Debates of Dec. 8th, 2016

Tax Convention and Arrangement Implementation Act, 2016

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Mr. Speaker, the member made some very good points, especially about the Taiwan-China relationship. It is interesting how there are fundamental differences with respect to not only the kinds of systems that exist in those countries, but also in the way that the People's Republic of China views Taiwan. However, significant trade and commercial activity happens between those countries as well.

With respect to our relationship with Taiwan, it is important for Canada to deepen that partnership not only for our economic interests but also because of the benefits that come strategically from having stronger partnerships with other democracies within the Asia-Pacific region. That is important for China because of the potential commercial bridge that exists there. It is also important because of the way in which we can, through these partnerships with other like-minded Asia-Pacific countries, work to set the terms of trade in the Asia-Pacific region in a way that reflects our values, international human right, labour rights, environmental rights, and these sorts of things.

Incidentally, I have always been a strong supporter of the trans-Pacific partnership, which in the first round did not include Taiwan, but could potentially include Taiwan in a future round. Whatever form that co-operation takes, it is important that we emphasize the importance of collaboration among those democracies in that region.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Mr. Speaker, as a follow-up to the previous question about this important trading partner in the Asia-Pacific region that is Taiwan, could my colleague expand a bit on the fact that Taiwan could be a stepping stone for Canadian businesses in the Asia-Pacific region, not only with China but with Canada's other trading partners in the region, particularly given the intellectual property regulations that are in place in Taiwan but not in China?

Could the member tell us more about Taiwan being a potential economic stepping stone for our businesses in the Asia-Pacific region?

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Mr. Speaker, my colleague raises a very good point. It is not that we should never or can never trade with countries that do not share our values or respect universal human values, but it is certainly much easier and, to a much greater extent, beneficial to be able to prioritize trade with those countries where there is a commonality in values, and also where we are able to work from similar rule of law standards. That is what makes trade easier with places like Taiwan, as well as other countries in the Asia-Pacific region, Australia, New Zealand and Japan. They have similar intellectual property standards to us when it comes to human rights, labour rights, and protecting the environment. My colleague is quite right that it is particularly important, easier, and also beneficial to us economically and strategically to engage with those types of countries in particular.

[Kevin Lamoureux, Liberal, Parliamentary Secretary to the Leader of the Government in the House of Commons]

Mr. Speaker, my friend and colleague has recommended I pose a question. Not wanting to disappoint him, I have a question for the member.

When we talk about the issue of taxation policies, which is a very important aspect of trade agreements in principle, and when we look at the countries in question today, Israel, Taiwan, etc., it is important that we recognize it further advances and formalizes an important aspect of an agreement that is already in place. By doing that, we reinforce those trade connections between Canada and other specific countries. I see that as a good thing. We have to recognize that Canada is in fact a trading nation and we are very dependent on world trade.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Mr. Speaker, I agree with my friend from Winnipeg North on the benefits that have come to Canada through trade. We are a trading nation. The benefits that come from that are not always obvious or are taken for granted in our political debates. However, the Conservative Party has really led the way in demonstrating the benefits of trade and in signing and negotiating new trade deals. As I said during my remarks, it is good to see some of the continuation of that policy in certain respects with regard to trade.

At the same time, we are not seeing nearly as strong a willingness on the part of the government to really defend the importance of trade. We see the Liberals completing some of the things that were started under the previous government, but we will wait to see whether there is actually a willingness to start new initiatives. It is at least encouraging to hear some of the words that have been said about this bill. Again, whether we will see actions follow from that on new initiatives remains to be seen.

We strongly affirm on this side of the House that, yes, Canada is a trading nation and indeed must be a leader in speaking out about and demonstrating the benefits that come from open trade.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Mr. Speaker, very quickly, I would like to ask the same question I asked my Liberal colleague earlier, who did not seem to think that conventions for the avoidance of double taxation can potentially facilitate tax evasion.

According to its title, the bill will fight tax evasion. However, let us look at the Canada-Barbados tax agreement. Taxation levels in Barbados are very low, and the agreement we have with that country is used by certain individuals to avoid paying their fair share of taxes.

Does the member see any danger with our 92 conventions? Could some of them potentially facilitate tax evasion?

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Mr. Speaker, I am not going to comment specifically on the deal with Barbados. It is not what we are debating in front of us, and, honestly, I do not know the details on that agreement.

