House of Commons Hansard #74 of the 35th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was industry.

Topics

Tax ConventionsGovernment Orders

1:30 p.m.

Cape Breton—East Richmond Nova Scotia

Liberal

David Dingwall Liberalfor the Minister of Finance

moved that the bill be concurred.

Tax ConventionsGovernment Orders

1:30 p.m.

The Deputy Speaker

Is it the pleasure of the House to adopt the said motion?

Tax ConventionsGovernment Orders

1:30 p.m.

Some hon. members

Agreed.

Tax ConventionsGovernment Orders

1:30 p.m.

Some hon. members

No.

Tax ConventionsGovernment Orders

1:30 p.m.

The Deputy Speaker

All those in favour will please say yea.

Tax ConventionsGovernment Orders

1:30 p.m.

Some hon. members

Yea.

Tax ConventionsGovernment Orders

1:30 p.m.

The Deputy Speaker

All those opposed will please say nay.

Tax ConventionsGovernment Orders

1:30 p.m.

Some hon. members

Nay.

Tax ConventionsGovernment Orders

1:30 p.m.

The Deputy Speaker

In my opinion the yeas have it.

Tax ConventionsGovernment Orders

1:30 p.m.

Some hon. members

On division.

Tax ConventionsGovernment Orders

1:30 p.m.

The Deputy Speaker

I declare the motion carried on division.

(Motion agreed to.)

Tax ConventionsGovernment Orders

1:35 p.m.

Cape Breton—East Richmond Nova Scotia

Liberal

David Dingwall Liberalfor the Minister of Finance

moved that the bill be read the third time and passed.

Tax ConventionsGovernment Orders

1:35 p.m.

Winnipeg North Centre Manitoba

Liberal

David Walker LiberalParliamentary Secretary to Minister of Finance

Mr. Speaker, as the House knows, this is very important legislation although it may appear to be housekeeping to some. I would like to rise today to speak on this legislation and to urge for its speedy approval.

This is not a bill to command great attention in the public arena. Rather it represents some of the work-a-day measures addressing tax fairness and good international and trade relations that are a vital part of our endeavours on behalf of Canadians.

The purpose of Bill S-2 is to implement reciprocal trade treaties between our nation and Hungary, Nigeria, Argentina and Zimbabwe, treaties that will eliminate double taxation on income tax. As well, the bill implements the protocol to revise the current tax convention between Canada and the Kingdom of the Netherlands.

A tax treaty between countries is an important tool to provide the benefit of certainty and stability regarding tax regimes, benefits that concretely promote and facilitate international trade and investment. Another benefit of such tax treaties is that they also reduce annoyance in the operation of the national tax systems involved in several ways.

First, they eliminate the necessity of paying tax on business profits in the source country if there is no permanent establishment in that country. As well, they provide a mechanism to settle problems encountered by taxpayers.

More important, tax treaties eliminate or alleviate double taxation in the instances where international transactions are involved and may give rise to the same income being taxable in the hands of the same person by more than one nation.

I should remind the House that the treaties enacted by this bill are the latest within a longstanding process. The major reform of Canada's income tax legislation in 1971 required Canada to expand its network of double taxation conventions or tax treaties with other countries. Since that time, negotiations for the conclusion of new treaties or the revision of existing ones have been entered into with almost 75 countries.

In this bill, the four tax conventions under review follow the general pattern of the conventions previously approved by Parliament. The number of Canadian tax treaties in force is presently 52.

For the record, let me remind hon. members of the main elements of the new treaties covered by the bill. These treaties provide generally that dividends may be taxed in the source country at a maximum rate of 15 per cent. However in the case of intercompany dividends, the rate is often reduced if the company receiving the dividends holds a certain equity interest in the company paying the dividends. Such a reduced rate has

been set at 10 per cent for the countries covered here, except for Nigeria where it will be 12.5 per cent.

Regarding interest paid by a resident of one country to that of another country, the rates set out in this bill are 10 per cent in the case of Hungary, 12.5 per cent for Argentina and Nigeria and 15 per cent in the case of Zimbabwe. There are however some exceptions.

