Canadian 2009 pre-budget consultations.

• Author: Bergen, Rodney C.

August 10, 2009

On August 10, 2009, Tax Executives Institute submitted written recommendations to the House of Commons Standing Committee on Finance in connection with the Committee's Fall 2009 Pre-Budget Consultations. TEI has also requested the opportunity to appear before the Standing Committee. TEI's recommendations were prepared under the joint aegis of its Canadian Income Tax Committee and Commodity Tax Committees, whose chairs, respectively, are Rodney C. Bergen of The Jim Pattison Group and Diana M. Spagnuolo of Imperial Oil Limited. Jeffery P. Rasmussen, TEI Tax Counsel, served as legal staff liaison on this project.

Tax Executives Institute (TEI) is pleased that the Standing Committee on Finance has scheduled prebudget consultations to gather input from across the country. TEI offers the following recommendations to foster economic growth and job creation, promote a favourable business environment for investments in Canada, and ensure a high level of innovation and productivity. We believe the implementation of our recommendations will spur economic efficiency, improve tax administration, and enhance the competitiveness of Canada's business tax system.

Background

Tax Executives Institute is the preeminent association of business tax professionals. Founded in 1944, TEI's 7,000 members work for 3,200 of the largest companies in Canada, the United States, Europe, and Asia. TEI's membership includes representatives from a broad cross-section of the business community, with members employed in all major industries and sectors of the economy. In that sense TEI is unique--we do not represent a particular group or industry. Canadians make up approximately 10 percent of TEI's membership, with our Canadian members belonging to chapters in Montreal Toronto, Calgary, and Vancouver. In addition, many non-Canadian members work for companies with substantial Canadian operations, investments, and employees.

Executive Summary of Recommendations

TEI urges the Standing Committee to review the competitiveness of Canada's business tax structure, especially the recommendations of the Advisory Panel on Canada's System of International Taxation. TEI believes the competitiveness of Canada's business tax structure will be enhanced by:

* Eliminating withholding taxes for dividends under the Canada-U.S. Treaty and under Regulations 102 and 105 for cross-border services.

* Adopting a broader exemption system for earnings of foreign affiliates (FAs).

* Promoting increased harmonization of the federal and provincial tax bases and administrative systems by increasing incentives to eliminate remaining provincial capital taxes as soon as possible, encouraging the provinces to review and revise their tax policies to enhance the overall competitiveness of the Canadian business tax system, and promoting the benefits of full harmonization of the provincial retail sales tax systems with the GST.

Competitiveness Generally

Canada has enacted legislation to reduce the corporate income tax rate from 21 percent to 15 percent by 2012. TEI commends the government for taking this action because business tax rate reductions increase the attractiveness of Canada for both foreign and domestic investors. Increased capital investment in Canada, in turn, spurs productivity, promotes employment, and enhances the prospects for sustainable economic growth. The implementation of the phased corporate income tax rate reductions sends a strong signal to the capital markets about the government's commitment to enhancing the competitiveness of the Canadian business tax system.

Finance Minister James Flaherty has said that Canada "must establish a meaningful, marginal effective tax rate advantage ... that goes beyond the statutory tax rate itself and takes the overall impact of the business tax system on investment decisions...