In general, though, sometimes we get this perspective that jurisdictional competition is necessarily a bad thing. I do not think we should assume that jurisdictional competition with respect to tax rates is always a bad thing. In fact, often it can be a very good thing. If jurisdictions are competing to offer a more efficient combination of public services and lower taxes, then many economists would tell us that this leads to better service delivery and a more optimal combination of services and taxes.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Mr. Speaker, I am pleased to rise in the House at second reading stage of Bill S-4. The bill passed third reading in the Senate on Monday. It was sent to us, and it is important that we debate it here in the House.

I understand that the government is rather eager to pass Bill S-4. If it receives royal assent by January 1, the two tax conventions that are listed in the bill, specifically with Israel and Taiwan, will come into effect. The ultimate goal of those conventions, as other members have said in their speeches, is to avoid double taxation. When you pay taxes in one jurisdiction and repatriate money that has already been taxed by another jurisdiction, it goes without saying that Canada does not tax that income a second time.

The bill contains two conventions. The one with Israel is in fact an update, since we have had a convention with Israel since 1975. We are simply updating it today, adding new OECD standards based on its model agreement for the avoidance of double taxation. The bill therefore aims to bring the previous convention with Israel in line with current OECD standards.

The second convention in the bill is completely new. We have never had this type of convention with Taiwan. It is something that did not exist before, which is rather positive.

The bill also includes a technical change to the Canada–Hong Kong Tax Agreement to clarify the situation of the convention with Hong Kong to make it parallel to that of Taiwan. These two territories have special status with respect to China. Since we are adopting a convention with Taiwan, we have to update the terminology used in the description of the convention with Hong Kong to ensure that it is identical to that of Taiwan.

I will not spend too much time on the convention with Hong Kong except to say that we have to be careful in this case because according to one expert who testified on the matter on Monday at the Standing Committee on Finance, the proposed change in the convention with Hong Kong could be interpreted as a reopening of the tax treaty. In a way, we might agree that the current convention with Hong Kong is not in force because of the inaccurate terminology. This could be looked at more closely. I believe that the technical change for ensuring consistency with the Taiwan convention is entirely appropriate.

I will also mention that we will support Bill S-4, introduced in the House today. It comes to us from the Senate because, traditionally, tax conventions come from the Senate. Last year, we saw this a number of times. As hon. members know, there are 92 tax conventions in Canada. Currently, some are being negotiated, while others are in line to be ratified, like the ones we are talking about today.

Traditionally, bills on such conventions originate in the Senate. They are subsequent to negotiations between the jurisdictions. I cannot use the term “country“ in this context, because we are talking about Taiwan. We have to be careful about the words we use. I know that we could make diplomatic mistakes with the status of Taiwan.

We need only think of what happened last week when the U.S. president-elect put his foot in his mouth on this issue. In diplomacy, we must pay attention to the words we use.

To summarize, these conventions are negotiated between two authorities, and that can take some time. In Taiwan's case, among others, negotiations were lengthy. We were discussing it back when the Conservatives were in power. This convention was finally signed in January 2016 by the Taipei Economic and Cultural Office in Ottawa and the Canadian Trade Office in Taipei.

This was done intentionally so that this arrangement would not be negotiated nation to nation, which could be perceived as a diplomatic faux pas. China could have believed that we recognized Taiwan as a separate state. We had to be careful and that is why it was the two offices that negotiated the Canada-Taiwan agreement, by following the instructions of their own governments, of course. These negotiations lasted a long time, and the agreement was finally signed on January 21, 2016, if my memory serves me correctly.

Nearly a year later, the government is now proposing to implement it. The Parliament of Taiwan ratified it fairly quickly in February 2016. It has taken us a little longer. I tried to find out why, but the government has not yet explained why it is only bringing this forward in December 2016. The government is saying that this is practically a national emergency because if the arrangement is not ratified before the end of December, it cannot be implemented until January 1, 2018. The reason is that the text of the arrangement stipulates that the arrangement will take effect on the first day of January in the year following its ratification. That is why the government is saying that it is urgent that the arrangement be ratified so that it can take effect on January 1, 2017.

As the parliamentary secretary mentioned, the convention with Israel has unfortunately not yet been ratified by Israel's parliament. We will see whether it can be ratified before December 31 so that it too can take effect before January 1, 2017.

We are going to support the bill because of these two agreements, but we have serious reservations regarding the tax conventions. I spoke about the risk associated with tax conventions when I asked my colleagues questions. I wanted to comment on it further because, in this case, the disparity between the tax rates of the countries and authorities with whom we are ratifying conventions for the avoidance of double taxation and our own are not necessarily problematic.

