House of Commons Hansard #24 of the 39th Parliament, 2nd Session. (The original version is on Parliament's site.) The word of the day was crime.
Joy Smith Conservative Kildonan—St. Paul, MB
Mr. Speaker, I have the honour to present, in both official languages, the first report of the Standing Committee on Health.
I am pleased to report that the committee has considered the supplementary estimates (A) under Health for the fiscal year ending March 31, 2008, and reports the same.
Dennis Bevington NDP Western Arctic, NT
Mr. Speaker, I rise to present a petition to the Minister of Canadian Heritage from the community of Deline in the Northwest Territories.
That community is the rightful birthplace of hockey, as in Sir John Franklin's writings in the early 1800s, he indicated the game was being played on the ice on Great Bear Lake in front of the community.
This petition, which carries the names of many of the community's members, is something I am very proud to present. I hope that the Canadian historical record will soon indicate that Deline, Northwest Territories is the home of Canadian hockey.
Joy Smith Conservative Kildonan—St. Paul, MB
Mr. Speaker, it is my honour to present two petitions calling on the government to continue its work to stop human trafficking here in Canada.
This is a growing crime on our shores. We have heard several accounts this past couple of weeks of human trafficking rings being taken down in Halifax and in Alberta. I applaud those people for continuing their good work.
Questions on the Order PaperRoutine Proceedings
Regina—Lumsden—Lake Centre Saskatchewan
Conservative
Tom Lukiwski ConservativeParliamentary Secretary to the Leader of the Government in the House of Commons and Minister for Democratic Reform
Mr. Speaker, I ask that all questions be allowed to stand.
The House resumed consideration of Bill C-2, An Act to amend the Criminal Code and to make consequential amendments to other Acts, as reported (without amendment) from the committee, and of the motions in Group No. 1.
The Speaker Liberal Peter Milliken
The question is on Motion No. 2. A vote on this motion also applies to Motions Nos. 1 and 5. Is it the pleasure of the House to adopt the motion?
The Speaker Liberal Peter Milliken
In my opinion the nays have it.
And five or more members having risen:
The vote on this motion stands deferred until later this day. The hon. chief government whip is going to defer it. I will hear him first.
Jay Hill Conservative Prince George—Peace River, BC
Mr. Speaker, you were anticipating what I was about to say. I would ask that the vote be deferred until the end of government orders this evening.
The Speaker Liberal Peter Milliken
Accordingly, the vote is deferred until 6:30 p.m. this evening, or at the conclusion of government orders.
Diane Finley Conservative Haldimand—Norfolk, ON
moved that Bill S-2, An Act to amend the Canada-United States Tax Convention Act, 1984, be read the second time and referred to a committee.
Ted Menzies ConservativeParliamentary Secretary to the Minister of Finance
Mr. Speaker, I am pleased to have the opportunity to speak today at second reading of Bill S-2, a bill that proposes to implement a fifth protocol to the tax treaty that we recently signed with the United States. That was an exceptionally exciting day for Canada to see our Minister of Finance and his colleague from the United States come together and sign this treaty that we have been working on for a long time.
With the signing of this treaty last September, we have concluded nearly a decade of negotiations. At the same time we have strengthened the bonds of economic cooperation between our two countries. In doing so, we are modernizing a long-standing instrument for the betterment of individuals, families and businesses on both sides of the border, including manufacturers.
This fifth update or protocol of the Canada-U.S. tax treaty will stimulate further trade and investment between our two countries. As we all know, that is very critical because the U.S. is our largest trading partner on the other side of the 49th parallel and any way we can smooth that path is a tremendous benefit.
In today's highly competitive global economy we need to continually explore ways to grow, to expand and to compete. To that end, further improving and refining our relationship with our neighbours to the south is essential.
Canada is a trading nation. The United States is by far our largest trading partner. Through NAFTA we have come together to create a competitive, open and connected marketplace, the largest marketplace in the world.
This government recognizes the importance of our economic and trading relationship with the United States, so after almost 10 years of negotiations, we have signed an agreement that will provide tremendous value today and for future generations.
The bill we are looking at today represents the final step in this country in implementing that agreement. It also needs to be ratified by the United States before it comes into force.
