Debates of Dec. 13th, 2007

Canada-United States Tax Convention Act, 1984

[Ted Menzies, Conservative, Parliamentary Secretary to the Minister of Finance]

Mr. Speaker, it is wonderful, in the spirit of Christmas, how things are moving along quickly here today. We know that all hon. members want to get home to their families to celebrate Christmas. It is wonderful to see everyone working together here this morning.

We do have some business to finish up, so I rise today to speak to Bill S-2 at third reading. The passing of this bill, once it receives royal assent, completes Canada's role in the ratification of an agreement to update major elements of the Canada-U.S. tax treaty.

The U.S., for its part, must also ratify this agreement before it comes into effect.

As the House may know, Canada and the U.S. have had a tax treaty in place since 1980. Since that time, there have been four updates or protocols to this treaty. This is to ensure that our respective tax systems evolve to reflect economic and social changes.

Bill S-2 represents the fifth update to the treaty. Canada has numerous tax treaties with other countries as well. However, given the unique relationship we have with the Americans, the Canada-U.S. tax treaty is generally viewed as the one of most importance.

This treaty is part and parcel of the government's plan to create a tax advantage for Canada and we have a long term economic plan for Canada's future called “Advantage Canada”. This plan was designed to improve our quality of life and to make Canada a world leader for today and for future generations.

“Advantage Canada” promotes five competitive economic advantages we need to succeed in today's global economy: a fiscal advantage, a tax advantage, a knowledge advantage, an entrepreneurial advantage and an infrastructure advantage. Each of those advantages does not stand alone. Rather, they stand interconnected with each other. In other words, we are creating a Canadian advantage on those five fronts.

Given that we are talking about a tax treaty today, it is creating a tax advantage that I would like to highlight today. A Canadian tax advantage will help individuals, families and businesses to get ahead and stay ahead. Moreover, it will reward initiative and make Canada the global investment destination of choice. A tax advantage starts with reducing taxes for Canadians. Of course, taxes pay for Canada's important public services but high taxes limit Canadians' opportunities and choices.

With a more focused government, we can both lower taxes to create better incentives for Canadians to succeed and provide significant funding for priorities.

A tax advantage is about reducing taxes in all areas to stimulate investment and economic growth. This includes reducing personal income taxes to improve rewards from working, from saving and investing in new knowledge and skills. It includes creating a business tax advantage that will encourage businesses to invest in Canada. In turn, this will spur innovation and growth leading to more jobs and higher wages for Canadian workers.

The government also continues its commitment to restoring tax fairness. Canadians deserve to know that everyone will pay their fair share of taxes. That is what tax fairness is all about.

Indeed, tax fairness is key to the “Advantage Canada” plan. This plan will make our tax system simpler, fairer and more competitive. This will help us to compete in the global marketplace. We have taken significant action in that direction.

Most recently, this fall's economic statement proposed broad based tax relief of almost $60 billion for individuals, families and businesses over this and the next five fiscal years.

Combined with previous relief provided by the government, total tax relief over the same period is almost $190 billion. These dramatic tax reductions and initiatives will benefit families with children, workers, seniors, persons with disabilities and others.

They will also strengthen our tax advantage to help all Canadian businesses compete and succeed in the global marketplace. These important initiatives will help attract investment to Canada. Moreover, this action will increase productivity and economic growth and create more and better jobs for Canadians.

What, one may ask, does this have to do with tax treaties? Tax treaties and tax fairness are inextricably linked. Our tax treaties help contribute to the growth of the Canadian economy, particularly by encouraging trade. This is principally important because exports account for more than 40% of Canada's annual GDP.

In addition, tax treaties help attract investment in Canada. This investment means inflows of capital, technology and information, all of which contribute to Canada's economic growth, job creation and the well-being of our citizens.

In short, our government must ensure that Canada's system of international taxation is competitive. We have worked to ensure that our network of bilateral tax treaties is up to date in order to help Canadian companies and investors to prosper and succeed.

One important function of tax treaties to keep in mind when considering this bill is that they help eliminate double taxation. I trust that hon. members would agree that there is little that can have more of a negative impact on the expansion of our trade and the movement of capital and labour between countries than double taxation.

The potential for double taxation comes about when a taxpayer resides in one country and earns income in another. Without a tax treaty in place, both countries can claim tax on that same income.

One of the goals for Canada, therefore, in negotiating its tax treaties, is to remove the potential for double taxation. This not only helps provide incentives for investment, it promotes fairness in our tax system. That is why one of the proposals in Bill S-2 would allow taxpayers to demand that otherwise insoluble tax issues be settled through arbitration, thus ensuring that there is no double taxation of immigrants' gains.

Given the special relationship that Canada has with the U.S., it makes sense that our tax treaty would also be special. Indeed, Canada's income tax treaty with the United States is vital. It helps to ensure the efficient flow of trade between our two countries. These changes to the treaty, signed in September, will stimulate further trade and investment and make our tax systems more efficient.

Canadians and Canadian businesses will benefit from this treaty update in a number of ways. They will see reduced borrowing costs and a more competitive lending market with the elimination of withholding tax on interest paid on all arm's length debt.

Since treaty benefits will be extended to limited liability companies, the protocol in Bill S-2 would provide better access to U.S. capital. With further harmonization of the tax treatment of pension contributions in the two countries and new rules to clarify the treatment of stock options, this proposed legislation would also provide more mobility for Canadians working in the U.S.

Furthermore, these changes would, among other benefits, reduce the cost of cross-border financing and would have a positive effect on investment and, above all, simplify the tax system. All of these benefits, in turn, support the competitiveness of Canada's multinational enterprises. These are important considerations that we need to keep in mind when debating this bill.

One of the most important aspects of the Canada-U.S. tax treaty is the proposal respecting withholding tax. Reaction from taxpayers to this measure has been particularly positive.

Following the signing of the treaty, the director of the C.D. Howe Institute said:

And our research suggests that the bilateral elimination of withholding taxes will substantially improve the efficiency of capital markets, attract foreign direct investment to the country, and help Canadians penetrate the North American market on a more competitive basis.