Interest paid on a bond or a similar obligation of the national government, a political subdivision or a local authority will be exempt from tax in the country in which it arises. Also, these treaties, except that with Zimbabwe, contain a certain provision that will allow interest paid on loans or credits extended, guaranteed or insured by certain state entities, in Canada for example, the Export Development Corporation, to be taxable only in the country where the recipient of the interest payment resides.

These treaties also address the taxation of royalty payments. They provide for a general rate of source taxation of 10 per cent in the case of Hungary and Zimbabwe, 12.5 per cent in the case of Nigeria and from 3 per cent to 15 per cent in the case of Argentina, depending on the nature of the royalty. Copyright royalties are exempt under the treaty with Hungary.

A number of other matters are dealt with in these tax treaties. First, the treaty provisions dealing with capital gains reflect a standard Canadian position enabling the source country to tax gains arising on the sale of real property, business assets and shares in the real estate companies.

Second, under the conventions, discrimination on the basis of nationality is prohibited. This ensures nationals of one country equal treatment with nationals of another country in the same circumstances. However, this does not prevent a country from providing fiscal incentives, for example, Canada's small business deduction, on the basis of the residence of the taxpayer.

Third, Canada has also preserved its right to tax pensions paid to residents of the countries covered by the bill. However, it is important to point out, especially in light of the upcoming D-Day anniversary, that war veterans pensions are generally exempt from tax under the four treaties.

Fourth, the treaties provide that in Canada double taxation of foreign source income of Canadian residents is alleviated by way of a foreign tax credit, in accordance with the limitations provided for in the Canadian legislation. Reciprocally, relief from double taxation is granted in the other treaty country and in accordance with the method recognized by that government.

Let me turn to a final undertaking enacted by this legislation. Bill S-2 will implement a protocol to the tax convention signed by Canada and the Kingdom of the Netherlands in 1986. This updates the existing treaty to take into consideration changes made to the respective laws and policies of the two countries.

For example, in 1992 Canada announced that it was prepared in tax treaty negotiations to reciprocally reduce the withholding tax rate on direct dividends. This was seen as a valuable incentive to encourage international direct investment. In the 1993 budget, the government stated its willingness to enact bilateral exemptions from withholding taxes on payments made for the use of computer software. I am pleased to say that the Netherlands is the first country with which we have completed such an agreement.

Under this bill, in cases where a dividend recipient holds 25 per cent or more of the capital or 10 per cent or more of the voting power of the dividend paying corporation, the withholding tax will be reduced to 5 per cent from the current 10 per cent. This reduction will take place over a five-year period starting from 1993. As regards interest payments, the protocol reduces the rate to 10 per cent from the current 15 per cent.

As well, the agreement eliminates the withholding tax on royalties for computer software and on interest paid to pension plans.

In simple summary, the four tax conventions and the Netherlands protocol contained in the bill provide some equitable solutions to the various problems of double taxation existing between Canada and certain international partners. Each of these countries hopes to implement the bilateral convention as soon as possible. Consequently I commend this bill to the House and urge its speedy passage.

Tax ConventionsGovernment Orders

1:40 p.m.

Bloc

Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC

Mr. Speaker, I welcome this opportunity to speak again, this time on third reading of Bill S-2, a bill that deals with tax conventions between Canada and Hungary, Nigeria, Zimbabwe, Argentina and the Netherlands.

I would like to take the next few minutes to repeat the reasons for our objections to Bill S-2, that is to say, the objections of the Bloc Quebecois. We do not object to these tax conventions because we object to the countries as such. In other words, the members of the Bloc Quebecois, Quebecers in general and Canadians in general as well, on whose behalf we occasionally speak as the Official Opposition, do not object to Hungary or Nigeria or Zimbabwe or Argentina or the Netherlands.

However, there are certain inconsistencies in the Canadian tax system as well as in the rules and traditions of this tax system, and we often find these inconsistencies in tax conventions of this kind.

