Mr. Speaker, I am pleased to rise today and urge the House to give speedy approval to this legislation.
The bill I am presenting today culminates some ongoing work of the last many months. It is legislation which does not generally command great public attention. However, it is legislation that does promote fair taxation and good international and trade relations.
The purpose of Bill C-37 is to implement reciprocal tax treaties between Canada and Russia, Canada and Ukraine, Canada and South Africa, Canada and Tanzania, Canada and India. These five tax treaties, each of which is based on the OECD model tax convention, have two main objectives, to eliminate double taxation on income tax and to prevent income tax evasion.
While this bill may not spur great public attention, let us not diminish the importance of tax treaties and their benefits. It is treaties such as the ones I am presenting today that are incorporated in this legislation which encourage certainty and stability between international tax regimes and which enable the expansion of trade and investment.
It is worth making special note of the treaties with Russia and Ukraine. Given the political shifts in that area of the world in the late eighties and nineties, it is more than timely that we abandon the 1985 Canada-U.S.S.R. tax treaty and adjust tax relations with these countries to ensure renewed and important economic relationships.
The tax treaties I speak of today eliminate or alleviate double taxation in instances where international transactions are involved that may give rise to the same income being taxable in the hands of the same person in more than one nation. They also enact measures that counter income tax evasion in international transactions. This ensures those nations rightfully entitled to much needed income tax revenues will receive full compensation.
I also wish to remind the House the treaties enacted by the bill are the latest in a longstanding process of renewing or evolving our tax conventions with newly emerging nations. The major reform of Canada's income tax legislation in 1971 required Canada to expand its network of double taxation conventions with other countries.
Before I review the main elements of these new tax treaties, I wish to put to rest any revenue concerns that may arise as a result of these treaties. Simply put, the concessions contained in the five conventions should not result in any revenue loss for the Government of Canada. On the contrary, Canada should benefit from the reductions in various withholding tax rates and other concessions which have been ceded by the five countries concerned and from increased trade and investment resulting from the successful conclusion of these treaties.
There are some in the House who would at the very mention of tax treaties suggest that what we are talking about is an opportunity for tax evasion. What we are talking about is an opportunity to foster investment and the free movement of capital and people.
Allow me to outline the key features of Bill C-37 which provide equitable solutions to the various problems of taxation between Canada and certain international partners.
The treaties provide generally that dividends may be taxed in the source country at varying maximum rates. In Russia, Ukraine and South Africa this maximum rate will be 15 per cent. In the United Republic of Tanzania the maximum rate will be 25 per cent. For India the 1985 agreement with Canada set maximum rates of 15 per cent on direct dividends on interest and 25 per cent on other dividends. These rates will remain unchanged.
In the case of inter-company 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 5 per cent in South Africa and Ukraine, 10 per cent in Russia and 20 per cent in Tanzania.
Part of the main thrust behind the treaties is to ensure companies are unable to lower taxes by merely establishing branches in Canada or other countries. To accomplish this, branch tax rates have been set parallel to the rates for inter-company dividends.
Regarding interest paid by a resident of one country to that of another, the rate set out in the bill is 10 per cent in the case of Russia, Ukraine and South Africa and 15 per cent in the case of Tanzania. There are, however, some exceptions.
Maximum rates on interest paid on a bond or similar obligation by the national government will be reduced to zero in all participating countries. As well, these treaties contain a provision that will extend a zero rate of taxation on interest paid on loans or credits extended, guaranteed or insured by certain state entities in the source country. In Canada that would include the Export Development Corporation.
These treaties also address the taxation of royalty payments. They provide for a general rate of source taxation of 10 per cent in Russia, Ukraine and South Africa and 20 per cent in Tanzania. The rate in India will be reduced within five years to 10 per cent or 15 per cent depending on the types of royalties.
The treaties with Russia, Ukraine and South Africa have gone further to recognize the world's borders are very much impacted by the information highway. South Africa has reduced the withholding tax on royalties for computer software to 6 per cent. Russia and Ukraine have eliminated these completely.
Pensions are also dealt with in these treaties. For example, in the case of Russia, Ukraine and India pensions and other similar payments will be taxable only in the source country. South Africa will deviate slightly by stipulating that pensions will be taxable in the source country with no limitations. In this instance the country in which the recipient resides will provide a credit for the taxes paid in the source country.
In Tanzania pensions and similar payments arising in one country and paid to a resident in another may be taxed by both countries. However, the tax rate of the country of source will generally be reduced to 15 per cent.
In summary, the five tax conventions contained in the bill provide mutually beneficial solutions to many of the taxation stumbling blocks that exist between Canada and our international partners. The countries I have mentioned are preparing to implement the bilateral convention as soon as possible.
I remind hon. members of the important role tax conventions play in fostering investment into Canada and out of Canada into other countries, such as the ones which are the subject of this bill, and also in fostering and promoting the fair treatment of taxpayers and ensuring taxes are collected. I commend the bill to the House and urge its speedy passage.