Reaction from the other side of the border has been equally supportive. Treasury Secretary Paulson, at the signing of the agreement in September, said that updating our treaty enables us “to move even more swiftly in the global economy”.

Canadians will particularly benefit from easier cross-border investment as the withholding tax is removed from interest paid between non-arm's length persons between Canada and the U.S.

I will explain why this is a good thing for Canadians. Canada and most other countries levy a withholding tax on passive forms of income earned by non-residents. This fifth protocol will eliminate the source country tax on cross-border interest paid between unrelated persons and will gradually eliminate the maximum withholding rate for interest payments between related persons.

For unrelated party interests, the withholding tax is zero as soon as the protocol becomes ratified. An example would be in the interest that banks pay to a depositor. For related party or non-arm's length interest, the tax will be eliminated in three stages: from 10% to 7%, then to 4% and finally to zero after three years. This could be, for example, between a Canadian company and its subsidiary in the U.S.

With these important tax reductions for payments to and from the United States, the government is in a position to remove the withholding tax on all arm's length interest payments to non-residents, regardless of where they reside.

This initiative announced in budget 2007 represents a major step forward in Canada's international tax policy. The legislation to implement this measure contained in Bill C-28 is currently going through the parliamentary process, as we have watched in the last few days. Once passed, this measure will increase access to foreign capital markets. It will reduce costs for Canadians and Canadian businesses that borrow from foreign lenders.

It is important to point out here that the government had originally planned to tie the effective date of this general tax reduction to the Canada-U.S. tax treaty protocol. However, given the uncertainty of when the protocol will be ratified on both sides of the border, the government proposes to give the domestic rule a fixed start date of January 1, 2008. This will provide certainty for Canadian investors so that after 2007 they will no longer need to withhold interest on tax paid to arm's length persons in any country.

Summing up, this tax treaty bill, like others that preceded it, is directly related to international trade and investment. These bills have a significant and a direct benefit to the Canadian economy. This is no small consideration in a world where Canadian exports, as I said earlier, account for more than 40% of our annual GDP.

Furthermore, direct foreign investment, as well as inflows of information, capital and technology, represent the lifeblood of Canada's economic wealth. As a result, eliminating tax impediments in these areas, as this bill proposes to do, is of utmost importance, and that is why passing this bill is also of utmost importance.

I, therefore, encourage the hon. members from all parties to pass this bill into law quickly.

[Louise Thibault, Independent, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Mr. Speaker, I have three brief questions for the member who just addressed the House regarding this bill.

First of all, if I understood correctly, the provisions of this bill will allow employees and cross-border workers to benefit from the same advantages as resident workers. Is that the case?

Second, if I understood correctly, this would be valid while they are working; but will they also be protected when the time comes to retire, with respect to their pensions?

Third, I listened carefully to my colleague and I heard only positive comments. But it is important to look at the other side of the coin. Does this bill in fact have any negative aspects?

[Ted Menzies, Conservative, Macleod, AB]

Mr. Speaker, in answer to my colleague's second question, I have not heard any negative aspects mentioned here in the debate. What I do hear is positive comments and that it is very important to investors.

As for the hon. member's first question about working on one side of the border and living on another, this is one of the most critical improvements that we can make. There are many places in the country, such as in New Brunswick and in the Windsor-Detroit corridor where people are back and forth across the border. On the lower mainland of British Columbia many people live in the U.S. and work on the Canadian side and vice versa.

As for the hon. member's question, it does carry on beyond their working days. Many pension contributions have been ineffective or focused on one side of the border. This treaty would allow people, who work for a corporation that has entities on both sides of the border, to continue to contribute to their pension and be able to do that on both sides of the border. That is one very important aspect.

[Brian Masse, NDP, Windsor West, ON]

Mr. Speaker, it is a very important bill. However, what people should understand is that the bill has come from the Senate, which is an issue in itself, but second to that, there has not been a single witness about this bill and tax treaty, and that is very important.

I want to be clear about this in my question for the parliamentary secretary because we are getting contradictory information about this.

Is it the government's interpretation that the bill would eliminate all double taxation of U.S. social security recipients? Is the parliamentary secretary 100% sure that constituents, like myself, who are collecting U.S. social security, will not get double taxed anymore and that this would rectify a historic problem that we have had with double taxation for U.S. social security recipients? Is he clear that the bill would end that practice?

[Ted Menzies, Conservative, Macleod, AB]

Mr. Speaker, I will remind my hon. colleague that it is very important for his constituents to have this treaty in place because it will protect pension benefits. Many employees of the auto industry can be transferred from one entity to the other and so the protection of their pension benefits is one of the important aspects.

One of the other important aspects that we do need to remind hon. members about is the arbitration process that this brings into play. We have all heard horror stories of dealing with the tax departments on both the Canadian and the U.S. side. We all would like to think it could work better but when there is an issue this would provide a mandatory process of appeal that was not in place before, which can impact residents on both sides of the border, and this would allow them to have their concerns heard by an independent arbitrator.

This has many important aspects to it and the sharing of making social security benefits taxable only in the recipients country of residence is one of the important aspects.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Mr. Speaker, of course the Standing Committee on Finance studied this bill. The committee also looked at other tax treaties, including the treaty with Barbados regarding tax havens.

The government took action on this matter, although this bill comes from the Senate. Before it was elected, the government said—and it repeated this at the Standing Committee on Finance—that it would take action on the matter of tax havens and the tax evasion that goes on in Barbados, for example.

I would like to ask him a very specific question. Can the parliamentary secretary give us a date on which the government will come forward with a proposal to resolve the tax haven issue?

[Ted Menzies, Conservative, Macleod, AB]

Mr. Speaker, my hon. colleague plays an active role on the finance committee. He also played a very active role last night in our voting procedure as a parent. We all recognized that he was doing his fatherly duty by having his child with him. We applaud his courage for bringing his child into the House. Remembering our families is what it is all about at this time of year.

The government has a s great concern about tax avoidance and we are doing everything within our power to bring in legislation that will stop the avoidance of taxes. As our Prime Minister has said, there is no such thing as a good tax, but we all recognize that taxes are necessary.

