STANDING COMMITTEE ON FINANCE
COMITÉ PERMANENT DES FINANCES
EVIDENCE
[Recorded by Electronic Apparatus]
Tuesday, May 30, 2000
• 1850
[English]
The Chair (Mr. Maurizio Bevilacqua
(Vaughan—King—Aurora, Lib.)): I'd like to call the
meeting to order.
Is there unanimous consent to have Mr. Cullen's
statement read into the record?
Some hon. members: Agreed.
Statement by Mr. Roy Cullen
(Parliamentary Secretary to the Minister of Finance):
Thank you, Mr. Chairman.
I will keep my remarks brief so that we have enough
time for questions.
Bill S-3 is standard, routine—almost
housekeeping—legislation. It puts into law nine tax
treaties or protocols that Canada has recently signed
with Kyrgyzstan, Lebanon, Algeria, Bulgaria, Portugal,
Uzbekistan, Jordan, Luxembourg, and Japan.
Like their predecessors, these tax treaties are
patterned primarily on the OECD Model Tax Convention,
which is accepted by most countries around the world.
They are in full compliance with the international
norms that apply to such treaties.
The treaties with Kyrgyzstan, Lebanon, Algeria,
Bulgaria, Portugal, Uzbekistan, and Jordan are all new
treaties. In addition, through Bill S-3, the existing
convention with Luxembourg is replaced and Canada's
treaty with Japan is amended.
At present, Canada has tax treaties in place with 68
countries. When the treaties in this bill come into
force, there will be 75.
Tax treaties are important to the Canadian economy,
Mr. Chairman. Exports now account for over 40% of
Canada's gross domestic product. In addition, Canada's
annual economic wealth also depends on foreign direct
investment, as well as inflows of information, capital,
technology, royalties, dividends, and interest.
Tax treaties are designed with two primary objectives
in mind: the prevention of fiscal evasion with respect
to taxes on income and the avoidance of double
taxation. Both objectives are met in the treaties
legislated in this bill.
With respect to fiscal evasion, tax treaties encourage
the exchange of information between revenue authorities
to prevent tax evasion or avoidance. Sharing
information helps revenue authorities in identifying
cases of tax evasion or avoidance and acting on them.
On the subject of double taxation, tax treaties help
ensure that income is not taxed twice when a taxpayer
lives in one country and earns income in another.
Without a tax treaty, both countries could claim tax on
the income.
To alleviate the potential for double taxation, the
government has several options available. One is for
the country of residence to either exempt the income
from tax or to give credit for the tax paid to the
source country under a tax treaty. Another method is
for both countries to agree to a reduction in
withholding taxes. These are the taxes that countries
usually impose on income paid to non-residents.
The treaties covered in Bill S-3 provide for reduced
withholding tax rates on dividends, interest, and
royalties. In some cases, copyright, computer
software, patent and know-how royalties, and interest
paid on certain government indebtedness are exempt from
tax. In addition, under the protocol with Japan,
Canadian companies operating ships or aircraft in
international traffic are exempt from local Japanese
enterprise taxes—a courtesy that Canadian provinces
already extend to Japanese companies carrying on
similar activities.
The treaties in Bill S-3 also address other tax treaty
issues such as capital gains, non-discrimination based
on a taxpayer's nationality, and pensions and annuities
paid to non-residents.
Before closing, there is one issue in particular that
I want to raise, and that is the government's proposed
taxpayer migration rules with respect to the taxation
of emigrants' pre-departure gains.
Through Bill S-3, the treaties with Luxembourg,
Portugal, Lebanon, and Jordan give recognition to these
proposed new rules. Each treaty addresses the
potential for double taxation that could result if
Canada enforced its right to tax emigrants on their
pre-departure gains.
The proposed taxpayer migration rules are not
recognized yet in the treaties with Uzbekistan,
Bulgaria, Algeria, and Kyrgyzstan as they were
negotiated prior to the announcement of the new rules.
However, this does not present a problem for emigrants
to these countries as the proposed rules allow Canada
to give them a unilateral foreign tax credit until
2007. This provision will ensure that there will be no
double taxation of pre-departure gains before Canada
has been able to renegotiate its tax treaties to take
the effects of the new rules into account.
Japan will review the issue of taxpayer migration in
future negotiations.
In conclusion, Mr. Chairman, I want to emphasize the
importance of tax treaties in the promotion of trade
and investment for Canada. Tax treaties are directly
related to international trade in goods and services
and therefore directly impact on Canada's domestic
economic performance. As I mentioned earlier in my
remarks, Canadian exports account for over 40% of our
annual GDP.
The tax treaties contained in Bill S-3 will only
benefit Canadian businesses and individuals with
operations and investments in these nine countries.
There is no downside to this bill, Mr. Chairman.
I, along with the officials here today, will be
pleased to answer any questions honourable members may
have.
Thank you for your time.
The Chair: Are there any questions?
Do you want to proceed to clause-by-clause?
Some hon. members: Agreed.
The Chair: May I deal with these clauses in
blocks?
Some hon. members: Agreed.
(Clauses 2 to 53 inclusive agreed to on division)
(Schedules I to IX inclusive agreed to on division)
(Clause 1 agreed to on division)
The Chair: Shall the title pass?
Some hon. members: Agreed.
Some hon. members: On division.
The Chair: Shall I report the bill to the House?
Some hon. members: Agreed.
Some hon. members: On division.
The Chair: Thank you.
The meeting is adjourned to the call of the chair.