Mr. Speaker, I am pleased to have the opportunity to speak to Bill S-31, the income tax conventions implementation act, 2001, at second reading. The bill would enact tax treaties that Canada has signed with eight countries, five of which are new treaties with countries with which we did not previously have a treaty, namely, Slovenia, Ecuador, Venezuela, Peru and Senegal. We have revised conventions with Germany and the Czech and Slovak republics. The reason being that the latter two countries were previously one country so we now have a new tax treaty with each republic.
I will provide the House with a brief overview as to why these tax treaties are important. The first reason is fairness in taxation and the avoidance of double taxation because in the absence of a tax treaty it is highly probable that citizens would be subjected to double taxation.
A second and related reason is that foreign activities of Canadians and foreigners in Canada are increasingly important. This is true for foreign trade which now accounts for more than 40% of the Canadian GDP. In addition, foreign investments in both directions are increasing in importance. Having a tax treaty increases the certainty for both Canadians and non-Canadians as to how they will be taxed in Canada and foreign countries. This increased certainty on the tax liability encourages more foreign trade and investment.
I think that now, if one wishes to see a connection with the events of September 11, there may be some potential obstacles to international exchanges and the flow of foreign investments as a result. It is even more important than ever, therefore, to adopt measures to encourage foreign investment and international exchanges.
One of the principal disadvantages of not having a tax treaty is double taxation. Double taxation is something that citizens and companies do not relish. Double taxation is to be avoided because it represents a very important potential impediment to international transactions which are becoming increasingly important.
It is really a simple matter. I do not know if I have to say much more. I am a bit less longwinded than some of my opposition colleagues because I have made the essential points.
One important element of these tax treaties is that they affect withholding taxes. Withholding taxes are those taxes imposed by Canada on income earned by non-residents. In the absence of tax treaties, the withholding tax rate would be 25%. However, as a consequence of these tax treaties, those withholding taxes would be reduced to a range of 5% to 15%. This greases the wheels of international commerce and international investment and, hence, is in the national interest.
Bill S-31 is not something radical. It is not rocket science. It is standard, routine legislation to increase our stable of countries with which we have tax treaties and to improve the tax treaties from some of the existing cases. In general, these tax treaties are modelled on a standard OECD model.
In saying that the bill is not terribly radical, I do not want to belittle the work done by our public servants because the devil is in the details. There are important technical differences across the various tax conventions depending upon the nature of our relations with those countries and the state of those negotiations.
I hope hon. members will support the bill. It is pretty simple stuff in principle, although the details could get quite technical.
There are three basic advantages to adopting these tax treaties: first, it would avoid double taxation, which is good for corporate and private citizens and good from the point of view of the national interest; second, it would lead to a simplified tax system; and third, it would enhance the degree of certainty and provide a more stable environment for international transactions. Given that the global scene is becoming more important for Canada, this increased ability to conduct foreign transactions is definitely in the national interest.