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.
