Canadian parliament's pre-budget consultation.

August 3, 2012

On August 3, 2012, Tax Executives Institute submitted the following comments to the Canadian House of Commons in connection with its annual pre-budget consultations (PBC) for the 2013 budget. In seeking comments from TEI and other interested parties, the committee emphasized brevity and succinctness by employing a web text box to impose a 350-word limit per response. TEI's responses to the Standing Committee on Finance's pre-budget consultation questions were developed by the Institute's Canadian Income Tax Committee, whose outgoing 2011-2012 chair is Carmine A. Arcari of Royal Bank of Canada and whose incoming 2012-2013 chair is Bonnie Dawe of Finning International, Inc. Jeffery P. Rasmussen, TEI Senior Tax Counsel, coordinated the development of the responses.

1. Economic Recovery and Growth

   Given the current climate of federal and global fiscal restraint, what specific federal measures do you feel are needed for a sustained economic recovery and enhanced economic growth in Canada?

   As the preeminent association of in-house tax executives worldwide, Tax Executives Institute (TEI) urges the Canadian government to enhance the international competitiveness of Canada's business tax structure by:

   * Ensuring that the Department of Finance completes the study on the taxation of corporate groups announced in the 2010 Budget Message and develops a workable tax loss- and attribute-transfer system for corporate groups in Canada. Although the provinces have expressed concerns about potential loss-shifting that may occur under a group taxation system, we believe the federal government can ameliorate those concerns through proper system design. As important, a formalized group taxation system will mitigate the uncertainty of undertaking permitted loss-sharing transactions pursuant to Canada Revenue Agency's (CRA's) current policy on administrative concessions. As a result, taxpayers will obtain greater certainty about their tax results and the interprovincial tax effects of loss- or attribute-sharing that occurs currently will be more transparent to the provinces.

   * Eliminating withholding taxes under Regulations 102 for non-resident employees and under Regulation 105 for cross-border services and implementing a certification system whereby non-residents would certify whether the services or employment income is treaty exempt.

   * Amending the August 2011 Foreign Affiliate upstream loan provisions and modifying the Foreign Affiliate Dumping proposals set out in the 2012 Budget to avoid either creating a Canadian "cash trap" or imposing an effective tax increase for foreign investors.

2. Job Creation

   As Canadian companies face pressures resulting from such factors as uncertainty about the U.S. economic recovery, a sovereign debt crisis in Europe, and competition from a number of developed and developing countries, what specific federal actions do you...