Mr. Speaker, I appreciate the opportunity to start debate on Bill S-3.
However, before I get into my prepared remarks, as this legislation involves Greece, perhaps it is a very relevant time to bring the members of the House up to speed on the latest issues in Greece. It has been very much in the media and I think it is appropriate to comment on the current situation.
First and foremost, Canada is concerned about the situation in that country and other threats to the global economy. That is why we have been taking a leadership role within the G7 and the G20 on global financial reform, including Greece.
Over the weekend, the finance minister chaired conference calls, and I emphasize “calls”, with G7 finance ministers on that matter. Canada, through the IMF and through our IMF partners, is providing key support to help ensure the situation is contained.
The Bank of Canada, working with the central banks around the world, is also helping provide key liquidity to markets.
While we are satisfied that the IMF and the EU actions to date will help address recent market volatility, we remain concerned about the fiscal situation in some countries. Hopefully, in a small way, the passage of Bill S-3 and the Greece-Canada tax treaty within it will help the turnaround in Greece by reducing tax barriers to trade and investment between our two countries. The strong ties between our two countries, bolstered by the large and active Greek Canadian community, will further be strengthened by this legislation as we create better conditions for Greek companies to do business in Canada and for Canadian companies to operate in Greece.
As Hellenic Canadian Association president, Theodoros Aslanidis, and I thank my hon. colleague from Scarborough Centre for helping me with the pronunciation of that name and I still may have it wrong, noted, “the agreement is very positive”.
The legislation would implement Canada's recently concluded tax treaties with Greece and Turkey as well as Colombia, tax treaties that would help both prevent unfair double taxation and tax evasion.
Bill S-3 is part of Canada's ongoing effort to update and modernize its network of income tax treaties, which represents one of the most extensive in the world. In fact, Canada has tax treaties in place with nearly 90 countries. Moreover, Canada is continually working on agreements with other jurisdictions.
Before I continue, let me be clear. While Bill S-3 is important legislation, it is largely routine. Indeed, in the 39th Parliament, the House adopted similar legislation related to tax treaties with Finland, Mexico and Korea. In the 38th Parliament, under the former Liberal government, legislation concerning tax treaties with Gabon, Ireland, Armenia, Oman and Azerbaijan were also adopted.
Bill S-3 and all the aforementioned similar legislation related to tax treaties are in fact patterned after the OECD model tax convention. This OECD framework is widely accepted in the international community.
As Peter Barnes, the noted former deputy international tax counsel at the U.S. Treasury Department, noted in the OECD Observer magazine:
—the OECD model has achieved a consensus position as the benchmark against which essentially all tax treaty negotiations take place....the OECD Model Tax Convention is a tremendously important tool for smoothing the way of international business and global trade.
Rest assured, the provisions in the three treaties in Bill S-3 comply with the international norms that apply to such treaties. They are exactly like the legislation from the 38th and the 39th Parliaments. Accordingly the tax treaties with Greece, Turkey and Colombia have all been designed with two goals in mind: avoiding double taxation and preventing international tax avoidance or evasion.
Before elaborating further on the importance of these two objectives, there are a couple of general points to discuss regarding tax treaties and their role in contributing to a competitive tax system in Canada.
Our Conservative government is always working to expand its network of tax agreements with other countries. In order to combat offshore tax evasion, we unveiled a policy in budget 2007 that introduced incentives that have non-treaty countries enter into OECD-modelled tax information exchange agreements with Canada. It also required that all new tax treaties and revisions to existing tax treaties include that standard for tax information exchange.
I am happy to report that negotiations on tax information exchange agreements have commenced with more than a dozen jurisdictions. What is more, in August 2009, Canada signed its first tax information exchange agreement with the Netherlands Antilles. That agreement, along with those between Canada and Colombia, Greece and Turkey, all include the OECD standard on international tax information exchange.
We have built on that record in recent years as well. For instance, we have given the Canada Revenue Agency additional resources for international tax audit and enforcement. I believe all members realize and understand that tax treaties are an important tool for improving our system of international taxation.
As I mentioned, the tax treaties with Greece, Turkey and Colombia are designed with two key objectives in mind. The first objective is to remove barriers to cross-border trade and investment, most notably the double taxation of income. The second objective is to prevent tax evasion by encouraging cooperation between Canada's tax authorities and those in other countries.
First, we all recognize that removing barriers to trade and investment are paramount in today's global economy. Investors, traders and others with international dealings need to know that the tax implications associated with their activities, both in Canada and abroad, are protected.
Canadians also want to be treated fairly, with consistent tax treatment that is set out from the start. In other words, they want to know the rules of the game and they want to know the rules will not change in the middle of the game.
Bill S-3 will remove uncertainty about the tax implications associated with doing business, working or visiting abroad in Greece, Turkey and Colombia.
These tax treaties will establish a mutual understanding of how those tax regimes will interface with those in Canada. This can only promote certainty and stability, and help produce a better business climate, especially with respect to eliminating double taxation. Nobody wants to have their income taxed twice, nor should it be, but without a tax treaty, that is exactly what could happen. Both countries could claim tax on income without providing the taxpayer with any measure of relief for the tax paid in the other country.