This government has gone to great lengths to ensure that the main point that we are driving forward is tax fairness. Anyone who thinks they can continue to avoid paying taxes will be met with new types of legislation, such as the one we have brought forward which would ensure that people do not pay more than their fair share and that they do not avoid paying their fair share.

[Brian Masse, NDP, Windsor West, ON]

Mr. Speaker, I would like to ask the parliamentary secretary to be clear on this because we are getting mixed information from research. Is it the government's interpretation that this bill would eliminate all double taxation of U.S. social security recipients who are living in Canada but who have worked in the United States? Would this bill eliminate the double taxation that historically has taken place? Would it meet the provisions in Bill C-265, the private member's bill put forward by the member for Essex?

I want the parliamentary secretary to be on the record for the government . Would Bill S-2 achieve that goal?

[Ted Menzies, Conservative, Macleod, AB]

Mr. Speaker, in the 1997 tax treaty protocol, Canada and the U.S. agreed to make cross-border social security benefits taxable only in the recipient's country of residence. My understanding is that has already been dealt with in a previous tax treaty.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Mr. Speaker, it is a pleasure today to speak to Bill S-2, An Act to amend the Canada-United States Tax Convention Act, 1984. We are now on third reading, which happened quite rapidly earlier today. I think the cooperation in this House seems to be quite rampant at this time of year.

The Canada-United States Tax Convention Act was last updated in 1997 and, prior to that, in 1995 by the former Liberal government. It is important that these conventions get reviewed and updated regularly. In fact, the former Liberal government had already started negotiating this new tax convention with the U.S. even after the adoption of the last convention.

Like any tax convention or tax treaty, these agreements are important to the economic success of a country and, in particular, under current conditions where countries and all stakeholders need to compete on the international scene.

This particular convention is important since it is with our largest trading partner, a country with over $50 billion of trade on an annual basis.

While international tax law, especially in this place, 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.

We have had tax treaties in place with many countries for many years and, as with most laws, there comes a time when they need to be amended in order to reflect the changing times. This is one of those situations where we see a more rapid change in the actual conditions than the actual conventions themselves. Consequently, this bill presents some routine amendments that I believe will help to ensure Canada remains a leading participant in the global economy.

International arrangements, such as these, allow for relatively free movement of people and capital across borders, contributing greatly to the rich, multicultural nature of the country.

Some members in this House think that tax treaties are signed as a way of avoiding taxes. In fact, if these treaties are well written and properly understood, they make the taxation system more effective and promote trade—the exchange of goods and services—and do not add an administrative burden. Everyone benefits from treaties that are well written and signed in due form. They encourage foreign investment and increase trade, as I was saying.

Bill S-2, in turn, would also be a valuable tool to help certain industries improve Canadian productivity. Even though the latest Conservative measures, such as reducing the GST, do not improve productivity, nothing is even close to being fair about some of the Conservative latest tax planning or tax initiatives that they have come up with.

The worst example in the last couple of weeks is their tax policy or tax system where in the 2006 budget they raised the lowest personal income rate to 15.5% and now have announced that they will bring the rate back down to the original Liberal rate of 15%. People can all try and figure that one out.

Another advantage of Bill S-2 is that it would eliminate source country withholding tax on cross-border interest payments. Canadians who borrow money, and I would say mainly large corporations that borrow money from American lenders, would no longer need to withhold and remit Canadian tax on the interest payments.

Bill S-2 would also provide an advantage for Canadians to better access the U.S. debt market. Sometimes we see larger corporations having difficulty in accessing capital here in Canada. The Americans have a larger capital base and I think that will help the opening up to the debt market. We will see what happens in the short term with some of the crisis that we are seeing in the U.S. right now. However, this convention should definitely provide an easier flow of obtaining some debt for some of the Canadian companies. It also will be easier for companies to finance their expansion and, hopefully, their expansion into other markets other than here in Canada.

The bill would also allow taxpayers to require otherwise unsolvable double tax issues to be settled through arbitration. This arbitration rule is an important element of the bill because it would increase taxpayers' confidence that the tax treaty will resolve potential double taxation situations. These convention tax treaties, the basic purpose, in normal circumstances, is to avoid double taxation, should solve the fact that no double taxation of gains or even deemed gains of immigrants to Canada will arise.

The bill would also extend treaty benefits to limited liability companies by removing a potential impediment to cross-border investment which arises from private equity funds and their comings and goings. I will probably address this point later on in my speech because this point was brought up at the finance committee during the prebudget consultations in the past. This would make it easier for companies to bring their products from the research stage to the actual market commercialization phase. Hopefully, this will result in more research and development work to be completed in Canada and potentially for exporting to other markets, in this case the U.S. market.

More and more workers are temporarily being reassigned outside the borders and apparently more into the U.S.

Bill S-2 would give mutual tax recognition to pension contributors. In other words, provided certain conditions are met, cross-border commuters may deduct, for residence country tax purposes, the pension contributions they make to a plan or arrangement in the country where they work. People who move temporarily from one country to the other for work reasons can, subject to certain conditions, get tax recognition in their temporary new home country for pension contributions they continue to make to their original employer's pension plan. This proposal would facilitate the movement of personnel between Canada and the U.S. by removing a possible disincentive for commuters in temporary work assignments.

That is definitive a positive step. There is also an advantage for clarifying how stock options are taxed or, in other words, the harmonization of the rules in both countries. There are a whole bunch of other technical amendments in this bill that if we have some additional time I will get into.

I want to address the importance of these conventions. These conventions are great, fine and dandy. We can improve them, ratify them and pass them into law in this country, but the fact that they are international tax agreements, we require an entity on the other side to also sign these conventions. These conventions and tax treaties are not worth the paper they are written on if we cannot get the other countries to ratify them.

I wish that this particular legislation had been brought forward to the finance committee. Instead, the present government decided to bring it before the international trade committee. I am not sure why it went through without too many witnesses. We would have probably looked at ensuring that there was a willingness on the other wide to have this treaty ratified and signed quite rapidly.

There are some tax treaties that we signed in the past that have yet to be signed by other countries. I know of many in particular that have been negotiated with Italy. I think there are some agreements that are at least five years old that have not been signed by the other country to the agreement, so there are pending issues in terms of double taxation where there are people who are being taxed in Canada and other countries. Again I would caution the present government to make sure that even though we ratify these conventions or enact the legislation, the government make it a priority to have the other country ratify the agreement or convention as well.