This protocol will make our tax systems more efficient through initiatives such as eliminating withholding taxes on cross-border interest payments; extending treaty benefits to limited liability companies; allowing taxpayers to require that otherwise insoluble double tax issues be settled through arbitration; ensuring that there is no double taxation on immigrants' gains; giving mutual tax recognition of pension contributions; and clarifying how stock options are taxed.
I will speak in more detail shortly about these proposals, but first let me say a few words about the absolute necessity of tax treaties.
Tax treaties, like the one we are debating today, are key to Canada's competitiveness. One of the most important functions of a tax treaty is to prevent double taxation. Whenever a resident of one country earns income in another country, there is potential for double taxation. This is because both the person's country of residence as well as the country where the income is earned can legitimately assert rights to tax the same income.
Certainly no one wants to pay tax twice on the same income; that is hardly fair, nor is it logical. To prevent double taxation from happening, countries sign bilateral tax treaties, also known as tax conventions. These agreements set out which country gets to tax particular forms of income in a variety of specific situations. These agreements become legally binding once ratified, that is to say, once the proposals are passed into law by Parliament and by the government of the other country.
Tax treaties also help in the enforcement of tax law by providing for exchanges of information between tax authorities. One of the advantages of having tax treaties such as this one is that they include mechanisms for resolving differences of view between countries on such questions as characterizations of a particular item of income or where it was earned.
Within today's increasingly global economy and a more mobile population, tax treaties are increasingly important for Canada.
Those who benefit from tax treaties could be businesses that operate or invest abroad, or perhaps new ventures that are seeking foreign investment. They could even be individuals who may want to work temporarily in another country or own property there. A tax treaty gives all of these parties clear answers as to where they have to pay tax.
Canada's extensive tax treaty network consisting of over 85 countries includes our NAFTA partners, virtually all of the European Union and OECD countries, many members of the Commonwealth and the Francophonie, as well as other rapidly growing economies such as Brazil, Russia and China.
However, Canada's tax treaty with the United States is unique, given our close relationship. While it is similar to our other double taxation agreements in that it is based on an OECD model, the Canada-U.S. treaty has always included some special features that reflect the Canada-U.S. relationship.
As cross-border business and investment practices evolve, the tax treaty has to evolve at the same time to remain current. Canada and the U.S. have a long tradition of tax agreements dating back as far as 1928. However, the current Canada-U.S. income tax convention was first signed in 1980 and has been updated four times, in 1983, 1984, 1995 and again in 1997.
Those four changes to the treaty, or protocols as they are known, covered a wide spectrum of points, but they all have two things in common. First, they all helped to ensure the treaty adopted the latest developments in the two countries' tax policies. Second, they responded to the changing needs of Canadian and U.S. individuals and businesses. That is why it is so important for a government to be open to and aware of those changing needs. As a result, an agreement in principle was reached with the U.S. on a fifth protocol to update the tax treaty.
As I mentioned earlier, this agreement, signed last September by the Minister of Finance and U.S. treasury secretary Paulson will enter into force once it has been given effect by both the Canadian and United States governments.
The proposed legislation contained in Bill S-2 will stimulate further trade and encourage investment between Canada and the United States. This bill delivers significant benefits to Canadian individuals and businesses in a number of ways.
Bill S-2 proposes to eliminate source country withholding tax on cross-border interest payments. With that goal in mind, I would like to mention that originally the government had planned to wait for this protocol to be ratified before this initiative would come into effect. However, that would have left Canadian borrowers in an uncertain position because of the uncertainty of the timing of the ratification.
To provide that certainty, rather than waiting for this treaty protocol to be ratified, the government has decided to specify in advance the date on which the measures will start to apply. Assuming that Parliament agrees, that date will be January 1, 2008. This means that after 2007 any person in Canada who pays interest to an arm's length non-resident will not have to withhold tax regardless of which country is involved.
For example, starting next year a resident of Canada who borrows money from a U.S. lender will no longer have to withhold and remit Canadian tax on the interest payments. This will reduce borrowing costs and will make cross-border investment more efficient.
Bill S-2 also proposes to provide protection against double taxation, for example, in cases where individuals cease to be resident in one country and become resident in the other.
Furthermore, the bill also allows residents of Canada or the United States who face the possibility of double taxation to require the two countries' revenue authorities to resolve the issue through arbitration if they cannot resolve it through negotiation. This proposal is important because it increases taxpayers' confidence that the tax treaty will resolve potential double taxation.
