Finance committee  It's not a question of evasion; it's a question of legal compliance with the rules.

Finance committee  Thank you for the question. Yes, I hope so. People are projecting a definition onto the term “tax haven”, and it's probably useful to speak to that for a moment. As the backgrounder to our material mentions, you can conceptualize or define a tax haven in at least one of two ways.

Finance committee  I'm not aware of any connection between us signing the tax treaty and there being a tax haven angle to it. But it was the second point that I wanted to draw out. In addition to simply having low tax rates, one can arrive at having low or no tax through lack of concordance in two countries' tax rules.

Finance committee  It would have much different effects from the proposal as currently constituted. It would say that a foreign investment funded with debt in Canada would not be allowed any interest deduction unless and until any income were returned home, and it would--

Finance committee  The question is largely yes, and there are some qualifications to that. Double-dips work best with treaty countries, because the income you generate in the intermediate country is exempt surplus that can be brought home free of tax. From a tax planner's point of view that's the ideal result.

Finance committee  In some situations CRA may be challenging transactions as being too aggressive, and this may reflect on the discussion you had the other day with the agency. But for better or worse, CRA would not seek to challenge under the current law the sort of transaction outlined in the material we put out yesterday and--

Finance committee  Well, again, I don't believe that's the case.

Finance committee  I'm not sure it is the case that all of a sudden it is legal. I think it has been the case that a borrowing made to invest in shares of a foreign affiliate by a Canadian firm is generally deductible in computing the taxable income and tax payable of a Canadian firm. What you see in a classic double-dipping case is that the investment in those foreign affiliate's shares has been turned into a loan from that foreign affiliate to another country, and that country is also allowing a deduction for it.

Finance committee  I think there are two levels at which to answer the question. In a mechanical, mathematical, or arithmetical analysis, you can't simply look at the value of the interest deduction.... I'm sorry, I should start further back. There are some situations in which other countries will allow a double deduction to be taken.

Finance committee  Perhaps I'll take on the second part of the question and ask my colleague to speak to the first. On the task force, I expect you're referring to the expert panel that the minister is proposing to set up. There was reference in the budget as well. It's to look at other issues or other possible modifications to the Canadian tax system for international income that might improve the fairness and the competitiveness of the regime.

Finance committee  Thank you very much for the question. We do not have the numbers today on the dividends being paid out. We saw that you raised this question with the Canada Revenue Agency when they were here last week, and we are trying to find some numbers on that front. We do have some Statistics Canada information on the total levels of Canadian direct investment in various countries.

Finance committee  I don't believe we have the information to give you today on the actual amount of dividends on a per country basis. We are trying to get that, and assuming we're able to pull that together we will provide it. I don't believe it's correct to suggest that multiplying the amount of the dividends by a Canadian tax rate would represent the amount of Canadian tax revenue involved.

Finance committee  On the considerations that inform whether we have an exemption or credit system, with an exemption system we end up having a neutrality between us and other foreign competitors in relation to foreign investment. We don't have an additional Canadian tax, current or deferred, that'll apply to Canadian investors carrying on foreign operations.

Finance committee  I was anticipating the question. Let me speak to it more directly. The assumption or the premise in those sorts of contentions is that the deduction in Canada is a given and the deduction in the foreign country is the gravy. I think that's not immune to challenge. To take our example, our major trading partner, the United States, has a statutory tax rate that will be roughly five points higher than Canada's.

Finance committee  I believe we did provide a departmental response to the Auditor General in relation to the 1992 and 2002 reports. It does boil down, at its most fundamental, to a policy question for Parliament as to whether we should have an exempt surplus regime where we do or don't impose an additional Canadian tax on the active business income generated by foreign affiliates of Canadian companies.