Mr. Speaker, I wish to speak on Bill S-5. Some of the points that I am going to speak about were already addressed by my colleague from the Conservative Party, but I want to speak today on the Liberal point of view.
Bill S-5 is an act to implement conventions and protocols concluded between Canada, Finland, Mexico and Korea, all separate tax treaties from what I understand, for the avoidance of double taxation and the prevention of fiscal evasion with respect to income taxes. It is also known as the 2006 tax convention implementation bill.
While international tax law does not always make for the most exciting of debates, its importance is indisputable, especially as we move toward greater globalization and greater free movement of labour and capital across international borders.
This bill seeks to obtain tax treaties between Canada and, as I said, three other countries, those being Mexico, Korea and Finland. We have had tax treaties in place with these countries for many years. As with most laws, there comes a time when they need to be amended in order to reflect changing times.
Consequently, the bill presents some routine amendments that I believe will help ensure Canada remains a leading participant in the global economy.
Our party will support the updates contained in the bill.
There are two primary areas with which the bill occupies itself. The first is to help combat tax avoidance between signatory countries. The second is to avoid the double taxation of nationals working abroad in these other countries.
I will begin with the issue of international tax avoidance. As an accountant, I can tell the House that combating tax evasion is not an easy task, but it is an urgent one. It is also a task that Canada cannot fight on its own. As the former chair of the finance committee during the last parliamentary session, I can say that this is why our committee looked at how Canada can increase its battle in curbing the increase of tax evasion.
With the call of the election by the opposition parties, our work was never completed, but during this session the finance committee, forced to conduct a parliamentary review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, has hopefully given FINTRAC more tools to help combat tax evasion, through Bill C-25.
Stemming international tax evasion is something that requires the efforts of all countries among which capital and people flow back and forth, and they are perhaps flowing more freely now than at any other point in history. It is therefore not only advantageous for us to close tax avoidance loopholes in order to protect our own tax base, but it also speaks about our commitment to the international community. We have to show our partners, allies and competitors that Canada takes its international responsibilities seriously. We have to be willing to exchange information and work with foreign revenue authorities to help stem the tide.
I will now move on to the second part of the bill, the avoidance of double taxation. We are living in a highly globalized economy. Without international tax treaties such as this one, a Canadian working abroad would likely be taxed twice on the same income, once by the Canadian government and then again by the country in which that income is earned.
There are several ways to ensure that double taxation does not occur when the citizen of one country works in a foreign country.
A tax treaty can ensure that worker's income is taxed solely in the country where the work is done. Conversely, a treaty can also ensure that only the country of which the worker is a citizen taxes that person. Or again, finally, a tax treaty can see both countries tax a worker but at lesser rates, to ensure that the taxpayer who pays in one country will receive a tax credit in the other country in which he or she files his or her income tax return based on global income, to avoid double taxation.
The treaties in Bill S-5 cap the tax rate at 15% on portfolio dividends paid to investors who do not reside in Canada. In the case of dividends paid by subsidiaries to their parent companies, the maximum withholding tax rate is reduced to 5%. The withholding rate reductions also apply to royalty, interest and pension payments.
Each treaty in Bill S-5 caps the withholding tax rate on interest and royalty payments at 10%, which is in line with current trends in this area and current Canadian tax policies.
At this point what does concern me are the recent rumblings by the present government that seem to indicate it would like to rip apart many of the 90 tax treaties that were signed by the previous Liberal government in order to prevent the double taxation of Canadian dual citizens who work outside of Canada.
It was a little over a month ago when the Minister of Foreign Affairs told the Senate committee that the government was considering imposing a tax on Canadians living abroad under a second nationality. This would not only violate our bilateral treaty obligations with dozens of other countries, but it would also go against the fundamental value of what it means to be a Canadian at home and in the world.
Furthermore, it would also represent a complete U-turn from what Bill S-5 attempts to do. Bilateral tax treaties signed between Canada and other countries, such as the one we are discussing today, allow for dual nationals to live and work in one country without having to pay income tax in their country of citizenship. In a world of increasing international movement, these tax treaties have become more and more vital. As such, Canada has been hard at work to extend its tax treaty network for decades.
International arrangements such as these allow for relatively free movement of people and capital across borders, contributing greatly to the rich multicultural nature of our country. Imposing an income tax on dual citizen Canadians living abroad would not only violate these treaties, it would seriously reduce our domestic tax base by opening up the likelihood that foreign dual nationals here would face double taxation from their country of citizenship.
While I am happy to support the bill, which will ensure there is no double taxation between Canada and either Finland, Mexico or Korea, I am very concerned about the government's commitment to respecting the bill over the long term. I am also concerned about what that says about the government's commitment to making Canada internationally competitive in terms of taxing its citizens working abroad and potentially foreigners coming to Canada to work.
There is another aspect of what international tax treaties such as Bill S-5 achieve. It is just as important as avoiding double taxation or stemming tax avoidance. That aspect has certainty. With so much investment, goods, services and labour flowing across international boundaries, it is important for the people involved to hold a fair degree of certainty that the tax situation that exists today will more than likely exist tomorrow.
In short, it is a commitment that the rate of taxation will not change on the whim of a government. It is kind of guarantee to the international community and to Canadians that the government will not, for instance, suddenly decide to tax its dual citizen nationals living abroad like the present government decided to do by taxing income tax after promising not to do so in the last election. I have no idea why the government wanted to erode that confidence by musing about taxing its dual citizens living abroad.
Finally, I am also concerned that the government is not moving important legislation through Parliament as fast as it should. I am told that the bill needs to receive royal assent by January 1, 2007. Fortunately, it is a Senate bill and it has already passed in that place in a very speedy manner, which is why it is before us in the House.
The bill arrived in the House just two short weeks ago. It has taken the agreement of all opposition parties to fast track the bill through second and third readings. In short, it took the three opposition parties to ensure the bill, a bill that may not be tremendously exciting but is nonetheless important to Canada's competitiveness, was passed on time.
That being said, we on this side of the House are happy to support the bill at all stages.