Thanks to the research done by the Library of Parliament staff, whom I would like to thank, we were able to find out the specific tax rates of individuals, businesses, and trusts in the two jurisdictions in question, Israel and Taiwan. They are very similar to those in Canada. Tax rates are a bit lower in Taiwan, but Israel has more progressive tax rates, which means that they are a bit higher than ours, so there is not necessarily a problem in this case.

However, tax conventions can be dangerous when they are signed with low or no tax jurisdictions. Indeed, there are countries that require no income tax to be paid whatsoever and that take part in this tax competition that puts downward pressure on tax rates. It is a serious problem for our society, and one that needs to be resolved. We need to pay particular attention to those countries. In this particular case, there is no problem.

However, as I was saying earlier, we have a tax treaty with Barbados. One of my colleagues in the Bloc Québécois raised this issue a few months ago and moved a motion to have this tax treaty with Barbados reviewed. That treaty is of the same nature as the ones we are studying today and very similar to the Organization for Economic Co-Operation and Development model, a convention adopted in 1980, and similar to the ones we are studying today. There are a few differences, because at the time, the OECD model was a little less detailed, but it is essentially the same model used today.

What might suggest that the tax treaty with Barbados is perhaps being used for the wrong reasons is that, in 2014, Barbados ranked second in terms of Canada's foreign investments abroad, after the United States of course, which is our largest trading partner given its proximity and the fact that our administrations are similar from a legal standpoint for both corporations and individuals. It goes without saying that the U.S. is our most important economic partner.

It is surprising, however, that according to Statistics Canada figures, Barbados ranked second in 2014—and not only in 2014, since Barbados was also near the top of the list in 2015, in third place. It also ranked second in 2013.

There is reason to wonder why the second largest recipient of Canadian foreign investment is Barbados, a tiny Caribbean country that has no major economic activity to speak of. It does raise questions.

Looking at the numbers, one cannot help but wonder what is going on there, what could possibly attract so much Canadian investment in Barbados, and whether an investigation is in order. However, there is no need to dig very deep to find out why Barbados is the number two destination for all of our foreign investments in the world. The main reason is that we have an agreement with Barbados to avoid double taxation.

That allows companies who decide to take advantage of this agreement to send money from their subsidiary in Barbados to Canada and then declare to the Canadian tax authorities that they have already paid their 0.5% tax in Barbados. As a result, they do not pay taxes in Canada because, according to the agreement, when a party pays taxes in another country and brings the money back to Canada, there is no second taxation.

As I said earlier, there is no problem with Taiwan and Israel. In other cases, however, there are huge issues because we allow companies to pay a lot less in taxes than what they would pay if taxation levels were similar to Canada's.

That is why it is with a note of caution that I support Bill S-4 today. I want to highlight the problem and raise a red flag for the government's benefit. The parliamentary secretary did not seem to know what the problem was when it was raised by my colleague—he did not seem to know what the problem was or want to consider it. Unfortunately, the Liberals voted against a motion to review the Canada-Barbados tax treaty. I would like to remind my honourable colleagues of that, and I call upon the government to at the very least commit to reviewing the 92 conventions we have with other governments around the world, because problems could arise.

If today we say yes to a treaty with Taiwan to avoid double taxation and if, a few years later, Taiwan decides to modify its regulations to become a competitor in the race to the lowest tax rates, then maybe our conventions would need to be reviewed.

That is the crux of the message I wanted to send the government today. It should start taking a close look at the tax situation in every country with which we have a convention because there could come a time when such conventions are used to subvert the very ideals underpinning them.

The title of the bill mentions preventing tax evasion. We have to ensure that these conventions stand the test of time as tools to prevent tax evasion, not to facilitate it. In some cases, they facilitate tax evasion.

I hope there will be at least one mechanism that enables the government to examine and monitor the tax situation in the jurisdictions with which we have tax conventions. It would be very disappointing if the government did not commit to monitoring the situation in those jurisdictions because such neglect could lead to serious problems. We know that tax evasion is an extremely serious problem, and it is definitely one of my priorities as the national revenue critic.

This is a problem for every country in the world and every person on the planet seeking better government services. The government's role is to provide services to citizens, but when companies and individuals have more and more ways to avoid paying their fair share, our societies pay the price. The honest ones who pay their fair share end up having to pay more every year. They have to contribute more because some taxpayers decide to play by different rules and avail themselves of the services of unscrupulous tax experts who have no ethical qualms about trying to make their clients pay as little tax as possible. Sometimes they use questionable schemes that the Canada Revenue Agency disputes, thankfully. More often than not, it turns out that these schemes are perfectly legal.

These conventions to avoid double taxation are one of the components of the Income Tax Act that make tax evasion legal. There are many other ways to review our policies and legislative measures to fight tax evasion. The government should make this bill and this file a priority instead of talking only about investments. We are told repeatedly that $444 million has been invested in fighting tax evasion.