Since I have some time, I will explain how some of the amendments got into this bill. I would like to take credit for some of them. I chaired the finance committee in 2004, and we did a very thorough job. There were a lot of presentations made before the committee in terms of what Canadians and Canadian businesses were looking for when doing business in the United States.

We devoted practically a whole chapter of our report to business growth and prosperity. We included in it some of the testimony given by witnesses. There is one paragraph I would like to read into the record where witnesses urged that changes be made to the non-resident withholding tax regime to ensure that Canada remained competitive. This was in 2004 and three years later we are still at this.

It was suggested, for example, that the Department of Finance negotiate a new provision with the U.S. to eliminate withholding tax on all dividends and interest to both related and unrelated parties. They mentioned a recent study which claimed that the elimination of withholding taxes on all dividends and interest would result in increased capital investment in Canada of $28 billion. Even a fraction of that would help certain sectors of this country, especially the manufacturing sector. It would also result in increased income of $7.5 billion annually. It was pointed out that while there would be a federal fiscal cost associated with eliminating withholding tax, the economy would benefit in the long run. Again this was in 2004. The committee also heard that Canada's dividend tax rate is now much higher than that in the U.S., with a 15% federal tax rate.

As a result of that, I am proud to say that in 2004 we made over 30 recommendations. Of those, there were at least five that pertained to items that needed to be addressed when it came to the Canada-U.S. tax treaty. I will read into the record one of the recommendations that I thought was important:

The federal government ensure that the effective tax rate for Canadian corporations is competitive with that in the United States and elsewhere. Within that context, the government should: review the timetable for elimination of the federal large corporations tax; review the timetable for the tax changes for the resource sector; consider immediate elimination of the corporate surtax; and review the corporate income tax rates and other taxes paid by corporations.

Recommendation 13 reads:

The federal government, bearing in mind Recommendation 16 regarding a review of capital gains, review the current federal tax treatment of dividend income and non-resident withholding taxes with a view to ensuring that the tax treatment in Canada remains competitive with the rest of the world, particularly the United States, and that the tax treatment does not distort investment decisions.

Another recommendation that was applied in the U.S.-Canada convention is that the federal government revise Canada's cost allowance rates such that the Canadian rates are similar to rates for comparable asset classes in the United States and other countries. In fact, this one has not been addressed yet by the current government.

Recommendation 24 was that the federal government undertake a comprehensive review of the personal taxation system in Canada, including the value of the basic personal amount and other particular aspects of the Income Tax Act, but always taking into account that the review should be undertaken with a view to ensuring that Canada's personal taxation system is both fair and as competitive as possible with other countries, particularly the United States.

We have seen the importance of this convention in the past. Other recommendations were made that also referred to making sure that we are competitive with the United States.

In the finance committee's 2006 prebudget report, everything is recapped in one little passage which states, “The federal government expedite the review of the tax treaty between Canada and the United States. This review should specifically address Canadian recognition of the United States limited liability corporations” . This is one of the items that is in the bill right now.

[Brian Masse, NDP, Windsor West, ON]

Mr. Speaker, my colleague is quite right that there probably should have been some witnesses to come forward and speak about this tax treaty. Also, the bill went to the international trade committee and not the finance committee.

I would ask the member why, at that committee, did the Liberals join with the Conservatives to block witnesses? The NDP member for Burnaby—New Westminster asked for witnesses to be brought forward and the Liberals and the Conservatives blocked that from happening. Why did his party take that position?

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Mr. Speaker, that was my point. This bill should have been sent to the finance committee. It should have been sent to the proper people to look at this bill in a proper fashion.

Why did the Liberals not ask for witnesses? As usual, the bill was probably presented at the last minute and they were probably not ready. The finance committee at that time was travelling and I think it just shows the lack of preparedness on the side of the Conservative members.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Mr. Speaker, the hon. member is right when he says that this tax treaty with the United States was not given its due.

However, the Standing Committee on Finance spent a great deal of time examining the tax treaty with Barbados. When the current government was in the opposition, it was in favour of rapidly plugging the loopholes that allow people to bring money back to Canada from tax havens without having to pay tax. Now that it is in government, it seems to be well-intentioned, but we are still waiting for results.

It was the Liberal Party that was responsible for creating these loopholes in the first place. In fact, it was the former minister of finance and current member for LaSalle—Émard who did so. He even had Parliament pass retroactive legislation to allow money to be repatriated from Barbados tax free.

I would like to know whether the Liberals, now that they are in opposition, have changed their minds and are willing to cooperate with the other parties to resolve the tax havens problem.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Mr. Speaker, I want to thank the hon. member for his question. We are both members of the Standing Committee on Finance.

I would like to point out something to follow up on what I was saying earlier. Some hon. members still do not understand the tax treaty concept. The purpose of these treaties is not to create tax havens, but to enhance and facilitate international trade with full respect for these agreements.

I would like to remind the hon. member that the motion presented by the Bloc Québécois in the last session, calling for an examination of the tax treaty with Barbados, did in fact receive support from the Liberal Party. When it came time for a report on the matter, there was not a word from the Bloc members. I think they still do not understand what a tax treaty is.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Mr. Speaker, I did not ask a question because I knew that I would have the opportunity to reply to my colleague from the Standing Committee on Finance. I am pleased to see that he wishes this committee to examine this issue once again. An agreement will be reached readily given that the government has already stated that it supports continuing with the review already begun by the Standing Committee on Finance.

I now know that the Liberal Party also supports proceeding and I have no doubt at all that the NDP would also like to examine the issue of companies that use tax havens such as Barbados, the most well known example, to avoid paying their fair share of tax.

I would like to spend most of my time on this subject. The tax agreement with the United States covered by the bill under consideration is not a problem. We all know that the United States is not a tax haven. The bill gives cross-border workers the same tax benefits as resident workers. It will institute a bipartite tribunal or board to settle tax disputes and to tighten rules for certain types of companies, making it more difficult to use various tax loopholes.