Bill S-2 contains other proposals that will improve the efficiency of the tax system in both countries. One such example is the proposal to extend treaty benefits to what are known as limited liability companies by removing a potential impediment to cross-border investment. Once passed, this legislation will give mutual tax recognition of pension contributions.
In other words, provided certain conditions are met, cross-border commuters, such as those in Windsor and Detroit who work in the automobile industry, may deduct for resident country tax purposes the contributions they make to a plan or arrangement in the country where they work.
As well, someone who moves temporarily from one country to the other for work reasons can get tax recognition in his or her temporary new home country for pension contributions he or she continues to make to the original employer's pension plan, again subject to some conditions. This proposal would facilitate the movement of workers between Canada and the United States by removing a possible disincentive for commuters and temporary work assignments.
Finally, Bill S-2 also clarifies how stock options are taxed and implements a number of technical improvements and updates.
To sum up, as we know, the United States is our closest neighbour and by far our largest trading partner. This tax treaty strengthens our very important economic relations. It promotes growth and investment. It enables Canada to move swiftly in the dynamic global economy. However, more than all of this, this protocol improves and refines our relationship with our friends and neighbours to the south.
For all of that to happen, this agreement must now be ratified by Parliament. I therefore encourage all hon. members to lend their support and pass this bill without delay.
I might add that this bill, as members can see, was tabled in the Senate. The senators, many of whom have business backgrounds, recognized the value of this bill. They understand the amount of trade back and forth and the amount of fluidity, so to speak, of our constituents who travel back and forth and who deal with pension contributions on both sides of the border and all sorts of financial matters.
We encourage our Canadian constituents to invest abroad. We encourage investment to come into this country. The senators looked at this very closely. In very short order, I might add, through one quick presentation, although I will not suggest it had anything to do with the presentation that I provided to them, they passed it entirely in one sitting. I think that is an indication of how important it is to expedite this.
As I said earlier in my speech, we want this done so that its effects can take place as of January 1, 2008. Once again, it is to help facilitate the movement of finance back and forth across this border without having double taxes, so to speak, paid on the two sides of the border.
I do not think any government would object to investments in or out of its country as long as it knows that taxes are being paid either in one jurisdiction or in the other. It is very important to get this legislation in place as quickly as we can. It is an encouragement to the movement and flow of money back and forth.
We see this in many places along this border. Windsor-Detroit is just one example. Another one is the lower mainland in British Columbia, just outside Roberts Bank. Many American citizens travel across that border every day to work in Canada. They work in the lower mainland.
This legislation is very important. There have been four protocols before this one. As the need for the flow of money and finance increases, we have a need for this fifth protocol to come into play.
I would certainly encourage all hon. members to look very seriously at this and to consult with their constituents, but very quickly. I think we have a lot of support in industry. In the financial sector, we have good support for this legislation. Its beginnings go back several years.
This is a very simple and straightforward piece of legislation and a very positive one. It would be a great Christmas present for Canadians if we could get the bill passed through the House as expeditiously as possible.
Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Mr. Speaker, I listened to the remarks of my colleague with interest. As a matter of fact, we believe that this bill will generally improve the situation. I noted in particular his comment that we need to take the time to look at it very seriously.
I would remind him that under the previous Liberal government, at one point, the tax treaty with the United States was amended concerning American pensions. The result was that some people who had previously been taxed at a rate of 50% were suddenly being taxed at 85%. It took the intervention of several members from ridings near the U.S. border, and from all the parties in this House, acting in a non-partisan way, to try to bring that situation to a reasonable solution.
I recall that more than a thousand people in my own riding were affected by that measure. I also remember that Herb Gray, a minister in the Liberal government, was dealing with the same problem in his corner of Windsor. Many people worked hard to persuade the Minister of Finance to correct the situation. This kind of proposal gives me cause for caution. Indeed, in the matter of tax treaties, it is often true that “the devil is in the details.”
While considering that significant amendments will justify adopting the bill, one measure in the existing tax treaty may cause some difficulty. It is the regulation that now provides that when a Canadian taxpayer borrows money in the United States, Canada can hold back up to 10% of the interest paid to the American bank. To offset the effect of that holdback, the American bank imposes a surcharge on loans granted to Canadians. We would like to eliminate that barrier.