If tax evasion continues to be completely legal in some cases, tax experts will be able to defend their cases before the courts by saying that they obeyed the law and that there is no problem. The Canada Revenue Agency will challenge this by holding that they did not obey the spirit of the law. The tax experts will win and manage to find new ways every time to get around our tax measures and ensure that their clients do not pay their fair share in society. That is unacceptable.

It is the issue of the day, and I would like to see the government take it more seriously, not only by investing money to find the guilty parties, but also by making the necessary effort to make tax evasion as difficult as possible for the dishonest people who engage in it.

There is something relatively positive in these conventions that is not necessarily something we want to see, and that is a tax information exchange. For example, in this convention with Taiwan, it is good that a section of this agreement talks about a tax information exchange, but the best solution would have been a tax information exchange agreement that was separate from the convention on double taxation. This is a much more robust mechanism for exchanging information, even though any such exchange is on request, which is a major drawback. In fact, the government has to have its suspicions before it can request information from the jurisdiction with which it has an agreement. It is not an automatic exchange. I know we are heading toward an automatic information exchange, but that is not in the bill and it is something we would like to see in the future.

We would like to see more investments, legislative measures, and information exchanges that are truly effective and allow for information to be obtained in real time. We would like to see a shift from on request to an automatic exchange.

I would be pleased to answer my colleagues' questions.

[David Graham, Liberal, Laurentides—Labelle, QC]

Madam Speaker, I thank my colleague from Sherbrooke for his rather interesting speech.

During the debate and in his speech, he talked about risk a number of times. Bill S-4 applies to current treaties that have already been signed. I believe that if we intend to sign treaties with other countries we will.

I question the sincerity of his concern since he is looking at this bill through the lens of countries with which we have no agreement.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Madam Speaker, I gladly go back to the issue of risk and potential danger.

There are two treaties before us. The one with Taiwan is brand new since we started from scratch. The one with Israel is only an update to apply the OECD model. That being said, there is a potential danger. I remind my colleague that we have 92 similar tax treaties.

Of course, I keep mentioning the ones that we often hear about, the ones that seem problematic. Therein lies the potential danger, and that is why I recommend that the Parliamentary Secretary to the Minister of Finance establish a mechanism to monitor the tax situation of the countries we sign conventions with. That would ensure that, over time, treaties like the ones with Taiwan and Israel remain reasonable and do not facilitate tax evasion like others do.

I want to emphasize that there is a potential danger and encourage the government to closely monitor the situation in every jurisdiction to make sure that our tax treaties do not defeat the purpose of this bill.

[Kevin Lamoureux, Liberal, Parliamentary Secretary to the Leader of the Government in the House of Commons]

Madam Speaker, the member across the way talked a great deal about tax evasion and avoidance, and even at one stage referenced the government providing literally hundreds of millions of dollars to deal with the issue. It is important to recognize that this government takes tax avoidance and evasion very seriously, and the budget clearly demonstrates that.

When we look at the trade file, we can talk about the investment agreements with Mongolia and Hong Kong that have been signed in the last year and we are debating the Ukraine and CETA agreements today. Those are some of the most obvious ones. Then there is Bill S-4 itself, which deals with the taxation policy, along with trade.

My question to the member is this. I thought I heard the member say he supports the bill. Does he not recognize that the bill is important and that there would be value in passing the bill in a relatively timely fashion so we can put in place the measures encompassed in this legislation?

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Madam Speaker, the member's question gives me an opportunity to talk about the importance of these two tax treaties, which we support because they are beneficial to Canadians, unlike other similar treaties.

These are indeed important opportunities, and more opportunities will open for Canadians and the jurisdictions that sign these treaties with us. They can do business here, and we can do the same in their respective jurisdictions.

As I said earlier, Taiwan is a launching pad for Canadian businesses in the Asia-Pacific region. We could say the same about Israel and other countries, like Japan, which is very advanced. Also, Taiwan's regulations are similar to Canada's, especially when it comes to the protection of intellectual property, which is almost inexistent in China. Taiwan has put a lot of effort into getting Canadian businesses to use it as a point of entry into other areas of the Asia-Pacific region. It is an exemplary democratic presence that we want to encourage with economic exchange and potentially with trade enhancing treaties such as this one.