To alleviate the potential for double taxation, tax treaties use two general methods, depending on their particular circumstances. In some cases the exclusive right to tax particular income is granted to the country where the taxpayer resides. In other cases, the taxing right is shared. For example, if a Canadian resident employed by a Canadian company is sent on a short-term assignment, perhaps for three months, to any one of the three treaty countries noted in Bill S-3, Canada has the exclusive right to tax that person's employment income. If, on the other hand, that same person is employed abroad for a longer period of time, say for one year, then the host country can also tax the employment income.
Under the terms of the tax treaty, this individual will be treated fairly. When the individual files his or her taxes, a credit will be provided on the tax that has been paid in that other country, thus avoiding double taxation and keeping the tax system fair.
It has been noted that one way to reduce the potential for double taxation is to reduce withholding taxes. These taxes are a common feature in international taxation. They are levied by a country on certain items of income arising in that country and paid to residents of another country.
The types of income normally subjected to withholding tax would include, for example, interest, dividends and royalties. Withholding taxes are levied on the gross amounts paid to non-residents and represent their final obligations with respect to Canadian income tax.
Without tax treaties, Canada usually taxes this income at a rate of 25%, which is the rate set out under own legislation, the Income Tax Act. Accordingly, Bill S-3, as with all tax treaties, addresses this issue with numerous withholding rate reductions. Specifically, Bill S-3 will provide for a maximum withholding tax on portfolio dividends paid to non-residents of 15% in the case of Colombia and Greece, and 20% in the case of Turkey.
For dividends paid by subsidiaries to their parent companies, the maximum withholding rate is reduced to 5% in the case of Colombia and Greece, and 15% in the case of Turkey. Withholding rate reductions also apply to royalty, interest and pension payments.
The treaties in Bill S-3 cap the maximum withholding tax rate on interest at 10% in the case of Colombia and Greece, and 15% in the case of Turkey. Each treaty in this bill caps the maximum withholding tax rate of a royalty payment at 10% and on periodic pension payments at 15%.
I mentioned the tax treaties have two objectives. I have spoken at length about the first objective of removing barriers to cross-border trade and investment by eliminating double taxation. While double taxation is clearly problematic, tax evasion and avoidance are also unfair and economically damaging. The loss of revenue resulting from tax avoidance and evasion obviously negatively affect the efforts of governments to function.
Not only that, tax evasion is blatantly unfair as it places an uneven share of the tax burden on honest taxpayers. That is why the second objective of tax treaties is to encourage co-operation between Canadian tax authorities and those in other countries.
We all appreciate that the best defence against international tax avoidance and evasion is through improved and expanded mechanisms for international co-operation and information sharing. By increasing co-operation between Canada and other countries, in this instance Colombia, Greece and Turkey, we are able to better prevent tax evasion.
Tax treaties are an important tool in protecting Canada's tax base by allowing consultations and information to be exchanged between our two governments. This means that we can better catch those trying to avoid taxes, ensure the integrity of our tax system, and that everyone is taxed equally.
Indeed, our Conservative government firmly believes that Canadians should be confident that all taxpayers contribute their fair share. We demonstrated that commitment in budget 2010 through a number of initiatives intended to protect the integrity of Canada's taxation system, initiatives that will help ensure that all taxpayers pay their fair share of tax on income earned in Canada and abroad.
For instance, in budget 2010 we proposed to address tax planning practices that have developed, which have allowed under particular circumstances a portion of stock-based employment benefits to escape taxation at both personal and corporate levels, by: preventing tax arbitrage opportunities involving leases with government entities, other tax exempt entities or non-residents who are not subject to Canadian taxation; consulting regarding a proposal to require taxpayers to identify aggressive tax planning, which will provide the Canada Revenue Agency with early notice of new and emerging aggressive tax-avoidance schemes; consulting on revised proposals to prevent tax avoidance through the use of offshore trusts or other foreign investment entities; and ensuring that businesses cannot inappropriately capitalize on the differences between the tax systems of Canada and other countries to artificially increase foreign tax credits related to cross-border transactions and, thus, pay less tax.
We also propose to prevent aggressive tax planning by ensuring that income trust conversions into corporations are subject to the same loss utilization rules that currently apply to similar transactions involving only corporations, and finally, to ensure the provisions of the Criminal Code that apply to serious crimes related to money laundering and terrorist financing can be invoked in cases of tax evasion and prosecuted under Canada's tax statutes.
Taken together, such initiatives are consistent with our Conservative government's ongoing commitment to tax fairness.
In conclusion, as I mentioned at the outset, Bill S-3, while standard legislation at heart, is nevertheless very important. There is little doubt that its benefits are clear. The tax treaties covered in this proposed legislation will promote certainty, stability and better business climate for taxpayers and businesses in Canada and in these three treaty countries.
Moreover, these treaties will help to secure Canada's position in the increasingly competitive world of international trade and investment. They comply with international OECD standards and will help ensure a stronger tax system for Canadians. It will help ensure our goal of tax fairness for Canadians.
