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.