[Robert Aubin, NDP, Trois-Rivières, QC]

Madam Speaker, I thank my colleague from Sherbrooke for showing an interest in an issue that may seem rather dry at first glance. Before I ask my question, I would like to say that I initiated a discussion with the people of Trois-Rivières on tax havens with the help of the parliamentary tools that are available, and it is one of the issues on which I received the biggest response. Although people may not fully understand how tax havens work, they know that companies that use these tax havens are not paying their fair share of taxes and that Canadians are the ones who will have to compensate for that, if they want to ensure that there is continued funding for existing public services.

My question about the bill before us is this: when there is a reciprocal agreement that the same company will not be taxed twice, should the agreement not contain some safeguards that say, for example, that the tax rate must be the same or that any discrepancy must be previously set out in the bill?

That way every citizen would feel as though the company that is bringing its profits back home paid its fair share of taxes somewhere.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Madam Speaker, my colleague raised an excellent point about such agreements. I have to say that my constituents in Sherbrooke are very concerned about tax evasion. They think it is outrageous that some companies and individuals, rich ones, typically, can hire cunning tax experts to help them bend the rules. KMPG was a pretty high-profile example. Individuals paid the company $100,000 to figure out a tax arrangement under which they would not have to pay tax on income earned from their funds in the Isle of Man. Such shameful situations anger my constituents.

Solutions may be put forward to equalize tax rates, thereby ensuring that companies pay their fair share. Those mechanisms are under review, and this is probably a good approach because companies that use tax shelters also use our infrastructure, our roads, and our airports here in Canada. Our taxes pay for all of that, but they use their wealth to avoid contributing.

They benefit from our infrastructure and our society, but they pay virtually no tax. We need to speak out against that every chance we get. Our constituents in Trois-Rivières and Sherbrooke are speaking out. That is why the government should pay very close attention to this issue.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Madam Speaker, I am pleased to rise today to speak on Bill S-4.

At first glance, members might ask why a bill dealing with international tax treaties and measures would be of much importance. On the face of it, Bill S-4 does not appear to have much to do with economic growth, but if we look at it a little, the thrust of the bill is entirely consistent with our government's commitment to growing the middle class and to help those looking to join it.

Canada is a trading nation and improving economic growth in our country is highly dependent on international trade and investment. Removing barriers to incoming business and capital is essential to these efforts. Let me reiterate, our government has been relentless in its efforts to produce economic activity and has made historic investments in infrastructure.

In addition to the investments made in budget 2016, the Minister of Finance recently announced the creation of an infrastructure bank, which will help to leverage federal government commitments even further.

Our government recognizes that to further grow the economy, we need to attract investment and talent to our country. International tax competitiveness is a key element of Canada's economic performance that we must not overlook. A tax agreement with other jurisdictions, including Taiwan and Israel, is an important part of attracting new investments and talented individuals, boosting economic growth, and creating jobs.

While large-scale tax measures generally get more attention in terms of their efforts on Canada's international competitiveness, there are many other components that can be easily integrated into the tax system and strengthen Canada's tax advantage.

Tax treaties with other countries and jurisdictions play an important part in the goal of making Canada's tax system as efficient as possible, and thus more competitive. Canada currently enjoys the benefits of a network of bilateral double taxation conventions currently enforced with 92 foreign jurisdictions, one of the largest such networks in the world.

I will be splitting my time with the hon. member for Laurentides—Labelle.

There is an ongoing to need to expand and modernize this network, and we are continually working to secure additional agreements and update existing ones. These treaties of mutual benefit to both signatories and to their respective taxpayers provide clarity on the rules relating to cross-border trade and investment, and remove barriers to augmenting them.

Furthermore, these agreements help to combat tax avoidance and evasion through the exchange of information that permits our government to uncover income that may be concealed elsewhere. It is very important, and our government has spent a lot of time and energy on this, ensuring that Canadians have a tax system that they can have confidence in and that all Canadians and Canadian corporations are paying their fair share.

To these ends, Bill S-4 implements a double taxation convention and a double taxation arrangement recently concluded and publicly announced with the State of Israel and with respect to the jurisdiction of Taiwan. Bill S-4 also adds an interpretation provision to the legislation that implemented the Canada-Hong Kong double taxation agreement, for greater certainty.

Relief from double taxation is desirable because of the harmful effects double taxation can have on the expansion of trade and the movement of capital and labour between countries. Double taxation conventions require countries to clarify the respective jurisdiction to tax income and provide certain forms of relief from double taxation. There is currently no double taxation arrangement between Canada and Taiwan, Canada's fifth-largest Asia-Pacific trading partner and 12th overall in 2013. This means that Taiwan is one of the few remaining of Canada's larger, and I would say one of the most important, trading partners to enter into our tax treaty network.

