Mr. Speaker, it is my pleasure to speak on this issue today. It would appear that some of my colleagues on the other side need a bit of an education when it comes to the issue of Canada's tax treaty with Barbados and I am prepared to be their teacher this afternoon.
The integrity of our tax system depends on ensuring that the businesses that are involved in international activities pay a fair amount of tax and that taxes are paid to the appropriate jurisdiction.
Tax treaties signed between Canada and other countries help to facilitate trade, investment and other activities between Canada and its tax partners. They are principally aimed at achieving two main objectives: first, they aim to encourage cooperation between tax authorities in Canada and the treaty countries through the exchange of information related to taxes; and second, they set rules to prevent double taxation while limiting tax evasion, thereby providing taxpayers with more certain and equitable tax results in their cross-border dealings.
Canada and other members of the Organization of Economic Co-operation Development have long recognized the importance of relieving double taxation and protecting against fiscal evasion, and their collective efforts have resulted in the model double taxation convention prepared by the OECD.
Our tax treaties, while they are tailored to address our particular needs, are generally patterned on this OECD document and are in accord with international norms. Canada negotiates tax treaties with as many jurisdictions as possible. As a matter of fact, and as I have said over and over again, we have tax treaties in force with over 70 countries. We signed a tax treaty with Barbados in 1980.
Canadian businesses are increasingly competitive on a worldwide basis. Everyone has recognized for decades now that the success of this country's multi-national cooperation benefits all Canadians. I am sure, in fact, that if I went around asking Canadians if they want Canadian businesses to be more important players in the international market, I would hear a resounding yes.
Which brings me to this point. Sound tax policy is a key component of business success. For many years it has been part of Canada's tax policy not to subject the earnings of Canadian corporations and their subsidiaries in foreign countries to double taxation. We avoid double taxation in different ways, including by not subjecting to Canadian tax the active business earnings that a Canadian company's foreign subsidiaries earn in a country with which we have a tax treaty.
The issues surrounding the taxation of foreign affiliates are not new. Indeed, they have been dealt with in the House on a number of occasions in the past.
In 1992 the Auditor General raised questions relating to the possibility of tax avoidance by foreign affiliates of some Canadian companies. In response to these questions, the government proposed a number of amendments to its existing foreign affiliate rules. These modifications were first announced in the 1994 federal budget and affected the definition of active business income, the deduction of business losses in computing foreign accrual property income, and the list of countries where foreign subsidiaries can earn exempt active business earnings from which dividends might be received tax free in Canada.
These modifications were proposed after extensive consultations with stakeholders both in and out of government. Yet even now, almost 10 years after the fact, questions remain about whether the exemption was left in place for a particular kind of Barbados company that may enjoy a relatively favourable tax rate under Barbados law. The government has already provided a logical explanation which I am pleased to revisit.
First, it was never established that abruptly curtailing the exemption would have benefited Canada. In a world of tax planning opportunities, there is no assurance that corporate groups would not simply move the functions performed by the Barbados subsidiary to another jurisdiction where similar results could be obtained. In that eventuality, the corporations would not pay any more Canadian tax.
Indeed, forcing businesses out of Barbados could actually be counterproductive. With Barbados as a tax treaty partner, Canada's tax authorities have the ability to seek more information and assistance from Barbados than they do with many other jurisdictions.
Second, Canadian businesses are understandably interested in maintaining Canada's international competitiveness. We live in an era of globalization. Decisions that disrupt the operations of Canadian operations abroad can have severe repercussions on their competitiveness as well as on the country's economic bottom line.
As hon. members know, Canada's relations with Barbados are close, long standing and encompass banking, migration, development, cooperation, manufacturing and financial services.
The tax treaty that formed the basis of giving this exemption to corporations in Barbados has been in place since 1980, well before the majority of other tax treaties Canada enjoys with other countries.
In addition to having a double taxation agreement with Canada, Barbados also has a social security agreement and a foreign investment protection agreement with Canada.
As well, Barbados has long been a strong ally in international efforts to combat the creation of tax havens around the world. In February 2002 the Organization for Economic Cooperation and Development, OECD, concluded its consultations with Barbados and stated that the country had a transparent tax and regulatory system.
At that time Barbados agreed to increase its information sharing efforts on tax matters with other OECD members, including those with which it had not already concluded tax treaties.
Barbados is a member of the Caribbean financial action task force and has played a key role in efforts to combat money laundering and terrorist financing in the Caribbean region.
The Barbadian parliament passed anti-money laundering legislation in 1998 and updated these measures in 2000 and 2001. Under the legislation, assets from criminal activities are subject to freezing orders and financial institutions are required to report suspicious transactions and to maintain records on transactions above a certain financial level.
As well, an anti-money laundering and financial intelligence unit has been established in Barbados and it is providing active information to its counterparts around the world. Based on these actions, it is clear that the choice to leave in place the long standing exemption for income from these corporations in Barbados was, and remains, more than reasonable.
I emphasize that it does not however mean that the government is standing still. Canada is known internationally for its ongoing efforts to modernize and expand its network of tax treaties with other countries.
The government is currently reviewing both our tax treaty with Barbados and the relevant income tax regulations to ensure this still fits our tax policy goals. Changes may well be considered but let me make it clear that any changes to these regulations would be the result of careful and thorough analysis. The government will not be rushed into making hasty decisions that could be costly both for Canada and for our tax treaties.