Mr. François-Philippe Champagne (Parliamentary Secretary to the Minister of Finance, Lib.):
Mr. Speaker, it is an honour for me to speak today on the act to implement a convention and an arrangement for the avoidance of double taxation and the prevention of fiscal evasion, with respect to taxes on income, and to amend an act in respect of a similar agreement.
What we are going to be talking about today is implementing tax conventions that are going to be very beneficial for our country. They are going to create jobs, promote commerce, and favour the protection and the avoidance of tax evasion in our country.
I appreciate the opportunity to speak today on the second reading of Bill S-4.
Bill S-4 would implement 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 would also amend the legislation that implemented the Canada-Hong Kong double taxation agreement, to add an interpretation provision for greater certainty.
The double taxation convention with the state of Israel replaces the current tax convention with that country which was signed in 1975. The revised double taxation convention brings us up to date with the current tax treaty policies of Canada and Israel.
There is currently no double taxation arrangement between Canada and Taiwan. Taiwan is one of the few remaining large world economies not covered by Canada's network of 92 tax treaties currently in force and, thus, the conclusion of a double taxation arrangement with Taiwan has been an important objective for Canada.
Taiwan is a significant trading partner for Canada, ranking as Canada's fifth-largest trading partner in the Asia-Pacific region and ranking 12th worldwide, in 2015. In 2015, Canadian exports to Taiwan were valued at $1.46 billion, while imports stood at $5.46 billion, for a total of more than $6.91 billion in trade between our two jurisdictions.
Taiwan currently has double taxation arrangements in force with 30 other countries, including Australia, Austria, Belgium, Denmark, France, Germany, the Netherlands, New Zealand, Sweden, Switzerland, and the United Kingdom.
In keeping with Canada's “one China” policy, a double taxation arrangement with Taiwan has been concluded as an arrangement between the Canadian trade office in Taipei and the Taipei economic and cultural office in Canada, as opposed to an agreement between sovereign countries.
This double taxation arrangement with Taiwan is consistent with other existing Canada-Taiwan instruments in a wide range of areas, from air transport, agricultural market access, visa exemptions, and postal services, to science and technology research, financial supervision, and youth mobility, among many others.
Once implemented in Canada, through this bill, the double taxation arrangement with the jurisdiction of Taiwan would constitute a functional equivalent to a tax treaty.
The convention and arrangement to avoid double taxation contained in Bill S-4 will facilitate trade and bilateral investment with the state of Israel and the territory of Taiwan, by eliminating or relieving double taxation on transborder transactions, which will mean that taxpayers will pay tax only once on a given income. This will also help to prevent income tax evasion, which is undermining the tax base and our taxation system.
Bill S-4 relates to the ongoing efforts being made by Canada to update and modernize its network of tax conventions with other territories. As was mentioned earlier, Canada relies on one of the most extensive tax convention networks in the world, with 92 tax treaties currently in force.
I want to make it clear that Bill S-4 does not represent any new or significant change in policy. In fact, the double taxation convention and arrangement covered by the bill, like its predecessors, is patterned on the model tax convention of the Organisation for Economic Co-operation and Development, OECD, which is accepted by most jurisdictions around the world.
The provisions in the particular double taxation convention and arrangement comply with the international norms that apply to such double tax conventions and arrangements.
As Canada’s economy is increasingly integrated with the global economy, the elimination of fiscal barriers to trade and international investment has become more important. Double taxation conventions and arrangements such as those we are discussing today are specifically designed to facilitate cross-border trade, investment, and other activities between Canada and each of the signatory jurisdictions.
The expression “tax convention” primarily designates income tax conventions and arrangements that establish the extent to which a jurisdiction can apply personal and corporate income tax to a resident of another jurisdiction.
For Canada, our tax treaty gives us assurances of how Canadians and Canadian businesses will be taxed abroad. Conversely, for our tax treaty partners, Canada's tax treaties give them the assurance of how their residents will be treated in Canada. Our tax treaties are all designed with two general objectives in mind. The first objective is to remove barriers to cross-border trade and investment, most notably the double taxation of income. I am sure that is something that every member in the House would agree with.
