Madam Speaker, I agree that there is absolutely no reason for us to have a discussion on this. However, since we are, I would like to participate in it. I would like to add to what my hon. colleague has already stated. I believe it is instructive to consider briefly some key aspects of our history when it comes to the taxation of foreign source income.
Prior to 1972 Canadian corporations could earn any type of foreign source income through subsidiaries located anywhere abroad and bring that income home to Canada as tax free dividends, as long as the Canadian company owned just 25% of the voting shares of the subsidiary. This meant that even passive types of income, such as interest on bonds, could be earned through subsidiaries in tax havens and brought back to Canada tax free.
This situation was rectified by the tax reform of 1972, when the basic features of our international tax system were put in place. Since 1972 Canada has taken a threefold approach to the taxation of foreign source income. First, active business income earned by subsidiaries can be brought home to the Canadian parent tax free if it is earned in a country with whom Canada has a tax treaty.
Second, active business income earned in a non-treaty country is taxable in Canada, but only when it is returned to Canada with a credit for any tax paid in the foreign jurisdiction. Third, passive income, such as interest or dividends on portfolio holdings, is imputed back to Canadian corporations or individuals and taxed in their hands on a current basis with a credit for foreign taxes, whether or not that income has actually been sent home to Canada.
This threefold approach has helped Canada to balance the goals of providing a competitive tax system for Canadian businesses to engage in active businesses in treaty countries. There are 80 of them now and I am sure it will build. At the same time, it prevents abuses involving the sheltering of assets to earn passive income in tax havens.
I believe the background I have just outlined highlights a key problem with the motion before us. The motion is aimed at active business income earned by Canadian companies through subsidiaries located in a treaty country, in this case Barbados. Those subsidiaries are used by Canadian companies to invest directly in Barbados and as financing structures to invest indirectly in other treaty countries.
The aim of this motion is to deny these subsidiaries the ability to send home profits to Canada as exempt dividends, even though those profits represent earnings from an active business there. However, that is precisely the kind of income that we intend to be exempt from Canadian tax when it is earned in a treaty country. The motion seems oblivious to the basic features of Canada's policy for the taxation of foreign source income and it should not receive the support of the House.