Debates of Oct. 19th, 1995

Income Tax Conventionsimplementation Act, 1995

[Some hon. members]

Agreed.

(Motion agreed to, bill read the second time and, by unanimous consent, the House went into committee thereon, Mr. Kilger in the chair.)

(Clauses 2 to 5 inclusive agreed to.)

On clause 6

[The Assistant Deputy Chairman]

Shall clause 6 carry?

[André Caron, Bloc, Jonquière, QC]

Mr. Chairman, would it not be appropriate, since it is a regulatory power being granted the minister, to see to it that the minister consults the House or the appropriate standing committee before issuing the regulation?

[David Walker, Liberal, Winnipeg North Centre, MB]

Could we have the question again, please?

[André Caron, Bloc, Jonquière, QC]

Even so, Mr. Speaker, clause 6 makes provision for a regulatory power. I believe that departments often go too far in the definition of what constitutes a regulation. I believe that it would be worthwhile and even appropriate for the Standing Committee on Finance to be consulted when a regulation pertaining to this bill is issued.

[The Assistant Deputy Chairman]

We have had technical problems and I appreciate the member for Jonquière's cooperation in kindly repeating his question.

[David Walker, Liberal, Winnipeg North Centre, MB]

Thank you. Now we understand the question.

The reason this particular piece of legislation and the tax treaty would come to the House in this form is to ensure that the House is clear as to what is being delegated to officials in terms of regulatory authority. However, the House of Commons has, through other committees, regular review of regulation. Any time a member feels this is not within the normal course of activities they can bring it to the attention of the House through that committee, but there is no particular regulatory reference back to the House of Commons finance committee.

[The Assistant Deputy Chairman]

Shall clauses 6 through 22 carry?

[Some hon. members]

Agreed.

(Clauses 6 to 22 inclusive agreed to.)

(Schedules 1 to 4 agreed to.)

(Clause 1 agreed to.)

(Title agreed to.)

(Bill reported.)

[Allan Rock, Liberal, for the Minister of Finance]

moved that the bill be concurred in at report stage.

(Motion agreed to.)

[The Acting Speaker (Mr. Kilger)]

When shall the bill be read the third time? With leave of the House, now?

[Some hon. members]

Agreed.

[Allan Rock, Liberal, for Minister of Finance and Minister responsible for the Federal Office of Regional Development-Quebec]

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

[David Walker, Liberal, Parliamentary Secretary to Minister of Finance]

Mr. Speaker, I am pleased to have the opportunity to speak today at third reading of Bill C-105, the Income Tax Conventions Implementation Act, 1995.

Hon. members will recall that Bill C-105 implements reciprocal income tax conventions between Canada and Latvia, Canada and Estonia, Canada and Trinidad and Tobago, and a protocol to the

current income tax treaty between Canada and Hungary. The tax conventions and the amending protocol this bill will ratify are patterned after conventions previously approved by this chamber. They break no new ground.

Tax treaties have two main specific objectives: the avoidance of double taxation and the prevention of tax evasion. More broadly, tax treaties facilitate investment and trade between the treaty countries and can help encourage reforms.

The treaties in the legislation before us are part of an ongoing series of tax treaties that began in 1971, when the reform of Canada's income tax legislation required Canada to expand its network of double taxation conventions with other countries. They also reflect Canada's willingness to reduce or eliminate certain forms of withholding to meet international norms and to advance our economic interests, including the competitiveness of our technological industries.

The treaties are patterned on the model double taxation convention prepared by the Organization for Economic Co-operation and Development. Each treaty has been negotiated carefully and individually. Each takes into account the relevant policies of the country with which we are undertaking this treaty. The treaties will provide an equitable solution to the double taxation problems that currently exist between Canada and these countries. In addition, the protocol to our treaty with Hungary brings the existing convention with that country into line with current Canadian tax policy, particularly in the area of withholding taxes.

Let me briefly restate during this third reading debate some of the technical provisions of Bill C-105 that apply to the treaties with Estonia, Latvia, and Trinidad and Tobago. First, there will be a withholding tax rate of 5 per cent on dividends paid to a parent company and on branch profits and 10 per cent on interest and royalties, which in the case of Trinidad and Tobago includes management fees, and also a 15 per cent rate of withholding tax that will apply on other dividends.

The conventions also provide for a number of exemptions in the case of interest. For Estonia and Latvia a zero rate will apply to interest paid to the governments, the central banks, the Export Development Corporation, and from sales made on credit. For Trinidad and Tobago, a zero rate will apply to interest paid for government indebtedness and on loans or credit from the Export Development Corporation or its equivalent there and for interest paid to pension plans.

Canadians will benefit from any future changes extended by Estonia and Latvia to other OECD member countries with respect to withholding tax on copyright and patent royalties. Trinidad and Tobago will maintain the exemption on copyright royalties.

Pension payments and annuity payments in the case of Trinidad and Tobacco will be taxed at a maximum rate of 15 per cent in the source country. However, war pensions in Trinidad and Tobago will be exempted. In addition, social security pensions will be taxed in the originating country and the withholding tax rate on annuity payments will be dropped to 10 per cent.

Also with respect to Trinidad and Tobago, the two-year exemption for visiting teachers will no longer exist and seasonal workers will not have to pay Canadian tax if they earn under $8,500.

I return briefly now to the protocol negotiated with Hungary, which is also part of Bill C-105. As background, I should mention that the Income Tax Act amendments in 1976 increased the rate of the withholding tax paid to non-residents from 15 per cent to 25 per cent unless reduced by a tax treaty.