The second objective, and I am sure members would also agree, is to prevent tax evasion by encouraging co-operation between Canada's tax authorities and the tax authorities of the other signatory jurisdictions.
Those are two objectives that I am sure will get unanimous consent from all the members in the House.
Allow me to take a few minutes to expand on each of these very important objectives for our country. Let us talk first about removing barriers to trade and investment.
First of all, removing barriers to trade and investment is essential in today’s global economic context. Without question, investors, traders, merchants, and other stakeholders doing business on an international scale want to be certain of the tax repercussions of their activities in Canada and abroad.
Similarly, Canadians doing business or investing overseas want to be sure that they will be treated fairly and consistently with respect to the income tax they pay.
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. That is one of the objectives of Bill S-4, to remove uncertainty about the tax implications associated with doing business, working, or investing abroad. Tax treaties establish a mutual understanding of how the tax regime of one jurisdiction will interface with that of another. This can only promote certainty and stability and help produce a better business climate especially with respect to eliminating double taxation.
Let me turn to double taxation.
No one wants to have their income taxed twice, something that should never happen in any case. However, in the absence of a convention or arrangement to avoid double taxation, such as those contained in Bill S-4, that is exactly what could happen. For example, in cross-border transactions, the two jurisdictions might apply their income tax without granting taxpayers relief with respect to the income tax paid to the other jurisdiction.
To reduce the possibility of double taxation, tax conventions apply either of two general methods, depending on the particular situation.
In some cases, the exclusive right to tax a particular income is granted to the jurisdiction where the taxpayer resides.
In other cases, that right is shared.
For example, if a Canadian resident employed by a Canadian company is sent on a short-term assignment, say for three months, to any one of the two signatory jurisdictions in this bill, 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 jurisdiction where that person works can also tax the employment income. However, in this case, under the terms of the double taxation convention and arrangement in Bill S-4, Canada must credit the tax paid in that other country against the Canadian tax otherwise payable on that income. This is one example of how the allocation of taxing rights between jurisdictions under tax treaties ensures that individuals and businesses are taxed fairly.
Let me move to withholding tax.
One way to reduce the potential of double taxation is to reduce withholding taxes. These taxes are a common feature in international taxation. It is imposed by an authority on certain items of income earned within its jurisdiction and paid to the residents of another jurisdiction. Types of income usually subject to withholding taxes include, for example, interest, dividends, and royalties.
Withholding taxes are levied on the gross amount paid to non-residents and represent their final obligation with respect to income tax payable to Canada.
Without a tax treaty in place, Canada usually taxes this income at a rate of 25%, which is the rate set out under our own domestic tax legislation, the Income Tax Act. The double taxation convention and arrangement in Bill S-4, however, would provide for a maximum withholding tax rate on portfolio dividends paid to non-residents of 15% in the case of the State of Israel and the jurisdiction of Taiwan. 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. Withholding rate reductions also apply to royalties, interest, and pension payments. The double taxation convention and arrangement in this bill would cap the maximum withholding tax rate on interest and royalties at 10%, and on periodic pension payments at 15%. The double taxation convention and arrangement also would provide that no tax may be withheld on cross-border payments of interest in specific situations, such as interest paid on loans made, guaranteed, or insured by Export Development Canada; or a similar institution in Israel or Taiwan.
withholding tax rates provided for in the convention and arrangement covered in Bill S-4 are consistent with current Canadian policies on double taxation.
Let me move now to encouraging co-operation.
I mentioned that tax treaties have two main objectives. I talked about the first objective, which is to remove barriers to cross-border trade and investment by eliminating double taxation.
The treaties' second objective, and I am sure everyone here will agree with me, is to encourage cooperation between tax authorities in Canada and in treaty countries. Bill S-4, for instance, has to do with a convention and an arrangement to avoid double taxation through cooperation with tax authorities specifically in the State of Israel and the jurisdiction of Taiwan.
For example, tax treaties include a mechanism for settling disputes or enforcement issues that arise after a treaty on double taxation comes into force.
In such cases, designated tax authorities of the two jurisdictions, known as the competent authorities, are to consult with a view to reaching a satisfactory solution, under which the taxpayer's income is allocated between the two taxing jurisdictions on a consistent basis, thereby preventing the double taxation that might otherwise result.