The bill also implements a revised double taxation convention with the State of Israel. This replaces an existing tax treaty that was signed here in Ottawa in 1975. The revised double taxation convention has been updated to make it consistent with Canada's current tax treaty policy.

This revised double taxation convention with the State of Israel builds upon strong, multi-dimensional, bilateral relations, as evidenced by our close political, economic, social, and cultural ties.

Underlying the strength of the Canada-Israel bilateral relationship is a breadth of personal connections between the two countries. There are approximately 20,000 Canadian citizens living in Israel and many Canadians, of course, have family in Israel. The Canadian Jewish community, which stands at around 350,000, acts as an important bridge between Canada and Israel. These informal ties have led to significant co-operation in business, philanthropy, and tourism.

Canada and Israel have a number of bilateral agreements in place, including the air transportation agreement from 2015; a renewed and funded science and technology agreement; the Canadian Space Agency and Israeli Space Agency memorandum of understanding for space co-operation, dated 2005; and the 1975 convention.

On the trade side, Canada-Israel merchandise trade totalled approximately $1.4 billion in 2015, comprising $342 million in Canadian exports to, and $1.2 billion imports, from Israel. Israel was Canada's forty-fourth-largest export destination worldwide in 2013. In that year, it was Canada's forty-third-largest source of imports globally.

Even though Israel's trade numbers with Canadian may not be in the top 10 or top 20, I would still certainly say, after having the honour of visiting the State of Israel this past summer, that expanding trade and investment ties between Canada and the State of Israel is very important.

What Israel has done with venture capital funding, specifically in Tel Aviv, is very impressive. Its venture capitalists are world-renowned. There are a lot of exciting things happening in the State of Israel that Canada needs to look at and emulate.

With respect to Bill S-4, the intention of this convention signed with the State of Israel on September 21 is to contribute to the elimination of tax barriers to trade and investment between Canada and Israel and to help solidify the economic links between the two countries. It is consistent with the government's commitment to seek new investment and trade opportunities for Canadians and to promote foreign investment in Canada.

As with the double taxation arrangement with Taiwan, the convention with the State of Israel generally follows the pattern of other double taxation conventions already concluded by Canada. Accordingly, it generally follows the format and language of the OECD model tax convention on income and on capital.

Most countries, including Canada and Israel, tax their residents on their global income. Additionally, when a resident of a country derives income from sources in another country, such as from a business located there, it is typical for the source country to subject that income to tax.

The convention recognizes this international taxation dynamic and sets out in which circumstances and to what extent Canada and Israel may tax the earnings of one another's residents and non-residents.

The convention also implements the current internationally agreed standard for the exchange of tax information upon request, as developed by the OECD and, therefore, allows Canadian tax authorities to obtain information relevant to the administration and enforcement of Canadian tax laws, and assists them in the prevention of international tax evasion and avoidance.

Bill S-4 would also reduce double taxation and encourage investment by reducing the withholding tax. It would provide for a maximum withholding tax rate of 15%, in the case of the State of Israel and the jurisdiction of Taiwan, on portfolio dividends paid to non-residents. This would help encourage and foster innovation and trade between Israel and Canada, and Taiwan and Canada.

For dividends paid by subsidiaries to their parent companies, the maximum withholding tax rate is reduced to 5% in the case of the State of Israel, and 10% in the case of the jurisdiction of Taiwan.

Again, these measures would encourage and facilitate trade and investment and increase ties between Canada and Israel, and Canada and Taiwan.

The bill would also cap the maximum withholding tax rate on interest and royalties at 10% and on periodic pension payments at 15%.

The provisions of the convention and arrangement contained in the bill are an excellent example of our government's efforts to create a more equitable and competitive tax system.

Bill S-4 would allow us to continue to grow our economy and create good middle-class jobs. It would allow for more predictable and fairer tax treatment of cross-border transactions and help the government to combat tax avoidance. We look forward to securing additional agreements such as these, and I encourage all members to support this legislation to help Canada become a more competitive jurisdiction for international business and investment.

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

Madam Speaker, I listened with great interest to my hon. colleague. The issue of fixing our tax regimes with other jurisdictions that people move back and forth between is something that we need to do. Here we are doing it with Taiwan and Israel.

I am a little confused about this bill being described as an act to prevent fiscal evasion. I do not see efforts within the bill to deal with fiscal evasion. It is a serious problem internationally, and a larger vision for Canada would be to make sure that we are getting a fair deal for Canadian citizens by dealing with the offshore financial arrangements that put us at a disadvantage, for example, the Canada–Barbados treaty agreement. It certainly was a substandard agreement for Canada that has allowed a lot of money to flow offshore that should have been taxed here.