I would like to be sure that the consequences will be positive. That is why it would be worthwhile to examine this matter carefully in committee, without necessarily spending an inordinate amount of time. We must ensure that there are no adverse effects, in spite of initial good intentions, so that the difficulties we encountered with American pensions do not recur.
I would like to hear my colleague’s opinion on that question.
Ted Menzies Conservative Macleod, AB
Absolutely, Mr. Speaker. I appreciate those good questions from my hon. colleague, who sits on the finance committee with me. Certainly we want to be very clear that nothing in the bill is going to be detrimental to the pension plans that are the future for many Canadians.
The senators had some very good and very serious questions. There were many discussions about pensions to ensure that the same error, so to speak, was not made again. We are very confident that this one has been highlighted and that the error is not going to be repeated.
The withholding tax is certainly an important piece of this legislation. It is just one of the many positives in the bill that are critical to Canadians. As well, the timing is critical. It is critical that we get this legislation in place as soon as we possibly can. Hence the urgency for getting it passed.
John McCallum Liberal Markham—Unionville, ON
Mr. Speaker, I am pleased to rise this afternoon to speak on the second reading of Bill S-2. Just in case there is any suspense in the House, I can say that given that perhaps 90% of the content of this bill was initiated under the previous government, the Liberal Party will be pleased to support this bill.
Canada has signed close to 90 such bilateral conventions with various countries. While each is important in its own right, there is no doubt that a convention with our largest trading partner by a long shot has a particularly important place.
This Canada-U.S. tax convention was last updated in 1997. Negotiations on this round began soon thereafter. They were officially announced in October of 1998.
As one can imagine, these are often extremely complicated and complex negotiations, requiring the utmost attention to detail. When Bill S-2 receives royal assent in the near future, I am sure there will be public servants on both sides of the border preparing to immediately begin negotiation of the next round of talks.
Before I get to the substance of this bill, I thought I might mention in passing a related area of international taxation and that is the Canada-South Korea free trade negotiations that are currently under way. As the leader of my party has pointed out, we are all in favour of free trade, but this deal is not really free trade at all because of the unacceptably high non-tariff barriers that remain in place.
A few days ago, the CEO of Ford Canada, Mr. Bill Osborne, took the unusual step of very publicly chastising the government for this failure. According to Mr. Osborne, the deal “contains no effective measures to ensure the immediate and sustained opening of the Korean market to significant numbers of imported vehicles”.
So while the government has some pieces of legislation, like Bill S-2, which seek to improve the investment climate here in Canada and make us more competitive in the global marketplace, it also has the Korean free trade deal, which is doing just the opposite.
At a time when the high dollar and numerous other pressures are casting doubt on the future of the auto sector in this country, the Canadian government is pursuing policies that have the CEO of one our largest auto manufacturers taking strong offence and making the following comment. He stated:
The question is where's the most efficient jurisdiction for us to invest [our dollars], and where can we be most competitive? We would like to see policies and support from the Canadian government that allows Canada to be one of the most efficient places to invest.
On the one hand, Bill S-2, which was largely inherited from the Liberal government, promotes competitiveness, and we support it. On the other hand, this Canada-South Korea free trade agreement goes in precisely the opposite direction, destroying the competitiveness of Canada, or diminishing it, and causing one of our biggest employers to question whether his company will even continue to invest in this country.
Let me turn now to the more technical elements of Bill S-2. The biggest change in this bill is the elimination of source country withholding tax on cross-border interest payments from arm's-length lenders. That is to say, a borrower on one side of the border will no longer have to remit withholding tax on the interest payments for that loan.
In the last few years, both Australia and Japan have come to similar arrangements with the United States by reducing the withholding tax on interest payments from 10% to zero. When Bill S-2 receives royal assent, Canada will be on a par with these two countries.
What exactly does this mean for Canadian companies? It will mean better access to the United States debt market and an increased ability to finance expansion here and abroad.
Many of our small and medium sized businesses here in Canada struggle to find the capital to take their work from the very early stages of research and development to the point where they are ready to bring the product to market. Often they will find lenders in the United States who are interested in funding their products, but only if the remainder of the research and development takes place in the U.S.
