to Mr. Fergus for the first round of questions.

Mr. Fergus.

11:05 a.m.

Liberal

Greg Fergus Liberal Hull—Aylmer, QC

Thank you very much, Mr. McGowan and Ms. Smith, for coming before committee today.

Could you go into a little further detail on the withholding taxes aspect of the legislation and on the way this agreement compares with other similar types of agreements?

11:05 a.m.

Stephanie Smith Senior Director, Tax Treaties, Tax Legislation Division, Tax Policy Branch, Department of Finance

This agreement is very similar to other agreements that we have negotiated with the majority of our other treaty partners. In respect of the withholding rate, on dividends looked at from a Canadian perspective it would be reduced from the 20% domestic withholding rate in the Income Tax Act to 15% or 5%, depending on the holding in the particular company. For royalties the rate would be reduced from the domestic withholding rate of 25% in Canada to 15%, and on interest it would be reduced from 25% to 10%.

11:05 a.m.

Liberal

Greg Fergus Liberal Hull—Aylmer, QC

Further along those lines, what is Canada's exposure? How many people have operations between Madagascar and Canada for whom these provisions would be significant enough to justify their being similar to other withholding rates in other perhaps larger countries in which I would expect Canada to have a greater interest?

11:10 a.m.

Senior Director, Tax Treaties, Tax Legislation Division, Tax Policy Branch, Department of Finance

Stephanie Smith

Our understanding is that the majority of Canadian investment in Madagascar is in the mining sector; that is the sector of most interest for Canadians. We understand from Global Affairs Canada that there are at least five Canadian-based companies active in the Madagascar mining sector, including one company with the largest operations there, which is a publicly traded company on the TSX, Sherritt International.

A number of years ago, there was some political uncertainty in respect to Madagascar. That was more or less resolved a couple of years ago, and I think the hope is that this will provide a more stable environment that may encourage more investments.

I'm not aware of the numbers for the investment of Madagascar in Canada, although I can give global numbers summarizing the bilateral product trade between Canada and Madagascar, if that's of interest.

11:10 a.m.

Liberal

Greg Fergus Liberal Hull—Aylmer, QC

We have the same information from Global Affairs.

11:10 a.m.

Senior Director, Tax Treaties, Tax Legislation Division, Tax Policy Branch, Department of Finance

11:10 a.m.

Liberal

Greg Fergus Liberal Hull—Aylmer, QC

In that respect, what is the state—this is going to come off the wrong way—of maturity of the taxation system in Madagascar to properly collect their withholding taxes as well?

11:10 a.m.

Senior Director, Tax Treaties, Tax Legislation Division, Tax Policy Branch, Department of Finance

Stephanie Smith

Our understanding is that they have a tax administration that administers their tax law. They have a comprehensive tax system. and It's my understanding that it is administered as such.

11:10 a.m.

Liberal

Greg Fergus Liberal Hull—Aylmer, QC

Does Madagascar have a number of similar types of provisions with other industrialized countries that would have mining interests there as well?

11:10 a.m.

Senior Director, Tax Treaties, Tax Legislation Division, Tax Policy Branch, Department of Finance

Stephanie Smith

Madagascar has a fairly small tax treaty network. I know they have a tax treaty with France. Beyond that, off the top of my head I'm not sure who else they have tax treaties with.

11:10 a.m.

Liberal

Greg Fergus Liberal Hull—Aylmer, QC

Are the provisions in their tax treaty with France similar to the Canadian provisions?

11:10 a.m.

Senior Director, Tax Treaties, Tax Legislation Division, Tax Policy Branch, Department of Finance

Stephanie Smith

They are similar, yes.

11:10 a.m.

Liberal

Greg Fergus Liberal Hull—Aylmer, QC

Moving away from that issue, may I ask why we are dealing with Madagascar now in this convention? Why wasn't it done earlier, given Canada's investments in the mining industry in Madagascar, which are more than just recent?

11:10 a.m.

Senior Director, Tax Treaties, Tax Legislation Division, Tax Policy Branch, Department of Finance

Stephanie Smith

The best answer is that while the treaty was actually negotiated a number of years ago, it was not further advanced because of the political instability in Madagascar. It was only after there was more political stability that efforts were renewed, leading to the signature of the convention with Madagascar. I believe it was in the fall of 2016.

11:10 a.m.

Liberal

Greg Fergus Liberal Hull—Aylmer, QC

Okay. So that's when it was renewed and we've now cumulated to this point—

11:10 a.m.

Senior Director, Tax Treaties, Tax Legislation Division, Tax Policy Branch, Department of Finance

Stephanie Smith

That's correct.

11:10 a.m.

Liberal

Greg Fergus Liberal Hull—Aylmer, QC

—of having this treaty.

Frankly, those are all the questions I have, Mr. Chair.

11:10 a.m.

Liberal

The Chair Liberal Wayne Easter

That will be dandy.

Mr. Richards.

April 2nd, 2019 / 11:10 a.m.

Conservative

Blake Richards Conservative Banff—Airdrie, AB

SNC-Lavalin owned a project in Madagascar from 2014 to the end of September of 2015 called Ambatovy. It was one of the largest mines in the world, with an annual capacity of 60,000 tonnes of nickel and 5,600 tonnes of cobalt. SNC-Lavalin provided the engineering, procurement and construction management services for several plants related to that mine. So it's clear that SNC-Lavalin has interests in Madagascar, and of course, beyond, and would therefore be subject to treaties like the one we're discussing today. It's also clear that they've gone to pretty great lengths to influence this government's decisions. I'd like to review a little bit about how they might have gone about that, and whether that applies in this case.

On November 19, 2018, SNC-Lavalin officials met with the chief of staff to the Minister of Finance, Ben Chin. Would you happen to know what the content of that meeting was?

11:15 a.m.

Liberal

Peter Fragiskatos Liberal London North Centre, ON

On a point of order, Mr. Chair, I think we've strayed dramatically from the substance of Bill S-6.

11:15 a.m.

Conservative

Blake Richards Conservative Banff—Airdrie, AB

On that point, Mr. Chair, no, I don't believe so. I've indicated already how there is a link here between SNC-Lavalin and Madagascar. I'm simply trying to determine whether these meetings related to that matter.

11:15 a.m.

Liberal

The Chair Liberal Wayne Easter

I'll allow the question. These officials are not in the minister's office—