In terms of whether or not to support this legislation, it is necessary, as it would clean things up and make them more equitable for dealmaking between Taiwan and Canada, and Israel and Canada. But I would like to hear my hon. colleague speak to the larger question of the vision of the current government for dealing with international tax evasion and tax havens.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Madam Speaker, parts 1 and 2 of Bill S-4 include provisions dealing with the issues my hon. colleague mentioned: part 1 deals with Israel, and part 2, Taiwan.

I sit on the Standing Committee on Finance and I am proud to state that I was a member of the committee when it presented a motion on tax avoidance and tax evasion so the committee could to examine those issues. It is something that is paramount to our government. We have invested $444 million over five years to ensure that the CRA has the resources and tools to ensure that all Canadians and all Canadian companies, organizations, and foreign subsidiaries operating in Canada are paying their fair share; that Canadians have confidence in the tax system; and that the revenues coming into our coffers are then used to fund programs that Canadians value and are dear to their hearts.

[Monique Pauzé, Bloc, Repentigny, QC]

Madam Speaker, I heard my colleague talk about the State of Israel.

For the purposes of the treaty, what is Israel? Here is a example: is a settler in the occupied territories in Israel? If so, is that settler covered by the arrangement for the avoidance of double taxation?

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Madam Speaker, this type of treaty encourages greater links between Canada and the State of Israel, and greater investment and trade flows between Canada and Taiwan. That is what is important and what we need to focus on within this bill. It would allow Canada and Israel to continue to create stronger links between the two entities, and that is very important.

I had the pleasure of visiting the State of Israel this summer. It was a learning experience, indeed. I was in Ramallah as well, and it Tel Aviv and Jerusalem. It was an eye-opening experience and a learning experience, and I am the better for it.

Bill S-4 would allow our government to move the needle forward in creating a strong economy for Canadians and strong middle-class jobs. Overall, it is a win-win for us.

[Gord Johns, NDP, Courtenay—Alberni, BC]

Madam Speaker, my colleague from Timmins—James Bay talked about the Canada–Barbados tax treaty, which is similar. What safeguards will be put in place so that we will not see recurring what we have seen happening with the Canada–Barbados trade agreement? We are seeing a $5 billion leakage from the Canadian economy, which could be paying for things that we need, including pharmacare and services that Canadians demand. Maybe the member can tell us what safeguards will be put in place to protect Canadians.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Madam Speaker, to my hon. colleague, please look at part 1 and part 2 of the legislation and you will find the answer there.

[The Assistant Deputy Speaker, NDP, Carol Hughes]

I want to remind the member that he is to address the questions to the Chair, so I would suggest that the member not use the word “you”.

Resuming debate, the hon. member for Laurentides—Labelle.

[David Graham, Liberal, Laurentides—Labelle, QC]

Madam Speaker, I thank my colleague from Vaughan—Woodbridge for sharing his time with me.

I am pleased to rise in the House to address the important matter of Bill S-4. As members will know, this bill implements a convention and an arrangement on double taxation that were recently signed and announced. The convention was concluded with the State of Israel, and the arrangement with Taiwan.

Canada now has 92 tax treaties in force, and it continues to work on developing other such treaties with other jurisdictions. Bill S-4 builds on Canada's ongoing efforts to update and modernize its network of tax treaties, which helps prevent double taxation and tax evasion.

Indeed, Canada currently has one of the world’s largest networks of tax treaties. This is an important feature of Canada’s international tax system, a feature that is key to promoting our ability to compete. At the same time, the system needs to ensure that everyone pays their fair share of taxes. We do not want certain foreign and domestic firms to be able to take advantage of Canadian tax rules to evade taxes, or for certain wealthy individuals to turn to foreign countries to hide their income and avoid paying taxes.

Every time that happens, workers and small businesses in Canada end up having to pay more taxes than they should have to. It is not right. The Canada Revenue Agency needs information from foreign countries in order to identify and discourage the hiding of income.

To that end, the convention and the arrangement on double taxation in Bill S-4 implement the current international standard on tax information exchange on request established by the Organisation for Economic Co-operation and Development, thus enabling Canadian tax authorities to obtain the necessary information for the administration and enforcement of Canadian tax laws, while helping them prevent international tax evasion.

Here at home, the Government of Canada continues to work to keep our tax system up to date and competitive, so that Canada can remain a leading player in the global economy. It is essential to take measures in support of a more competitive tax system in order to foster conditions that allow Canada's entrepreneurs and industries to excel, thus clearing their path to success.

