Finance committee  I would add that if the proposal is implemented, CFOs or CEOs will be wrestling with what this actually means. Shareholders and analysts need to know these things. In today's environment companies want to come clean about the impact of major developments, and this would be a major development.

Finance committee  I certainly see that it will end up being a consideration that these companies will be looking at. Deals were in process, as the companies are always engaged in new activities, so certainly it had a very immediate effect on those companies and created some uncertainty as to how the new rules would apply to them, because of course there was no draft legislation introduced along with the budget.

Finance committee  One of the things we can look to is that this measure--the ability to deduct interest--was introduced in the early 1970s, and it was specifically to avoid the disadvantages Canadian companies were undergoing in the pre-1972 period. What clearly was seen afterwards with this measure was that the cost of capital for these companies, which would make the acquisitions cheaper for them and prove the overall economics of their acquisitions, was becoming much more favourable.

Finance committee  In a large corporate structure it's not at all easy to do. Funds get commingled together, they get used for different purposes, they come in from different directions. It might be easy for you and me to trace where our one source of income goes, but for corporations with multiple entry points for cash and exit points, in fact it is very difficult to track that in a very accurate fashion, assuming that is something you want to do in the first place.

Finance committee  Sir, the first thing to remember is that the corporations are looking for the ultimate area where their funds are going to be invested and where they are going to be most productive and create the most value for the corporation and for its shareholders. Nobody thinks about Barbados or some of these other jurisdictions in the first instance.

Finance committee  They will typically look for jurisdictions that have tax treaties with Canada.

Finance committee  Currently, and to get back to a point the chairman was alluding to earlier, another thing the tax treaties allow Canada to do is in effect to track taxpayers as to where they are going. The treaties do serve other purposes, exchanges of information and the like, which in today's environment is equally important—

Finance committee  I'll start this time. I would rank Canada's system as being relatively favourable, more favourable than a lot of the other systems that other countries have throughout the world. In many respects the system that Canada has, in particular its exemption for foreign business income and the safeguards it has to protect the tax base, are those that a number of other countries today are looking to emulate to a large degree.

Finance committee  I'm not sure that those are necessarily mutually exclusive. Nobody here is advocating the use of the tax base--

Finance committee  That would certainly be my position, sir. And it certainly would be consistent with the approaches that other countries have taken in looking at this particular issue.

Finance committee  If I could just add to that, I mentioned in my opening statement that there are basically two objectives of the system we have for taxing foreign income. One is to make sure that Canadian companies are competitive in the global marketplace but we're doing so in a way--at a reasonable cost--that we're not giving away the domestic tax base.

Finance committee  If I could, there is also an immediate consequence to the proposal, which is just the general uncertainty that it creates in the current environment. There are a number of transactions that are dependent upon the ability to deduct interest. Indeed, a number of investments would have been made and economics determined on the basis of interest deductibility.

Finance committee  It's within my personal knowledge. In fact, I have clients who had deals going the next day that had to be stopped because they were not sure just how the budget proposal was going to affect them. It was that significant to their transactions.

Finance committee  Good morning. My name is Nick Pantaleo. I am a partner with Price Waterhouse Coopers and I have specialized in international taxation for most of my 20 years as a tax adviser. I appreciate the opportunity to speak to this committee to discuss the proposal included in the March 19 federal budget to restrict the deductibility of interest.