Canada's foreign affiliate rules.

• Author: Skinner, Jack R.

On August 7, 1996, Tax Executives Institute submitted the following comments on Canada's proposed foreign affiliate rules to the Canadian Department of Finance. The comments, which took the form of a letter from TEI President Jack R. Skinner to the Honorable Paul Martin, the Minister of Finance. They were prepared under the aegis of the Institute's Canadian Income Tax Committee whose Chair is Alan J. Wheable of Canada Trust. J.A. (Drew) Glennie of Shell Canada, 1996-1996 chair of the Committee and the Institute's 1996-1997 Vice President-Region I, materially contributed to the preparation of the comments.

On March 5, 1996, draft legislation was released that will impose new and substantial information reporting requirements in respect of the foreign affiliates of Canadian taxpayers. The legislation implements the foreign-reporting requirements announced in the February 27, 1995, budget message. In addition, on May 8,1996, representatives from the Department of Finance met with members of Tax Executives Institute (TEI) to explain the reporting obligations under the draft legislation. At that meeting, the Department's representatives invited TEI to submit comments in respect of both the draft legislation and the draft information return to report the required information.

Background

TEI is an international organization of approximately 5,000 professionals who are responsible -- in an executive, administrative, or managerial capacity -- for the tax affairs of the corporations and the other businesses by which they are employed. TEI's members represent more than 2,700 of the leading corporations in Canada and the United States.

Canadians make up approximately 10 percent of TEI's membership, with our Canadian members belonging to chapters in Calgary, Montreal, Toronto, and Vancouver, which together make up one of our nine geographic regions. In addition, a substantial number of our U.S. members work for companies with significant Canadian operations. In sum, TEI's membership includes representatives from most major industries including manufacturing, distributing, wholesaling, and retailing; real estate; transportation; financial services; telecommunications; and natural resources (including timber and integrated oil companies). The comments set forth in this submission reflect the views of TEI as a whole, but more particularly those of our Canadian constituency.

TEI has historically been concerned with issues of tax policy and administration and is dedicated to working with government agencies in Ottawa (and Washington), as well as in the provinces (and the states), to reduce the costs and burdens of tax compliance and administration to our common benefit. We are convinced that the administration of the tax laws in accordance with the highest standards of professional competence and integrity, as well as in an atmosphere of mutual trust and confidence between business and government, will promote the efficient and equitable operation of the tax system. In furtherance of this principle, TEI supports efforts to improve the tax laws and their administration at all levels.

Among TEI's principal objectives are the gathering and dissemination of information on tax issues of wide concern and the development of responsible positions that reflect not only the diversity and professional training of our members but also an appreciation for the practical aspects of tax administration and business decisions. In addition, we strongly believe that tax legislation should be fully consistent with the goals of economic growth, fairness, clarity, and competitiveness.

Proposed Foreign Reporting Requirements

As noted in the March 5, 1996, press release announcing the draft legislation and accompanying draft reporting forms, the stated purpose of the provisions is "to preserve the integrity of the Canadian income tax base, particularly with respect to the use of tax havens by Canadians." Moreover, "the reporting requirements [are intended to] give Revenue Canada more ability to scrutinize offshore investments held by Canadians and to ensure complete reporting of income." Hence, draft section 233.3 requires taxpayers with interests in foreign property (shares, bank accounts, real property, etc.) in excess of $100,000 to report and provide details on such holdings. Draft section 233.4 requires taxpayers with foreign affiliates to provide additional financial and tax information with...