The bill eliminates certain provisions pertaining to double taxation of capital gains. We support this and I believe it has a great deal of support from parliamentarians. I do not wish to go into too much detail about this matter.

However, it is surprising that the government has time for such matters. That is fine, we are not criticizing them, but we are questioning their unwillingness to shut down tax havens.

I would like to backtrack a bit to have a better understanding of what is at issue. There is a general rule among various countries that sign tax agreements. If tax is paid in one country, it is not paid a second time on the same income when the money is repatriated to the country of origin. According to this principle, the same income is not taxed twice.

That said, in order to know whether companies have paid taxes in their country of origin, Canada negotiates tax treaties with other countries. Among other things, these treaties provide for the exchange of information about taxes paid in another country, so that Canada knows whether or not the money should be taxed when it is brought back here. If there is no tax treaty or exchange of information, Canada assumes that taxes were not paid and claims the corresponding taxes when the money is brought back.

In the past, in the Liberal days, a bill was introduced by the finance minister at the time, the member for LaSalle—Émard, to establish a tax treaty with Barbados, telling our companies that do business in Barbados and pay taxes there that they should not also pay taxes in Canada. At issue was a famous example of a company doing business in Barbados, Canada Steamship Lines International, which was of course owned by the family of the member for LaSalle—Émard.

Up to this point, everything is fine and seems to make sense. The problem is that the tax rate for international companies in Barbados is 2%. Obviously, it is rather ridiculous to say that these companies paid taxes in Barbados, since they paid 2%. Really, it was getting a gift. Then, companies such as Canada Steamship Lines are allowed to bring back to Canada the money they had earned from having their head office in Barbados, without having to pay taxes here.

There is another loophole in this mechanism that the Liberals themselves introduced. Obviously, the act requires there to be a real place of business in Barbados. It also states that the revenues must genuinely be earned in Barbados, and that they must not simply be a financing scheme to avoid paying taxes.

Members will probably remember the very telling report that aired in Quebec, aptly called Les évasions barbares, or The Barbarian Evasions.

A journalist went to Barbados, to the building that is home to the head offices of hundreds of companies that supposedly do business there. The journalist found that the building has about a hundred tiny rooms just big enough to accommodate a secretary and two filing cabinets. Obviously, the journalist demonstrated by this very fact that it would be impossible for a company that generates millions of dollars to really have a head office there, in such a small partitioned office with only a desk, a typist, a computer and two filing cabinets.

In reality, the decisions made by those companies are made in Canada or elsewhere around the world. Their activities take place in Canada or elsewhere around the world, but their financing is such that all revenue is artificially declared in Barbados and is subject to a ridiculously low tax rate, only 2%. They then send the money back to Canada, maintaining that they have already paid taxes in Barbados and therefore should not have to pay taxes in Canada.

This scheme is possible because of the negligence of the Liberal government at the time and we hope that the Conservative government will be proactive in this file, as it claims it will. At the time, the Liberal government was negligent and even had the audacity to adopt retroactive measures with respect to the tax treaty with Barbados. In fact, when the bill was adopted, the provisions were that the treaty would apply retroactively to 1995. By a curious coincidence, that was the same year that Canada Steamship Lines was established in Barbados. That was a rather interesting situation, especially since, when it comes to retroactivity, both the Liberals and the Conservatives seem to adopt a double standard.

Obviously, the guaranteed income supplement is a perfect example. For years, the Bloc Québécois has been fighting for the seniors who have been swindled out of the guaranteed income supplement. They are owed money because they were misinformed and were unable to claim the money at the appropriate time. They must be given full retroactivity, that is, they must be given the money that is owing to them. It is not a gift; they are entitled to this money. Yet, this is not being done.

Naturally, when people have to pay taxes because they have forgotten to declare income over the past five or ten years, retroactivity applies. Those at fault cannot tell the tax man that he caught them too late, so they should only have to pay for the past 11 months. If they get caught, they have to pay taxes for the past five or ten years.

The same goes for Barbados. New legislation was retroactive. No big deal, it provided tax shelters to companies so they could get off without having to pay any taxes. No big deal, retroactivity applied. In contrast, when it comes to reimbursing seniors, when it is time to give them the money they are entitled to, the government says too bad, it cannot be done.

The Liberals did not want to budge when people were asking them to. We challenged them on the fact that they were offering full retroactivity in terms of tax breaks for the richest companies, but were not doing the same for seniors. During the election campaign, the Conservatives said that they would grant seniors full retroactivity. Now they are refusing to do it because they say they are in charge and things have changed.

What does it mean for politics when a member or a minister says that now that he is in government, things have changed? Does it mean that he said whatever he wanted beforehand? Does it mean that the government has the right to withhold the truth and mislead the public? That is a very strange way to operate.

I really want to take this opportunity to emphasize something to all parties in this House. Even though the Bloc Québécois supports the bill before us concerning the tax convention with the United States, we want to re-examine issues related to other tax conventions between Canada and other countries, conventions that are designed not to help workers, but to enable companies to pay next to no tax in Canada and opt out of their fair contribution.

We will continue this work after the holidays. If the Liberals want to work with us, so much the better. I hope that the Conservative government will act as quickly as it says it will.

[Roy Cullen, Liberal, Etobicoke North, ON]

Mr. Speaker, I would like to comment on what the member for Jeanne-Le Ber said. He said some things that are incorrect, in my opinion.

First, when the member for LaSalle—Émard was the finance minister and then the prime minister, the Bloc Québécois members tried to tarnish his reputation because it was in their political interest to do that, and they are still trying to do it.

I will highlight a few facts for the member.

First, the former finance minister would have recused himself from any discussion around shipping that would have come before him from the Department of Finance or in cabinet. This was a very clear requirement and he followed that rigorously.

Second, all his assets were in a blind trust at that time, so he did not know what was transpiring with respect to Canada Steamship Lines.

Finally, any reasonable person, who understands the world of shipping, would understand that an international shipping company is always set up in a place where there are flags of convenience and where there are tax havens. All these companies operate in that way. If they do not operate that way, they will not be in international shipping for very long. It is a total legal transaction and it is done by everyone.