As you know, Mr. Speaker, we support free trade, and in fact we were instrumental, and when I say we I am referring to Quebecers, in adopting two international agreements. The first one was with the United States and the second included Mexico. We also supported arrangements to improve the rules of international trade, like those that were adopted last December at the GATT talks.

We also have a tradition of international co-operation and a tradition of reaching out internationally. We remember Lester B. Pearson, whom we admire for his international involvement, and Jean Lesage in Quebec.

Therefore, it is not in that regard that the Bloc Quebecois has to show its opposition in the case of international treaties. Tax treaties are usually a good thing because they allow businesses to avoid double taxation on the benefits of their various affiliates.

Tax treaties also have the merit of creating reciprocal agreements, which allows to draw a clear line between two countries regarding taxation of the profits of companies, because to be effective, those tax treaties must call for levels of taxation that are roughly equivalent between two signatory countries.

Besides, and this will be my first negative point in assessing Bill S-2, as the auditor general mentioned several times, there are flaws in the principle underlying tax treaties and in certain agreements signed with countries that are considered as tax havens.

In some of those countries, for instance Barbados, Cyprus, Malta and Singapore, who have signed tax treaties with Canada, corporate taxation and all that pertains to income or capital gains taxation is much lower than Canadian taxation.

As the Auditor General underlined it in his 1992 report, no corrective measure was adopted, even in the last budget of this government, despite all that was said. According to the Auditor General, incomes earned in countries that are tax havens and that are designated by order may enter Canada tax free even if they have not been taxed or have been at a very low rate.

The Auditor General also said in his 1992 report: "The Department of National Revenue Taxation is aware of a number of taxpayers who have used this scheme-tax havens-to be in a position to move $500 million into Canada tax free".

This first point is already appalling enough. I must tell you that, at the present time and since 1984, middle-income taxpayers have been crippled by the Canadian tax system. Incredible sacrifices are asked of the poorest in our society since the last budget, while other taxpayers, probably those with very high incomes, because they are the only ones who can take advantage of those flaws, are allowed to move $500 million tax free from foreign countries to Canada. I find this appalling.

The second negative aspect regarding tax treaties is that the foreign revenues of Canadian corporations, which are subject to little or no tax, give the Canadian shareholders access to the same federal tax credit on their dividends as on dividends payed by a Canadian company which operates and pays taxes in Canada. How can we speak of developing the Canadian economy while this measure maintained by the tax treaties hampers our economic growth and the development of Canadian businesses?

Good Canadian corporate citizens which pay their taxes also pay for other corporations which benefit from this type of exchange, this type of deduction. And we are asked to quietly support such a bill when tax treaties as a whole should probably be reviewed to determine where are the tax havens and the tax loopholes which allow bad corporate citizens not to pay their fair share of taxes for years and years. I find it rather absurd that we are asked to support this bill when all those treaties should be reviewed.

The third negative aspect regarding tax treaties is that, according to the existing legislation, a corporation operating in Canada can deduct interest on the money it borrows to invest in a foreign subsidiary. Companies that invest in tax havens have found two ways to avoid paying taxes. First, they deduct their loan interests and then they bring back to Canada, free of tax, their profits which are subject to little or no tax in foreign countries.

I am not the only one to say so. For about three years now, the Auditor General has been saying that the tax conventions legislation is full of holes. Let me quote the Auditor General on this issue. It is always interesting to quote someone who is non-political and neutral, someone who can put his fingers on the problems linked to the Canadian tax system and the inaction of the federal government which does not seem to want to do much about the various loopholes. In his 1992 report, the Auditor General said, and I quote: "That deduction of interest reduces Canada's tax revenue and, at the same time, the related income is not necessarily subject to tax in Canada. It may be received as a tax exempt dividend and may never appear in the Canadian tax base".