The existing treaty between Canada and Hungary reduced the withholding tax rate to 10 per cent on dividends paid to a parent company and 15 per cent in all other cases. However, that convention was negotiated before the 1992 budget announced Canada's willingness to reduce its withholding tax on direct dividends to 5 per cent. The revised protocol before us today reduces that rate and the rate of branch tax to 5 per cent by 1997. There are no changes in the rates of withholding tax on other dividends.

I would like to point out that the Government of Canada will lose no revenue as a result of the provisions in these treaties. Not only will Canada gain from increased trade and investment, but we will gain too from the reduced withholding tax rates and other concessions we have gained from these negotiations.

There is nothing contentious in this bill. I would like to take a moment to thank the House for its co-operation today, for providing for second reading in committee of the whole and now third reading. It is very much appreciated that the opposition parties that are participating in this debate today understand that this is a good step forward for the government.

This is a workaday legislation that will expand trade and investment opportunities between Canada and the countries with whom we have made this deal. Canada already has tax agreements with 54 nations. This bill will increase the number to 57.

I call upon the House to give its support and bring a conclusion to this debate on third reading.

[The Acting Speaker (Mr. Kilger)]

Is the House ready for the question?

[Some hon. members]

Question.

[Jim Jordan, Liberal, Leeds—Grenville, ON]

Mr. Speaker, on a point of order, it is my understanding that one of our members wishes to speak to third reading of this bill. Perhaps that could be accommodated.

[The Acting Speaker (Mr. Kilger)]

Certainly. We are still at the debate stage. Resuming debate.

[Herb Dhaliwal, Liberal, Parliamentary Secretary to Minister of Fisheries and Oceans]

Mr. Speaker, it is a great privilege to speak once again on Bill C-105.

This bill shows that you need to build an infrastructure whenever you deal with trade with other countries. That infrastructure takes a substantial amount of effort to create so that there is trade and investment taking place among different countries.

Looking at the legislation, as I said earlier in the debate, there is an agreement with 55 countries. I know members of the Bloc think it is very simple and easy to build a relationship with other countries. They think it is very easy to set up treaties, make agreements and develop trade with other countries. It takes a very long time to build the infrastructure and the treaties. It takes a long time to make agreements and create the organizations to develop trade and exchanges, rules, regulations and understandings among different countries.

It does not take a genius to know that if the infrastructure is broken, if those agreements are broken sometimes they cannot be renegotiated. For example, some people in the Bloc think it would be very easy to negotiate a new NAFTA. That simply is not the case. Look at the world trade agreement. It took years and years to negotiate that, to develop a consensus among so many countries.

This bill shows that as a country, Canada needs the tremendous infrastructures we have built in trade, transportation and organizations. These were not created overnight. They took years and years to develop. It also takes expertise.

I sometimes wonder what the people in the Bloc are thinking when they say that they can do the same thing overnight and that they will be able to set up all the agreements the next day and do all the things it took Canada so long to do. It makes no sense.

Everyone knows that when political uncertainty is created, business people are not willing to invest where there is uncertainty. One way to judge that is what has happened in real estate, the business I was involved in. It is a very good indicator of the investment climate and of the uncertainty that exists. If we drive across the bridge over to Hull we will see that real estate prices are lower because of the uncertainty in Quebec. They are substantially lower because of the political uncertainty created by members of the Bloc.

The jobs that are created, whether they are in Canada or other countries, the investment and the foundations that are laid are because of stability. We need political stability to ensure that we create a climate for investment and for business.

This bill is an indication of another infrastructure, another agreement we are developing as a nation. All Canadians will be able to take advantage of this. It will become easier to invest in other countries and easier for other countries to invest in Canada.

If that infrastructure is broken, it creates problems. We will not have the built in systems. Those systems take a long time to develop. As a country we have to recognize that. I think the people in Quebec recognize that they cannot duplicate overnight what took so many years to build. That is going to be a disadvantage. When we have those types of disadvantages we cannot compete. If we cannot compete, the reality is that jobs will be lost. Anybody who says that if Quebec is no longer part of Canada no jobs will be lost does not have a clue about the reality that exists out there. Thousands of jobs are going to be lost because it is taking away the system, the infrastructure, the communications, all the things that have been built up.

There are many examples around the world where countries have been torn apart. What happens is that the prosperity is not there. Racial harmony is a key to prosperity. At this time, the stronger the unit we have, the greater our ability is to negotiate and fulfil agreements, to have financial strength and to have a critical mass where we can talk to other countries because of our fiscal strength. We can talk to other countries because of our technologies and they will want to talk to us about the economy, trade and making exchanges.

[The Deputy Speaker]

Is the member finished his address?

[Herb Dhaliwal, Liberal, Vancouver South, BC]

Let me just conclude, Mr. Speaker. I see the hon. Minister of Indian Affairs and Northern Development is here so I will conclude my remarks by saying that as a country we have to recognize, as do all the people of Quebec, that we will be stronger if we are united as Canadians. We will be able to create jobs and have a future for our children if we stay together. We will not be strong if we are divided. We will be strong if we are united and we will be able to build a strong future for the generations to come.

[The Deputy Speaker]

Is the House ready for the question?

[Some hon. members]

Question.

[The Deputy Speaker]

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

[Some hon. members]

Agreed.

(Motion agreed to, bill read the third time and passed.)