By eliminating the withholding tax on cross-border interest payments, we would be eliminating one of the tax disincentives that prevent these companies from pursuing that work here in Canada. This measure also has implications for individual Canadians who would now have greater access to international lenders.
Another aspect of this bill, which will be of interest to many Canadians, is that it would allow for the mutual tax recognition of pension plan contributions for workers whose employers move to the United States for temporary postings. Currently, there is a problem with the double taxation of these pension plan contributions.
What Bill S-2 aims to do is ensure that if a Canadian is posted to a branch of his company located in the U.S. he would be able to contribute to the U.S. employer's pension plan and make those payments deductible for Canadian income tax purposes.
The bill would go a little way toward offsetting the disastrous impact of another really uncompetitive proposal brought in by the Conservative Party, which is the proposal that would have disallowed interest deductions for loans used to finance foreign acquisitions. This measure would have destroyed competitiveness even more than the South Korean deal would destroy competitiveness. It was described as one of the worst tax measures to come out of Ottawa in 35 years. It would have forced Canadian companies to compete with foreign companies with one hand tied behind their back. It would have weakened our companies relative to foreign companies. Happily, under pressure from the official opposition and from industry, the government withdrew that budget measure, replacing it with something less harmful, but even more foolish, something called double-dipping.
I do not think I will get into that more. It is another example, along with the South Korean free trade deal, of anti-competitive measures that the government has taken. At least here we have one bill that would a positive difference.
The bill would also deal with the stock option benefits that an employee might accrue when he is employed in both countries. Currently, when an employee's stock options are granted while working in one country and he exercises or disposes of the options while working in the other country, both Canada and the U.S. often tax the same benefit.
Under Bill S-2, both countries would continue to be able to tax the benefit of the stock option. The difference, however, would be that each country would be limited to taxing the benefit based on a time spent in country formula.
For instance, if a Canadian spends three months working from his company's office in the U.S. and nine months working on this side of the border, the U.S. would be able to tax one-quarter of the benefit realized between the date of the grant and the date of the realization of his stock option. Canada would be limited to taxing the other three-quarters of that benefit.
This bill could easily be viewed by some as a housecleaning bill that simply updates out tax treaty with the United States. It does, however, deal with our largest trading partner and, therefore, has a place of special significance. While I do not think it will be a matter of great controversy, I do think that the great majority of the members of this House, if not all members, will agree that this is a positive move for Canada.
Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Mr. Speaker, we are dealing here today with a very important bill. It implements certain corrections to the current tax convention between Canada and the United States. This is a very technical subject that requires a lot of detailed analysis.
As in the past, Canada and the United States held repeated negotiations to try to find the most operational tax convention possible. As I said earlier in my question for the parliamentary secretary, these revisions have previously had some rather negative consequences.
For example, a change was made to the way in which so-called American pensions were taxed, that is to say, the pensions that Canadians earned while going to work and paying contributions in the United States and then returning to Canada. It was not necessarily in bad faith, but the result the government produced a few years ago was that people whose incomes were 50% taxable in Canada suddenly found them 85% taxable. The amendment intended to correct the tax convention ultimately had the effect of increasing the tax rate. This result was not necessarily very positive. We fought it, though, and succeeded in winning a certain number of points.
This shows that even though a bill is very technical, we need to take the time to examine it. That is what we have started doing in the Bloc Québécois. In general, this is clearly a positive bill that the Bloc will support. However, we would like certain aspects to be studied more closely in committee.
The bill gives cross-border workers the same tax benefits as resident workers. In other words, it tries to standardize the tax treatment so that Canadians who work in the United States will be treated virtually the same as American workers, and the same for Americans who come and work in Canada. It tries to simplify things and treat people as equitably as possible.
The bill also institutes a bipartite tribunal to settle tax disputes. This is a sensible improvement. In the past we found that when a situation was inappropriate and needed to be corrected, the citizen paying the tax did not really have the tools needed to appeal the decision. Even when the citizen was right about something, he could not easily obtain satisfaction because there was no decision-making tribunal. This bill corrects that situation.