So, by using such tactics, Canadian companies can avoid paying taxes first by transferring to the Canadian parent corporation the losses incurred by their foreign affiliates. In other words, the Canadian companies which report losses due to their foreign production operations can deduct these losses in Canada, which means that Canada is losing a similar amount of money in tax revenues. Second, according to the tax treaties, profits made by Canadian corporations can be redirected to foreign countries. If profits are made here, in Canada, and taxation levels are lower in the countries where the Canadian parent company has a foreign affiliate, profits can be taxed in the other country. Third, by using such tactics, Canadian companies avoid paying taxes by converting their profits in exempt income.

One element of the Canadian tax system that needs to undergo an in-depth review is all of the tax treaties and the legislation concerning the Canadian tax conventions, because that is what allows people who take advantage of all these loopholes to laugh all the way to the bank.

Among the many examples I could use, I would like to quote only one striking example the Auditor General gave us. I quote: "A Netherlands Antilles subsidiary of a Canadian company had assets of $865 million and income of $92 million. The offshore income is not taxed on entering Canada, but it carries the federal tax credit on dividends paid to Canadian shareholders". Imagine! That allowed the Canadian parent company to report a $29 million tax loss in Canada. There was no production on Canadian soil. No jobs were created. There was no investment in machinery or equipment in Quebec or in Canada. The company was engaged in a production activity in a foreign country without creating economic activity either in Quebec or in Canada, yet it was able to deduct from that foreign activity an operating loss of no less than $29 million.

If that is not exporting jobs and economic activity that are so precious to us, I do not know how else to describe this flight of capital.

The Auditor General gave us an idea of the costs related to loopholes in the legislation governing tax treaties. According to him, for 1990 only, Canadian businesses invested nearly $92 billion in non resident companies with which they have a non-arm's length relationship; $92 billion, that represents significant production activity exported elsewhere and substantial tax exemptions for production activity exported elsewhere. That also represents a lot of tax exemptions on profits from economic activities not exercised on Canadian soil; it amounted to $92 billion for 1990 alone.

Of course, some of this $92 billion has been invested by good corporate citizens. There are companies doing real trading with countries not considered as tax havens, but there are nevertheless examples that can be drawn from the current situation to show that some of these investments in countries considered as tax havens are suspicious. Take for example the investment of $5.2 billion made two years ago in companies in Barbados, a recognized tax haven. These investments generated $400 million in dividends which were tax exempt when received on Canadian soil. As another example, $10.9 billion were invested in companies in Cyprus, in Ireland, in Liberia, in the Netherlands and in Switzerland, all countries also considered as tax havens. These investments generated more than $200 million in dividends which were tax exempt once brought into Canada.

According to the Auditor General himself-who does not hold a membership card from the Bloc Quebecois, nor from the Liberal Party, nor from the Reform Party-and I quote: "It is reasonable to conclude that hundreds of millions of dollars in tax revenue have already been lost and will continue to be if nothing is done to remedy the situation". That was in 1992. The Conservatives did nothing in 1992 and 1993. Then, in 1993, there was a change of government, but to the same effect: the Liberals have done nothing in the face of a tax scandal, a flight of capital scandal, whereas Quebec and Canadian taxpayers are being bled dry. This is unacceptable. It is a disgrace.

The Auditor General recommended a comprehensive review of tax arrangements so that we can really determine which countries we should have tax arrangements with, countries that are not mere tax havens, and do not encourage massive capital exodus as well as the loss of hundreds of millions in tax revenues for Canada. This is not the time for such a waste of money. On February 23, the Minister of Finance said that cuts were in order. But instead of eliminating loopholes such as tax arrangements, he targeted unemployment insurance.

I noticed your signal, Mr. Speaker.

Tax ConventionsGovernment Orders

1:55 p.m.

The Speaker

I thank the hon. member. He will be able to resume his remarks at three o'clock.

It being two o'clock, pursuant to Standing Order 30(5), the House will now proceed to Statements by Members pursuant to Standing Order 31.

Quill LakesStatements By Members

May 30th, 1994 / 1:55 p.m.

Liberal

Georgette Sheridan Liberal Saskatoon—Humboldt, SK

Mr. Speaker, last Friday over 500 people gathered in rural Saskatchewan to mark the designation of Quill Lakes as an international site in the western hemisphere shorebird reserve network.