When is the member for Jeanne-Le Ber going to read the information, get the facts and stop trying to tarnish the reputation of the member for LaSalle—Émard?

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Mr. Speaker, the omnibus bill that contained the clauses on the tax convention with Barbados and was retroactive to 1995 was introduced by the member for LaSalle—Émard. Now, I am being told that he had never discussed it with finance department officials. How is it that he introduced a bill in this House containing clauses that were allegedly never discussed and whose legal implications he allegedly never considered?

Either the member is mistaken and the former finance minister, the member for LaSalle—Émard, did address that issue and did examine the implications of these clauses, contrary to what the member just said, or the member for LaSalle—Émard, who was the finance minister at the time, never considered the impacts of these clauses and was completely unaware of how clauses in a bill he introduced in this House could affect his family company. I have some trouble imagining that. Either way, he acted irresponsibly.

It is a well-known fact that he did not run the day-to-day operations of Canada Steamship Lines. However, if someone owns a company, he need not be involved directly in its management to know that if it moved to Barbados in 1995 it might be interesting to make the tax agreement retroactive to 1995.

The last item has to do with the competitiveness of these corporations. Let us be frank. If it were really true, why would there not be a special tax treatment for these corporations in Canada? At least the 2% to 5% in tax that could be collected would be paid in Canada. At present, we lose everything. Are we prepared to accept for all time that the existence of tax havens and corporations without infrastructure to support—these shipping companies use our infrastructure and our ports and the consumer goods are destined for our markets or are being shipped by our producers via these ships—justifies the burden being shouldered by Canadian taxpayers alone?

We have to find means of ensuring, among other things, that everyone pays their fair share. The member has just confirmed the Liberal Party's true methods. These companies must be profitable; therefore there is no other option but to be based in a tax haven such as Barbados.

I could make the following argument as I mentioned earlier. Two months ago I became the father of a baby girl. I could say that in order to pay my rent I have no choice but to pay less tax and I will work under the table. It does not work like that. I cannot say that because I need to pay less I have to find a way of not paying my taxes. Everyone has to pay taxes, citizens and corporations alike.

[Roy Cullen, Liberal, Etobicoke North, ON]

Mr. Speaker, I will make a couple of points.

First, under Canadian tax law, if the direction and control of a company emanates from Canada, then its profits are taxable in Canada. If the member would check the records, he would understand that Canada Steamship Lines at that time had international and domestic operations. The international operations were based outside of Canada. If Revenue Canada ever believed that the direction and control of the international operations emanated from Canada Steamship Lines in Montreal, it could have assessed income tax. There was nothing to preclude that.

Second, the member says that the former finance minister must have known what was in the bill. I do not know on what grounds he makes that statement. Again, if he would check the record, he would understand that when the member for LaSalle—Émard was finance minister, there was also a secretary of state for finance. That is how these matters were handled under the Liberal government. The secretary of state for finance would deal with any matters that touched on international shipping, and the finance minister was absolutely scrupulous about that.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Mr. Speaker, I am not sure how many Canadian taxpayers are going to believe that.

If the then minister of finance had no idea what impact this bill would have on his family business, if he did not use his influence, then he is unbelievably lucky. Things just happened to work out for him? I have my doubts.

If the former finance minister and member for LaSalle—Émard is truly as innocent as the hon. member claims, then he is a very lucky man because the bill truly worked out quite well for his family business.

As for where the international division of Canada Steamship Lines International operates from—I mentioned this in my speech—that was one of the things that was questioned by a Quebec journalist who went to Barbados. He knocked on the door of the Canada Steamship Lines International office, but no one answered. There was just a small sign on the door that said: Canada Steamship Lines International.

Since the hon. member is so determined to defend the integrity of his colleague from LaSalle—Émard, then I invite him to go on a little mission. Let him invite us to see the Canada Steamship Lines International offices in Barbados. It would be my pleasure to go there and I am sure a number of my colleagues here in this House would be happy to do so as well. A trip like that would leave us with a lot of free time because visiting the offices of Canada Steamship Lines International would take only 30 to 40 seconds since there practically are no offices.

And if the headquarters are truly in Barbados, with hundreds of employees working there and keeping this company in operation, then, when we return from our trip that the hon. member is going to invite us to take, I will say in this House that I was wrong.

[Brian Masse, NDP, Windsor West, ON]

Mr. Speaker, it is a pleasure to rise to speak to Bill S-2, which is an act to amend the Canada-U.S. tax treaty.

It is interesting to listen to my Liberal colleagues' defence of the member for LaSalle—Émard and his tax avoidance scheme in the Barbados. It is kind of like listening to the captain of the Titanic describe how well things went. It is unbelievable not to address the fundamental problems of reflagging and so forth.

I do want to segue a little into this tax treaty bill. It is tempting to spend half an hour or 20 minutes of our time on reflagging ships and also on the consequences to workers and so forth in the avoidance of taxation, but I do want to focus on Bill S-2 in particular.

There are some concerns in this process and in this actual tax treaty that do not resolve significant issues for my riding of Windsor West as well as Essex County and, greater than that, for individuals living in Quebec, New Brunswick and other places, where significant numbers of pensioners collecting U.S. social security and making contributions in the United States had the tax treaty changed on them.

This process still leaves them in limbo and is actually still counter to the private member's bill of the government's own member, the member for Essex. The government has made sure that the bill is basically squirreled away at the finance committee. It has not resurfaced, despite it having one hearing in the last session of Parliament, in which I participated. It has not seen the light of day. Jimmy Hoffa has probably seen more light of day than this bill in the last number of years.

It is very disturbing, because some seniors are being taxed extra. That is different to what they expected. They have had their lives put on hold. They have suffered significant consequences. In fact, some of them are dying. This is very shameful. We should be addressing it. However, this bill will only add an arbitration element for those particular victims of poor taxation policy. The shift happened and they got whacked twice. The private member's bill would rectify that by allowing the taxation system to be for only 50%. Without getting into technical details, it would have provided some equity.

I do want to touch on process, because I think it is important. I know that right now probably only a handful of Canadians are watching this as opposed to the Mulroney-Schreiber affair and the meeting going on right now, but this does affect people. It is important to set out for the record the concerns that we in the New Democratic Party have about why the Liberals and the Conservatives have rammed this through so quickly.