Clearly, having modern tax conventions, such as those contained in Bill S-4, is a key component of that goal. Canada remains committed to maintaining a tax system that will continue to help Canadian businesses in their drive to be world leaders, while ensuring that everyone pays their fair share of taxes.

The tax conventions complement our government's broader commitment to implementing a more competitive tax system that will raise the standard of living of all Canadians. The convention and arrangement for the avoidance of double taxation set out in Bill S-4 directly support and encourage cross-border trade in goods and services, which in turn helps Canada's domestic economic performance.

Moreover, every year, Canada's economic wealth depends on foreign direct investment, as well as the entry of information, capital, and technology. In short, the convention and arrangement for the avoidance of double taxation set out in Bill S-4 provide individuals and businesses in Canada and the other countries involved with predictable and equitable tax results in their cross-border dealings.

I would now like to talk about two things that this bill proposes to do, namely reduce withholding taxes and prevent double taxation. Withholding taxes are a common feature of the international taxation system. They are levied by a country on certain items of income earned in that country and paid to the residents of the other country. The types of income normally subjected to withholding taxes would include, for example, interest, dividends, and royalties.

Without tax treaties, Canada usually taxes this income at the rate of 25%, which is a set rate under our own legislation for income tax, more specifically, the Income Tax Act. Withholding tax rates in other countries are often as high or even higher.

Since one of the main functions of a tax convention is to divide the powers of taxation among the signatory partners, the conventions contain provisions that reduce and, in some cases, eliminate withholding taxes that could be applied by the jurisdiction where certain payments originate.

For example, the convention and the arrangement for the avoidance of double taxation in Bill S-4 provides for a maximum withholding tax rate of 15% on portfolio dividends paid to non-residents in the case of the State of Israel and Taiwan. The maximum withholding tax rate for dividends paid by subsidiaries to their parent companies is reduced to a rate of 5% for the State of Israel and 10% for Taiwan.

Withholding rate reductions also apply to royalty, interest, and pension payments. The convention and the arrangement for the avoidance of double taxation covered by this bill caps the maximum withholding tax rate on interest and royalty payments to 10%, and the maximum withholding tax rate for periodic pension payments to 15%.

The other issue I want to talk about is double taxation. Double taxation at the international level happens when taxes are collected on the same taxable income for the same period in at least two jurisdictions. The convention and arrangement regarding double taxation in Bill S-4 will help prevent double taxation so that any given income is taxed only once.

Generally speaking, the Canadian tax system applies to the income earned by Canadian residents anywhere in the world. However, foreign authorities can also invoke their right to tax any income earned in their jurisdiction by Canadian residents. Canada usually gives a credit for foreign tax paid on that income. This duplication of taxes paid in the jurisdiction where the income was earned and in the taxpayer's country of residence can have unfair negative consequences for taxpayers. No one should have to pay taxes twice on the same income.

Without any convention or arrangement for the avoidance of double taxation such as the ones provided for in Bill S-4, that is exactly what happens. Both countries could claim taxes on the income without providing the taxpayer with any measures of relief for the tax paid in the other country.

In closing, the convention and arrangement for the avoidance of double taxation proposed in the bill will provide certainty and stability and create a favourable climate for trade, to the benefit of taxpayers and businesses in Canada and in the partner countries.

What is more, the convention and arrangement for the avoidance of double taxation proposed in the bill will strengthen Canada's position in an increasingly competitive global trade and investment environment.

Those are the reasons why I ask my colleagues to vote in favour of the bill.

[Robert Aubin, NDP, Trois-Rivières, QC]

Madam Speaker, I thank my colleague for his speech.

I have to say I mostly agree with him when he says that no one should have to pay taxes twice on the same income. I think once is plenty, given current tax rates. However, citizens wonder if everyone contributes their fair share into the common treasury that pays for the services we need.

When we sign a treaty on the avoidance of double taxation, do we make sure that both countries' taxation levels are similar, even if “similar” is rather imprecise?

Does my colleague not believe that we should establish benchmarks and say that if a partner deviates from the benchmark by a certain number of percentage points, the agreement is nullified because it ends up undermining one of the partners?

[David Graham, Liberal, Laurentides—Labelle, QC]

Madam Speaker, certainly, every time we reach an agreement with any country, we need to consider the current status of both countries. We cannot conclude a single agreement with the rest of the world and think that it would always work the same way.

I think we have tax agreements because they allow us to exchange information so we can determine who is tyring to evade the local tax laws. It is important to do this. I agree completely that it might not always be perfect.

However, the goal is to find those who are abusing the system, not to destroy the system because people are abusing it, and I think we need to look at it from that perspective going forward.