Finance Committee on April 2nd, 2019

[Stephanie Smith]

Yes, that's correct. That's twofold, in particular with respect to withholding taxes, because there are agreed-to reduced rates in the treaty. If we take the Canadian domestic rate of 25%, we reduce that in tax treaties. The withholding rates in Madagascar generally go up to 20%. This will provide lower and more reasonable rates, given that we're talking about a rate of tax on gross amounts, not net amounts.

If you'll permit me, just in speaking about withholding taxes, I'd like to clarify, because I'm not sure I got it entirely correct in response to the first question when I was asked about the withholding rates.

For dividends, the rates are 5% and 15%. With respect to interest, they are 10%. In some cases, where it's an investment with respect to a central bank, there is an exemption. With respect to royalties—which is where I think I wasn't entirely accurate—it's 10%.

Then in some cases, such as copyright royalties and royalty for use of computer software and know-how, it's limited to 5%.

I apologize that I was not entirely accurate in my first response.

[Peter Fragiskatos, Liberal, London North Centre, ON]

You bring a lot of knowledge. You do not have to apologize. However, thank you very much.

[The Chair, Liberal, Wayne Easter]

Thank you, all.

I'll turn to Mr. Kmiec for five minutes. Tom.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Before I get to Bill S-6, Peter, nobody made a point of order on this side in response to your question. We welcome everything. I am all for transparency on crony capitalism when it happens, whichever government is responsible for it.

I've been listening to the Q and A so far. Was an analysis done on Canadian companies operating in Madagascar and who would stand to gain or lose from this Bill S-6 tax treaty? Was an analysis ever done by the department of that?

[Stephanie Smith]

Generally I think an analysis is done by Global Affairs Canada. The information they provided to us is that the most significant sector is the mining sector. At about the time that we were preparing and moving towards signature, the most significant investment was by Sherritt International, a publicly traded company on the TSX, which I think mentioned earlier.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Then Global Affairs would have done an analysis and they would have itemized that Sherritt International was the most likely company to be affected by this.

Is that information publicly available? Are you able to disclose it to the committee?

[Stephanie Smith]

I am not exactly sure. I believe Global Affairs does have publicly available information in respect of every country. They do an economic analysis of all countries. It's been a while since I have looked specifically at their website, so I'm not entirely sure. However, they do have country-by-country information from an economic—

[Tom Kmiec, Conservative, Calgary Shepard, AB]

I'm asking about the specific one related to Canadian companies operating in Madagascar and which ones would be impacted.

I have a second question that leads into it. If that information is available, can you disclose it to the committee?

[Stephanie Smith]

We can certainly go to the Global Affairs website and confirm the publicly available information.

[The Chair, Liberal, Wayne Easter]

Tom, I do know that Global Affairs has information on every state, the major Canadian companies that are trading in that state and what the products are, etc. I would expect that something might be available along those lines, and if Ms. Smith can get it for us, we'll do that.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Are you aware of any specific cases of aggressive tax planning by a Canadian company operating in Madagascar in the lead up to this treaty, starting with negotiations and ending with the signature.

[Stephanie Smith]

In discussions with CRA we are not aware of Madagascar being used as a jurisdiction for aggressive tax planning.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Okay.

Earlier you said that the treaty negotiations had been suspended for a little before they came back because of political instability, and the treaty was eventually signed in 2016. Am I recollecting that correctly? Has the political instability been resolved?

[Stephanie Smith]

Yes, it has. They now have a stable government in place.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Okay.

I ask because EDC's website says that for the commercial country ceiling, Madagascar is high risk. The travel advisory cautions all travellers and business travellers to exercise a high degree of caution because crime is widespread across Madagascar. Was an analysis done on white collar crime and its prevalence there, either by your department or Global Affairs?

[Stephanie Smith]

I am not aware of a particular study on white collar crime in Madagascar.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

I'm just worrying that we're agreeing to a tax treaty now that's going to be ratified by Parliament, and we haven't looked at whether Madagascar behaves poorly or whether it's rife with white collar fraud and criminal behaviour, noting that other government agencies are saying that this is a high-risk country to do business with.

Now it's unclear to me whether the economic analysis was sector by sector, which is totally one thing—and I understand mining is a big thing in Madagascar. However, I'm asking about specific companies. If no specific Canadian companies were involved in aggressive tax planning, then why are we following through with this treaty outside of political considerations of their domestic political problems having been resolved on a temporary basis? I'm just asking why we are doing this at this time.

[Stephanie Smith]

I think we're moving ahead with this for the overall policy desire of expanding Canada's network of tax treaties to improve trade and investment, consistent with the fact that Canada has a number of tax treaties with African countries. I think this is consistent with the fact that there's significant mining expertise in Canada, which looks for opportunities around the world.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Kmiec.

We're turning to Mr. McLeod.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you to the presenters today.

This is a very interesting subject and quite complex. I'm trying very hard to follow.

My understanding is that there are a number of these types of treaties. I think we have 93 tax treaties.

I also understand that this follows another.... We had a treaty model that was in place already. Is that correct?

[Trevor McGowan]

Yes, it's based on the OECD model tax treaty.

[Michael McLeod, Liberal, Northwest Territories, NT]

The focus of this bill is on tax evasion. However, other things are in here. I think we're trying to look at improving five areas: eliminating double taxation, countering tax evasion, eliminating discriminatory taxes, information sharing and settling disputes.

I'm wondering, in your opinion how much of an improvement this is going to be over what we have already. A number of people, I think, have voiced the opinion that what we had in place historically was considerably abused. Will this change that opinion of those people or that fact?

[Stephanie Smith]

I think a significant benefit of the tax treaty with Madagascar is that it will provide for an exchange of information relationship with Madagascar, which we do not currently have. That will allow the Canada Revenue Agency to obtain information it requires in administering the Canadian Income Tax Act. I think it's viewed as helpful from that perspective.

Can it address all the issues of tax avoidance and evasion? No it can't, because it's a bilateral tax treaty with Madagascar, but in addition to all of the other benefits it provides, I think the exchange of information is an important aspect.

[Michael McLeod, Liberal, Northwest Territories, NT]

Why is it in Canada's interest to negotiate a tax treaty with Madagascar? Which country actually initiated the negotiations? Was it us or was it them?

[Stephanie Smith]

That question was posed earlier, and unfortunately we don't have the details with us of the entire history of the negotiations to know whether the request first came from Canada or Madagascar. There was agreement by both countries to take the negotiations forward, as evidenced by the fact that the agreement was concluded. Unfortunately, I'm not aware of which party initiated in the beginning.