First of all, it is important to recognize that the bill originated in the unelected Senate. Senators are not elected. They are appointed by the Prime Minister, and in fact were by the former prime minister, who is having to explain right now how many bags of cash he took and why. If members recall, he actually loaded up the Senate at one particular point to force through the GST. The party that created the GST needed the Senate to push it forward. It is ironic that he is here today.

However, we have this bill today coming from an unelected house. Our side of the House, the New Democratic Party, has a concern about that.

What happened subsequently is really troubling. When the bill went to the international trade committee, the member for Burnaby—New Westminster, who represents our caucus, asked for witnesses to be brought forth and for some type of study related to the bill, which is normally what would happen on most committees.

I have been part of a number of different committees where we have moved quickly through clause by clause and so forth when there was a will and the support to do so, but when we have witnesses requested, we almost always have that consultation. That never happened. The Liberals joined with the Conservatives to block that.

The government does have some issues with regard to the tax treaty and we do want to have some of those things improved here, but there are some major unknowns and questions out there. I want to read from a communication I received. It was sent in confidence to me, so I cannot say from which legal firm it came, but it is a reputable Canadian legal firm that is giving its opinion on the tax treaty. I want to read what it has provided me in terms of the new protocol:

On September 21, 2007, a new protocol to the Treaty was signed between the federal governments of Canada and the United States and is expected to be ratified by both countries in 2008. The protocol adds a new provision under Article V of the Treaty (the “permanent establishment” article described above) to implement rules with respect to service income. Once ratified, under the protocol a Canadian company may create a permanent establishment if it provides services within the United States and meets certain thresholds. Thus, business profits associated with service activities could be subject to taxation--

[The Deputy Speaker, Bill Blaikie]

Order. I am sorry to interrupt the hon. member. The hon. parliamentary secretary to the government House leader is rising on a point of order.

[Tom Lukiwski, Conservative, Regina—Lumsden—Lake Centre, SK]

Mr. Speaker, in regard to that presentation, I believe, unless I heard incorrectly, that my hon. colleague said he was reading from a document from a law firm. I wonder if he would care to table that.

[The Deputy Speaker, Bill Blaikie]

The tabling convention applies to ministers, not members, so the point of order is laid to rest, so to speak. The hon. member for Windsor West can resume his speech.

[Brian Masse, NDP, Windsor West, ON]

Mr. Speaker, if the government wants to appoint me as minister and if it would actually table its documents, maybe I would reciprocate. That is part of the privilege of the House: to keep democracy going in this process. I am going to finish reading the document. The end of the quotation is very important:

Thus, business profits associated with service activities could be subject to taxation for many Canadian companies. These rules are currently set to take effect January 1, 2010 if ratification occurs during 2008.

Therefore, what we have here is the situation of a service industry that could have new taxation added to it through this process. We know that right now there are some concerns with the service sector and the economy and we do not have a full economic analysis of it. That is what is troubling about this bill being brought forth in this manner.

There could be some very valuable elements to the treaty. I think there are. There are some general things that are very good, but at the same time, why do we not have those answers? I find that very difficult to accept, especially given that this is an opportunity to correct historically significant problems.

I also want to touch on the issue of social security and Canadians who have paid in the U.S., are doing so now and face extra taxation. I am going to read another very important letter that talks about the history of this change.

Once again, this bill is not going to address the issue of those Canadians who had the tax treaty altered on them. The government is going to send them to some arbitration process, which is not even described. It could take literally years. We have no idea. And that is if they win, let alone having to go through that and relive the whole situation. That is a real concern, because the government has a private member's bill from its own member for Essex, who has been pushing that issue, and the government has not even listened to him.

Why the government is not adjusting that specifically in the bill, I do not know. Why it is turning its back on many residents of Ontario, Quebec and New Brunswick, I cannot understand. I want to read the letter for members because it describes, for the record, what has been happening to these ordinary Canadians. It describes what took place with the tax treaty and how it affects them and their lives. The letter comes from Mr. Craig Ridsdale and is entitled “Unfair Tax Laws Burden Seniors”. It states:

Many Canadian seniors across Canada have been sitting on their hands since 1997 waiting for the Liberal government to move forward on a pledge made to them to rectify a system of taxation that threatens to leave many of them, particularly low income seniors, in a very difficult financial situation.

In 1984, the Canada-U.S. Tax Convention Act was implemented, primarily to protect the citizens of both countries from being taxed twice on their pensions, be they Social Security in the States or the Canada (and Quebec) Pension Plan here in Canada. However, differences in our taxation systems (Canadians pay taxes when collecting benefits while Americans pay the taxes on their contributions) has meant that Canadians receiving Social Security benefits were being taxed twice.

A series of protocols to amend this bill have made matters even worse for many retirees. Specifically, the third protocol, implemented in 1995 and applicable for the 1996 fiscal year allowed the United States government to charge what amounted to a more than 25% withholding tax on Canadians' pensions. Previously, the second protocol to this treaty allowed only the country of residence to tax social security benefits. For many retired Canadians who paid into the American system over the span of their working lives, what this meant was that over one quarter of their income essentially disappeared overnight.

The fourth protocol, implemented after the disastrous third protocol, allows the Canadian government to tax 85 per cent of Social Security, an increase from the 50 per cent agreed upon in the 1984 act. It also provided the government with the latitude to reduce the 85 per cent limit which it has refused to do.

Since 2001, Canadians Asking for Social Security Equity (CASSE) have been lobbying the federal government to either restore the Second Protocol or at the least grandfather its provisions to include all seniors who were negatively affected by the Third Protocol. To this date nothing has been done.

It is also important that the current Secretary of State for Multiculturalism had a private member's bill on this back in 1998, so what is really troubling about this is that we have a pattern between the Liberals and Conservatives, who all have said that they want to fix the tax treaty.

Once again we are talking about pensioners, seniors, who are living in Canada. They worked abroad, they paid their taxes there and they paid their taxes at home, but when they actually got their social security benefits things changed and they now get taxed even more on those benefits. That is why the private member's bill to correct this would have been a more equitable situation. Why the government has not done that is unacceptable. This is a real hardship for many people.