Prairie wetlands are vital habitat for shorebirds and waterfowl. Prudent management of delicate ecosystems like the Quill Lakes is crucial to the survival of many North American migratory species.

The designation of Quill Lakes will help Canada meet its international commitment as a signatory to the global convention on biological diversity.

The Quill Lakes designation is an accomplishment in partnerships. This project succeeded because of co-operation at all levels of government, international, federal, provincial and municipal. Experts, officials and local citizens co-operated to safeguard this wetland area.

There is good news. I am told that on Friday one keen-eyed participant spotted a piping plover, one of the endangered species that will benefit from the project.

Jacques VilleneuveStatements By Members

1:55 p.m.

Bloc

Michel Bellehumeur Bloc Berthier—Montcalm, QC

Mr. Speaker, as the member for Berthier-Moncalm, I am proud to rise today to salute Jacques Villeneuve's outstanding performance in the Indianapolis 500.

At the age of only 23 and making his debut on the Indy circuit this year, the son of the legendary Gilles Villeneuve accomplished a real feat by finishing second in one of the most prestigious car races.

Because Jacques Villeneuve shows so much determination at the start of his career, I am convinced this second place finish is only the beginning of a long series of successes and victories for him.

External AffairsStatements By Members

1:55 p.m.

Reform

Bob Ringma Reform Nanaimo—Cowichan, BC

Mr. Speaker, I rise today to recognize the fourth anniversary which occurred just last week of the democratic election in Myanmar or Burma. Unfortunately we cannot celebrate this important date because a repressive military regime has not allowed the democratically elected government to take its rightful position.

Calls from the international community, including a petition to the United Nations signed by the majority of members of this House, have fallen on the deaf ears of the ruling junta.

The National League for Democracy won 80 per cent of the seats four years ago, yet its leader remains under House arrest.

On this anniversary we once again call on the Burmese military rulers to release the democratically elected Daw Aung San Suu Kyi, or prime minister, in order that she may participate fully in the shaping of Burma's future in accordance with the will of the Burmese people.

Family ViolenceStatements By Members

1:55 p.m.

Liberal

Andy Scott Liberal Fredericton—York—Sunbury, NB

Mr. Speaker, I congratulate the Muriel McQueen Fergusson Foundation in Fredericton-York-Sunbury on the success of its major fundraising luncheon last Wednesday. The foundation, now nine years old, has the ultimate goal of eradicating family violence in our communities.

Just a year and a half ago the foundation established the first research centre on family violence in Canada. Working in co-operation with the University of New Brunswick and community organizations, the research centre's primary objective is understanding the cyclical nature of family violence.

Family violence is one of the most serious social problems today. It underlies obstacles faced by youth, impacts the workplace, undermines the economy, promotes substance abuse and fosters violence outside the family. The list goes on.

I encourage members of the House and all Canadians to show support for the agencies in their communities committed to the elimination of family violence.

Weather ForecastsStatements By Members

1:55 p.m.

Liberal

Robert Bertrand Liberal Pontiac—Gatineau—Labelle, QC

Mr. Speaker, on May 10 in Rimouski, Environment Canada inaugurated the Weathercopy Service for the Eastern part of the Lower St. Lawrence and the western part of the North Shore.

As a result, the authorities in charge of public safety and emergency measures for these regions will receive weather warnings and weather forecasts directly from Environment Canada via radio transmitters and receivers, as soon as they are issued by the meteorologists at Environment Canada.

According to public safety authorities, this information is essential in order to take the necessary precautions in the event of an emergency, provided there is a quick and reliable access.

Weathercopy is a new technology, a world first developed by Dataradio Inc., a Canadian company. The development of this technology was fully financed by the company itself. This is another good example of co-operation between the public and the private sectors.

Royal Military CollegeStatements By Members

2:05 p.m.