As well, the bill contains rules regarding certain kinds of companies, and will make it more difficult to use various tax loopholes. We have to work harder on this issue. We need only consider the Barbados situation. We know that there has been a tax treaty in force with Barbados for several years, which is very much to the advantage of businesses who use that loophole so effectively that some experts are now talking about billions of dollars being taken out of reach of Canada’s tax system. Ultimately, the people who pay their taxes are paying for the ones who are using that tax evasion mechanism.
In fact, at the Standing Committee on Finance in May, we realized that we had no idea of the real extent of this phenomenon, in terms of what it is costing. I put some questions to the representatives of the Canada Revenue Agency and the Department of Finance, and no one was able to tell us how much this tax evasion amounted to. At our request, some research was done, and the Canada Revenue Agency was able to confirm that unless there are changes to the tax return that would make it possible to distinguish between interest income from businesses in Canada and interest income from outside Canada, it is impossible to place a value on it.
In my opinion, this is a major flaw. This is a question of fairness. My colleagues and I, and all individuals and businesses in Canada, pay income tax. If there is a tax loophole that allows businesses or individuals not to pay their share of taxes, then ultimately we lose as a society, and this situation must be fixed. And so when we examine an issue like the tax convention between Canada and the United States, we have to be concerned about this.
We support the bill. However, we want to have a little more explanation of certain points, and in particular the proposals for eliminating the withholding tax on foreign interest and the tax treatment of cross-border corporations.
These are complex questions. Negotiations are conducted in good faith and we want to simplify how things are done, but we must be sure we are not creating something that would put Quebec and Canadian corporations at a disadvantage. In the past, with the Free Trade Agreement, for example, we have seen that Quebec and Canada have been winners overall, but that there are aspects that were not dealt with in sufficient detail in the negotiations and we did not come out in the final agreement in the position of strength we wanted. Given that we have a tax convention concerning these points, the elimination of withholding tax on foreign interest and the tax treatment of cross-border corporations, it will be important that we obtain additional information in committee to ensure that the agreement truly reflects what is wanted.
Let us come back briefly to the main aspects. One of them, in this draft tax convention, is advantageous for cross-border workers. It will make their lives easier. Prior to the new convention, Canadian residents who work in the United States could not deduct contributions to their American pension plans from their taxable income. We know that here in Canada, when we make contributions to our pension plan, we receive a corresponding deduction. People who work in the United States have not had the equivalent of that, and the new tax convention will fix that situation.
From now on, those workers would be able to deduct pension contributions from income, in the same way as an American worker living in the United States. Conversely, an American resident working in Canada could also deduct contributions to his or her pension plan for income tax purposes. Thus, we see a significant and desirable improvement that makes good sense and that moves us to support the bill. Numerous workers in border areas in the United States as well as in Canada would enjoy all the tax benefits related to their pension plan, just like resident workers.
It is a bit paradoxical. At the same time as we make progress by trying to simplify the situation related to border areas, we run into a tightening of border-crossing regulations that creates a great deal of complications. A lot of negotiation is necessary. We have seen the effort made by nearly every member of this House to put limits on the American requirement that anyone entering the United States have a passport so that we can find other solutions. Initiatives are underway to promote the use of a driver’s licence. There appears to be some interesting work in that regard. However, on the other hand, there is a joint effort at the level of the tax convention to really simplify the situation. In terms of attitude, logic and the economy, that is the direction we should be taking in our relations with the Americans. In fact, we could make real progress that way.
The agreement on the tax convention also provides for a binding arbitration procedure for tax disputes between the two countries. In case of double taxation, a taxpayer who was adversely affected could appeal to the arbitration board for relief. If someone recognizes that his or her income is being taxed by both governments and should not be, there will be an automatic right to recourse through arbitration. There will no longer be the very complicated tax procedure involving submissions to both governments. In future, there will be a tribunal, an arbitration board, made up of an American representative, a Canadian representative and a third representative jointly appointed, which will be able to make determinations on tax matters and which will facilitate the settlement of tax disputes between individuals and the two administrations.
We can see that as an improvement. In refining the manner in which decisions will be made in a dispute, we are improving the settlement of issues. We have seen how that can lead to complications for major issues or when the decision mechanism is not clear; for example, in the softwood lumber agreement. Let us hope that the mechanism introduced to enable taxpayers to obtain satisfaction will improve the situation in the future and simplify the steps involved.