We have had testimony at the House finance committee by individuals affected by this. They have come forward and talked about people in their circle who have been fighting this and who have died and about how others have had to sell their homes and how others are having a hard time getting back to the quality of life they thought they were going to enjoy when they retired. That is important, because the human dignity aspect has been lost with regard to this taxation bill.

We were talking earlier about the member for LaSalle—Émard and his issues related to his steamships, to his company and the flag and so forth. This issue is so important. I remember that in Windsor when the member for LaSalle—Émard, as finance minister, was attending the Caboto club, one of the most memorable moments was the fact that he had to slip into the kitchen to avoid the demonstrations out front. He used the back door and walked through the kitchen to go to the event as opposed to meeting with the individuals who were affected by this taxation policy that had been changed.

There have been many statements made by Liberals and Conservatives both, who are fighting over this. Members of the NDP have been consistent on it. What is unfortunate is that it has not led to any changes. I cannot understand that. I cannot understand who in their right mind would want to create an arbitration process for seniors at a time when they need their issue addressed now.

The member for Burnaby—New Westminster was right to ask the government and its officials how much this tax treaty is going to cost. What they estimate is half a billion dollars over three years. That is what is going to be lost in terms of government revenue.

We do not know whether the banks are going to enjoy that money. We do not know who is going to be the real net beneficiary of that arrangement. What we do know is that to fix this historic problem related to seniors who had double taxation, and who were caught in this crossfire of tax treaty analysis and neglect through the United States negotiations, it would cost around $60 million.

Thus, we have $1 billion for that sector, which we do not even have a prescribed analysis from. The department said it would come back with more information. At the same time, it would cost around $60 million if we did not tax at an increased rate seniors who paid their social security in the United States.

That is bizarre, because we know from the evidence presented to us that those individuals are going to spend that money in this country. They are going to use it to get by. They are going to continue to renovate homes and to be in our communities more, and they are going to be able to pay off some of their debts. That is important, because that economic push comes to that collective group.

I cannot understand this. Maybe it has been the hostility. I went on a national campaign for a seniors' charter of rights, which passed in the House of Commons. The member for Hamilton Mountain did a terrific job and pushed the issue through, but we have not had full implementation of the charter. The House and the government have ignored seniors in many respects.

I do not know why they are motivated to move in this direction. In conclusion, I find it really frustrating that the Liberals have joined with the Conservatives on this issue to prevent debate, analysis and full due diligence.

We do want to see our tax treaties updated. We are not opposed to that. They are very beneficial in many respects. Living on the Canada-U.S. border as I do, I have spoken at length in the House of Commons about the Windsor-Detroit border and its importance. We are not opposed to going forward on this, but why, for heaven's sake, are we not doing it properly? Why is it so convenient to let this group of seniors be basically thrust to the side, forgotten and left out of the whole picture? Why is that being contemplated? Why is that being allowed?

Why have the Liberals joined with the Conservatives to prevent the debate about this to even take place? I do not understand that logic. I do not understand why they could not at least have some hearings to get to the root of this structure or maybe move an amendment to fix the situation.

It really shows the lack of influence, I think, of the member for Chatham-Kent—Essex and the whole area around there and of the Conservatives in southern Ontario. When they have a tax treaty this significant and an issue that has been a thorn in the side of the Liberals because they broke promise after promise on it, an issue that has been politically manipulated over the years, they have chosen not to do anything on it in this bill. That is remarkable in itself. It speaks to why the ineffective Conservative caucus of southern Ontario is basically being swallowed up by the oil companies, because the petroleum club is served only by the government.

The Conservatives could not even get a minor tax treaty agreement passed to protect seniors as they had promised in their campaign. This shows disinterest. It also shows arrogance, which they have quickly adopted from the previous government. They are going to have to explain to people why they have to go through arbitration to get this fixed. This is going to be very traumatic.

It is a shame that we did not do the proper due diligence. The member for Burnaby—New Westminster wanted to bring forth witnesses to vet this so it could be a better bill and give us a better tax treaty. Most important, it would give us the chance to address historical problems that the House has never dealt with before.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Mr. Speaker, whenever we deal with bills that come to us from the Senate, we feel an extra level of obligation to ensure they pass all the smell tests. There is a serious ethical challenge with the Senate in terms of its own conflict of interest guidelines and its ability to ensure that any of its legislation has not been unduly influenced by people with pecuniary interests.

I am referring to a very fascinating discussion I entered into with Mr. Jean Fournier of the Senate Ethics Office about the fact that the accountability gaps in its offices are so wide one could drive Mack trucks through.

Section 15.(1) of the Senate's own written accountability code says that senators can participate in debate on matters where they have financial interests, provided an oral declaration is made on the record prior to each intervention.

Section 15.(2) says senators can participate in debate on a matter where a family member has an interest, provided a declaration is first made orally on the record. Family members do not have to declare any kind of financial interests unless they have a direct contract with the government. Senators can sit as directors of boards of all major corporations and still participate in debates.

There is another fascinating loophole that senators have written for themselves. They can participate and influence any kind of financial interests as long as they declare it behind closed doors. Unless their cronies disagree, it does not have to be declared to the public. Most Canadians would find that quite shocking.

I was a school board trustee on a small town school board. Our conflict of interest guidelines were much more stringent. For example, it was impossible for any trustee to be part of any debate that had to do with any contract if we had any relative living anywhere in the province of Ontario involved in education, regardless of whether it was post-secondary or kindergarten. That was the standard we met as small town school board trustees.

Our friends in the Senate obviously have a problem writing accountability guidelines for themselves.

If the House wants me to table the letter that I am referring to, I would be more than happy to put it on the public record because people need to see that our friends in the Senate need basic remedial help in reforming themselves. They seem incapable of doing it on their own. The more light we shine on these grievous ethical lapses perhaps the better served we will be as a 21st century democracy.

I would like to ask my hon. colleague, does he believe that any time the Senate gives us a bill that we should give it a bit of extra scrutiny to ensure that it passes the ethical standards test? Obviously, because the ethical bar is abysmally low in the Senate, questions are raised.