The Canadian competent authority under Canada's tax treaties is the Minister of National Revenue or the minister's authorized representative, who would normally be an official at the Canada Revenue Agency.
Furthermore, one of the most important benefits of increased co-operation between Canada and other jurisdictions is preventing tax evasion. Indeed, tax treaties are an important tool in protecting Canada's tax base in that they allow consultation with and information to be exchanged between our revenue authorities and their counterparts in jurisdictions with which we have a double taxation convention.
In that regard, the convention and arrangement to avoid double taxation listed in Bill S-4 implement the internationally agreed standard for the sharing of tax information on request created by the Organisation for Economic Co-operation and Development, or OECD, which gives Canadian tax authorities access to information needed for the administration and enforcement of Canadian tax laws, while also helping them prevent international tax evasion.
Thus, the convention and arrangement to avoid double taxation listed in Bill S-4 will help ensure that Canada's tax regime is fair by making sure that taxes owed are actually paid. Conversely, as I have already mentioned, these treaties also help ensure that taxpayers do not have to pay more than their fare share.
Let me move to timing and consideration.
Once this bill has been enacted, Canada will be in a position to send its notice of ratification of the convention and arrangement on double taxation contained in the bill. Taiwan has already sent its notice of ratification to Canada, and Israel has promised to do so and to make every effort to send its notice by the end of the year.
Under the terms provided in the double taxation convention and arrangement, it will take effect the first day of January in the year following that in which the latter of these notices of ratification have been exchanged. Thus, it is important that this legislation be enacted before the end of this year so that Canada can send its notices of ratification regarding the convention and arrangement in order for the double taxation convention and arrangement to have effect commencing January 1, 2017. Otherwise, the next opportunity for the coming into effect of the convention and arrangement would be January 1, 2018.
The benefits of Bill S-4 are clear. The double taxation convention and arrangement covered in Bill S-4 would promote certainty, stability, and a better business climate for taxpayers and businesses in Canada and in the partner jurisdictions.
Furthermore, the convention and arrangement to avoid double taxation will serve to further consolidate Canada’s position in the increasingly competitive circles of international trade and investment. They are in line with the OECD’s international standards, and they will help strengthen the taxation system to the benefit of Canadians and to achieve our tax fairness objective for all Canadians.
These actions are consistent with the basic principles of economic efficiency and responsible fiscal management.
For these reasons, I invite members of the House to support the bill. It will support trade. It will support tax integrity. I am sure that every member will support the bill, because it is not just the smart thing to do for Canada, it is the right thing to do.
Mr. Garnett Genuis (Sherwood Park—Fort Saskatchewan, CPC):
Mr. Speaker, it will make it that much easier for the government members who want to hear my speech to come now and then stay for question period. I know many of us are receiving a lot of correspondence from our constituents on Bill S-4, so it is important to talk about it and study it in detail.
Bill S-4, which come to us from the Senate, would implement a tax treaty with the Government of Israel as well as a tax arrangement with the Government of Taiwan. It would also amend the Canada-Hong Kong Income Tax Agreement.
These types of tax treaties are very important for facilitating international trade for investment between different countries. Certainly, in that light, our party is very much a pro-trade party, and that is why we support the bill.
The bill is about enforcement, fighting tax evasion, and more broadly about facilitating trade liberalization. It is about making it possible for companies to do business in multiple jurisdictions and, in particular, deepening our relationship with some very important partners, with Israel and Taiwan.
Today I will talk about three issues: trade liberalization in general, the Canada-Israel relationship, and the Canada-Taiwan relationship.
With respect to trade liberalization, I have said before that it is important for the government to move from inertia to action on trade. We have had a number of different bills and issues up for debate with respect to trade: the implementation of the trade facilitation agreement, the CETA deal, and next week I believe we will debate the Canada-Ukraine free trade deal. The Conservative Party supports these, in part because we recognize they are really the continuation of work that was begun under the previous government. One does not come up with a tax treaty overnight. In fact, these are cases where a lot of hard work was done by the previous trade minister and by Stephen Harper, the previous prime minister.