This will also create a body of cases, which could result in future amendments to the tax convention to fix the problems as they are identified. If a citizen complains about double taxation and ends up winning his case, we could then make changes and actually do something about it.
Decisions by this board will be legally binding and will perhaps lead to quicker adjustments to the tax treaty. In any case, we hope that it will truly simplify matters.
Third, the bill clarifies some provisions of the tax treaty in order to eliminate flaws that could be used as tax loopholes. For example, since the income tax laws are different in Canada and the United States, some companies could benefit from both tax laws. There are probably tax experts who earn a living studying these questions to help companies get the maximum deductions. When this is done legally, it is fine. However, when we realize that there are some flaws in the act and they can be fixed, we must correct the situation. This is the aim of the bill to amend the Canada-U.S. Tax Convention, and it is for the best.
Some companies could benefit from both tax laws by being recognized in different forms in both administrations, without having to assume the costs. In real life, we can see that this part is not easy to administer. Earlier, I gave the example of the treaty with Barbados. When we look at the organization charts of companies, it is very clear that some fictitious corporations were developed with this in mind.
Canada was also even a bit complicit in some situations of this kind. For example, a group of 13 OECD countries, including Canada, asked in 2001 that the “no substantial activities” criterion be eliminated from the determination of tax evasion. This reduced the number of countries on the list of non-cooperative tax havens from 35 to seven. Canada turned a blind eye here to a something that costs us plenty. There is a loss of tax revenues for the Canadian government, which adds to the pressures on Canadian citizens, whether natural persons or corporations, that pay taxes on their activities in Canada. There is tax avoidance here as a result of something that the Government of Canada did deliberately.
I want to say again, therefore, that in treaties of this kind, everything is there for a purpose. We have to get to the bottom of everything to ensure that something that was thought to be positive does not end up having some perverse effect. Sometimes as well, the government may well try to put one over on us and we need to correct the situation.
In the current case, therefore, we will see an improvement because companies that were taking advantage of the two tax laws will find it much more difficult to do so. Some of the tax loopholes will be closed and companies will have to pay their fair share. We will have to watch whether it actually works. In addition to eliminating some of the obstacles to cross-border investment, the bill reduces the number of cases of double exemption through greater harmonization of the tax rules of the two countries.
It is going to be a huge job for both countries to ensure that they have finally corrected not only double taxation but also the actual company practice. We need to simplify the way things are done and the costs that this issue can engender.
Finally, in an attempt to stimulate cross-border investment, the bill clarifies the rules to avoid double taxation of cross-border capital gains. This issue needs to be explored in greater depth and the type of transactions checked. Will the Canadian and American governments not end up losing revenues to which they would otherwise be entitled? Will it favour one country or the other? The purpose is to make it as easy as possible to do business, but both countries need to be respected and need to benefit.
From now on, Canadian investors operating in American markets will be required to pay tax in just one jurisdiction. That is a major advantage. We just have to ensure that this positive new way of doing things, this advantage, does not lead to negative effects with respect to legal issues that might arise. We have to make sure that companies pay their taxes.
This bill raises a lot of interesting issues. The Bloc Québécois is in favour of referring this bill to the committee. We intend to study it there. Once things have been clarified and, if necessary, adjusted, we will see what can be done and how we can improve the Canada-U.S. Tax Convention. We hope that the federal government will put just as much energy into closing the Barbados tax loopholes. The Standing Committee on Finance held hearings on the subject, but the government has not yet done anything to fix the situation.
In the meantime, billions of dollars have been flowing unchecked and untaxed out of Canada, at great cost to our society.
I hope that we can count on the cooperation of all parties. Adopting this tax treaty would be a good thing, and the Bloc Québécois will work hard in committee so that we can bring the bill back here quickly and complete the process to amend the Canada-U.S. Tax Convention.
Christian Ouellet Bloc Brome—Missisquoi, QC
Mr. Speaker, I would like to thank my colleague from Montmagny—L'Islet—Kamouraska—Rivière-du-Loup for his very clear presentation.
Does my colleague know how many Canadians work in the United States and how many Americans work in Canada, particularly in Quebec? I am asking because my riding borders the United States. Will this bill affect a lot of people?
Is Canada currently losing a lot of tax revenue to the United States for reasons other than the tax havens he mentioned?