Liberal

Larry McCormick Liberal Hastings—Frontenac—Lennox And Addington, ON

Mr. Speaker, with the consolidation of military colleges in Quebec and British Columbia into one operation based at Royal Military College, many staff and students will be transferring to the greater Kingston area.

Contrary to the concerns that have been voiced by various Quebec interests, let me say to the faculty, staff and students at Royal Roads and collège militaire royal on their transfer to our area that our residents are looking forward to the enriching experience that these newcomers will bring to our communities.

Therefore, on behalf of the residents of the townships of Pittsburgh and Ernestown, I extend a warm hand of friendship, welcome and understanding to future RMC students and staff.

Let me also give my assurance that Pittsburgh and Ernestown townships will work together with RMC Base Kingston and others to establish a community liaison to assist in making the transition an enjoyable one for all concerned.

The DisabledStatements By Members

2:05 p.m.

Bloc

Madeleine Dalphond-Guiral Bloc Laval Centre, QC

Mr. Speaker, today is the first day of National Access Awareness Week. While this government, as part of the proposals in the Martin budget, prepares to enlarge, at its peril, the holes in our social security net, the Official Opposition wishes to draw the attention of this House to the fact that equality among all individuals also applies to the right to work.

Like everyone else, the disabled have the right to work in an environment that is considerate of their needs. The government has a responsibility to assist their integration in the work place. Today, we wish to pay tribute to the courage and perseverance of these men and women and we say to them: Because your whole life is an example that enriches our society, we promise that your rights will always be respected.

JusticeStatements By Members

2:05 p.m.

Reform

Randy White Reform Fraser Valley West, BC

Mr. Speaker, I have reviewed the details about a lady who was brutally beaten and raped in 1987 in my riding. Wayne Alexander Perkin was convicted of this terrible crime, given six years, and paroled early.

Last week I sat with Corinne Schafer in her home as she talked about her sister Angela's death. I attended court last Thursday to hear the verdict on the same Wayne Perkin found guilty of brutally murdering Corinne's sister Angela in 1992 while he was out on parole.

I am sad for Corinne, her family and friends. I am frustrated at a justice system that time after time has proven itself ineffective. However, most of all I am angry at a government that mimics its predecessors. The government has the power to change many aspects of the justice system now, yet it continues to drag its feet.

Canadians elected a government of Liberal ideals. I wonder if they realize they were electing a government that is unable to deal with reality.

Youth EmploymentStatements By Members

2:05 p.m.

Liberal

Jerry Pickard Liberal Essex—Kent, ON

Mr. Speaker, Canada's greatest resource is our youth. They are languishing with a high unemployment rate of almost 20 per cent.

Parents such as I who have children in this age category are very concerned about their future. The priority of the government is to put the enthusiasm of these young minds and bodies back to work.

New initiatives such as Youth Services Canada, the youth internship program and the expansion of summer employment programs are doing just that. Reforms to the Canada student loans program and other learning initiatives will better train young people for the jobs of the future.

In Essex county the conservation authority is sponsoring a youth service pilot project. Approximately 16 participants will work for nine months, gaining valuable experience and earning credit to further their education and employment opportunities.

Through these initiatives the government is giving our youth the necessary tools to build a prosperous future for themselves and our country.

Atlantic Canada Opportunities AgencyStatements By Members

2:05 p.m.

Liberal

Dianne Brushett Liberal Cumberland—Colchester, NS

Mr. Speaker, I rise today to share information with my hon. colleagues regarding the real value of ACOA, the Atlantic Canada Opportunities Agency, to the four Atlantic provinces.

In Atlantic Canada ACOA partially funds or administers many co-operative agreements, programs and projects. Often in the past the public heard only of the failed projects. Today I wish to share one of the many success stories with the House.

Earlier this month I had the pleasure of participating in a sod turning to announce a $16 million expansion at Intertape Polymer Group in Truro. The parent group of Polymer Group contributed $14.6 million, while the federal and provincial government through ACOA contributed $1.4 million to the total project.

This expansion creates 45 new jobs, for a total of 300 full time, long term sustainable jobs. This is an international company that can compete locally and globally-