When it came to trade, we were quite aggressive in our trade agenda. We were negotiating and updating agreements. We were undertaking a vast array of different negotiations to expand Canadian access to trade, such that at the time of the election, there were trade deals that we had negotiated between TPP and CETA, which represented over 60% of the world's GDP. Therefore, Canada would have been uniquely positioned with respect to trade.
We know the story on the TPP, with the government not leading on TPP and backing away from it to a large extent, but still being supportive of some of these things we had done. Therefore, the government is putting these bills before the House, and this is one of them with which we agree. We see them as positive bills, but they reflect as well a certain inertia, the continuation of policies that were begun under the previous government. That much is good.
It is positive to see the continuation of good policies that were started under the Conservative government, but we also need to see the Liberals be proactive on trade and start new initiatives that reflect emerging opportunities and challenges. Inertia is not going to be enough, especially given the current global economic climate. The history of the Liberal Party in office has been continuing to leave in place trade deals that the previous Conservative government created but not necessarily implementing new original trade initiatives. This is the general context.
An emerging protectionist sentiment is happening around the world right now. We have a president-elect in the United States who has expressed in the past a certain degree of skepticism of the value of trade within North America, and perhaps more so of trade between the U.S. and Mexico, but there is generally a concern about trade coming from the new incoming administration. It is important for other world leaders, other nations in general, to make strong arguments about the importance and benefits of an open economy.
It is for us to be actively pursuing that discussion, but also to be seeking out opportunities to sign new agreements, to move a trade liberalization agenda forward, perhaps with other countries, perhaps in different kinds of arrangements than we have seen exist in the past. We can do that and at the same time we can show the benefits of those trade arrangements. Canada should seize this moment and continue to be a pro-trade country, a country that benefits from trade, not merely continuing with inertia but also undertaking new initiatives.
When we talk about trade liberalization, and specifically about the bill before us, it is important to recognize that these kinds of agreements have economic benefits, but they are also ways of affirming and deepening relationships between like-minded countries.
Certainly our strategic relationships with Israel and with Taiwan are important. They reflect our values. These are both places which are democracies in regions, in environments that are not as friendly to democracy as perhaps our context is, Israel, of course, being the only democracy in the Middle East. Then we have Taiwan, not declared as an independent state but as a self-governing jurisdiction, which is a democracy, and certainly beside the world's most influential non-democracy. That really speaks to why Taiwan and Israel, in a special way, reflect Canada's values.
When we sign these kinds of agreements, they create opportunities for commerce, which create economic benefits for Canadians and for people in these countries. However, it is also a powerful signal about the importance of these relationships, and it creates a deepening of people-to-people commercial and therefore social ties between these nations. We should recognize the economic benefits of trade, but not entirely see trade as being distinct from the opportunities to build a greater community among like-minded democracies.
The current environment, in which we may have an American administration more skeptical about trade, should not prevent us from seeking other opportunities to pursue new and deeper trading relationships with other like-minded and pro-trade countries. For example, in light of the Brexit vote in the U.K., the U.K. will be working through what exactly its new relationship with Europe will be. However, we know that many of those who were pro-Brexit were also supportive of having broader trading relationships for the U.K.
After the relationship between the U.K. and Europe is finalized, we certainly need to pursue the opportunity to deepen trading relationships and pursue free trade between Canada and the U.K., and possibly, depending on the trajectory of the trans-Pacific partnership, we need to deepen our trading relationships in Asia with like-minded countries like Japan, Australia and New Zealand.
Under the previous government as well we commenced free trade negotiations with India. I think there is a very strong opportunity to continue this process and hopefully be able to see the realization of a free trade agreement between Canada and India. Very strong people-to-people ties exist between Canada and India. Despite a lot of differences between the ways our economy is structured, there is a positive opportunity there for us to benefit from those ties and to establish deeper commercial relationships as well.
In that context, I am skeptical of the government's trade policy in that the only new trade initiative it has talked about is pursuing a free trade agreement with the People's Republic of China. From my perspective, the strategic genius of TPP was about establishing a trading agreement among like-minded countries in the Asia-Pacific region that would have really set the terms of trade within that region in a way that would invite the People's Republic of China and other countries to come up to that standard in environmental protection, human rights, labour rights and intellectual property.
Instead, the emphasis from the government, rather than negotiating those kinds of strategic partnerships with like-minded countries that will advance our values, is before we have even completed the process with countries like Japan, Australia and New Zealand, let us go and negotiate a bilateral trade agreement with China, a country where there are obviously significant problems with human rights, environmental protection, labour rights and intellectual property.
We see in that not a sufficient appreciation of that relationship between economic collaboration and our values, the benefit of having trading relationships that establish the strategic conditions for advancing our more fundamental and important convictions in our values and in terms of our ideas on human rights.
To sum up this point, we are in an environment where there are increasing challenges, rhetorical challenges coming from different quarters to the idea of trade liberalization. Therefore, it is important that we continue to move forward with initiatives like Bill S-4 that deepen trading relationships and create more opportunities for international commerce. It is also important that we not just continue with things that were done under the previous government, but that we also look for new initiatives and emerging opportunities to advance our trading position, our economic as well as our strategic position within the world.
Having said that as a general point, I would like to delve a bit into specifically the importance of the two principal relationships that are touched on by Bill S-4: our commercial relationship with Israel as well our commercial relationship with Taiwan.
I had an opportunity to visit Israel this summer. It was a great visit. I went as part of a parliamentary delegation with a number of colleagues from different parties. Whenever we hear about Israel in the news, it is often in the context of our important strategic and security relationship with perhaps Israel's relationship to different conflicts that are happening in the region. However, it is important for us to appreciate, and perhaps look into, an aspect that is not as often discussed, which is Israel's economic vitality and the unique innovation, how co-operation between Canada and Israel gives us opportunities to understand and benefit from that innovative culture and strong economy that exists in Israel. It was a real pleasure for me, and I think, for the other members who participated in the trip this summer, to understand and see first hand some of that innovation taking place.
The advanced tech and research and development that occurs within Israel has rendered it the nickname Silicon wadi. Wadi is an Arabic word for valley. It is kind of a Middle-Eastern adaptation of Silicon Valley. A lot of innovation happens in Israel, and we see that in a number of different indicators. The highest level of research and development spending relative to GDP anywhere in the world takes place in Israel and it is the largest destination for global venture capital per capita worldwide. There is significant investment and research happening there.
A lot of my colleagues and I asked about the policies that were in place in Israel to encourage this kind of innovative economic culture, and how we could learn from that in the context of our own discussions about encouraging innovation in Canada. Certainly there are opportunities to learn from each other. We can learn lessons from the incredibly innovative dynamic in Israel. However, it is also interesting to reflect on the connections between Israel's innovative economic environment and also the culture. Members who have read the famous book Start-up Nation will know that aspects of creativity and innovation are really encouraged throughout Israel's culture.
One of the discussions we had as part of our delegation, especially when we were in Israel, was learning about the strong sense of purpose and mission of those in Israel. For the most part, there is a real appreciation of Israel as a nation with a specific purpose, to be a homeland for the Jewish people. That sense of purpose and mission feeds people's desire to create, to contribute, and to build a stronger society. As well, the system in Israel is one of military service that takes place after high school. Virtually everybody participates in this national service. That as well is a time in which innovation and creativity are encouraged and people are given opportunities to learn skills they can then use as part of subsequent innovation throughout the rest of their lives.
There is this fascinating connection that exists between an innovative culture and the economy.
Obviously not all of those lessons are particularly applicable to the somewhat different kind of society we have here in Canada, but the opportunities that come from increased collaboration, commercially and otherwise, are very significant. We should appreciate the importance of security and strategic co-operation with Israel, but also understand it within the context of economic opportunities.
I would like to speak, as well, about the Canada-Taiwan relationship.
I think members know we have a bit of a curious relationship with Taiwan. We do not have formal diplomatic ties with Taiwan. That is why we speak here not about a tax treaty but a tax arrangement, which is different in name but similar in form to what we are talking about with Israel and what we deal with in other cases.
The kind of relationship that exists between Canada and Taiwan is extremely important and close, notwithstanding the uniqueness of the names we use, because Taiwan has not declared itself as an independent state. Taiwan is a major trading partner for Canada, and the great opportunities for us to share and to learn from each other, as I guess somewhat different kinds of societies, are very significant—obviously, Canada drawing on a rich wealth of natural resources.
Taiwan also is a—