Canadian pre-budget consultations.

August 5, 2011

In connection with Canadian pre-budget consultations, Tax Executives Institute submitted the following statement to the House of Commons Standing Committee on Finance on August 5, 2011. TEI has requested the opportunity to appear before the Standing Committee during hearings to be held in the fall. The Institute's comments were prepared under the aegis of the Canadian Income Tax Committee, whose chair is Carmine A. Arcari of the Royal Bank of Canada, and signed by Paul O'Connor, the Institute's International President. Jeffery P. Rasmussen, TEI Senior Tax Counsel, serves as legal staff liaison to the committee and coordinated the preparation of the submission.

Tax Executives Institute (TEI) is pleased to participate in the pre-budget consultations that the Standing Committee has scheduled in order to gather input from across the country. In addition, TEI commends the government for its commitment to return to a balanced budget position by 2014-2015 through targeted savings from its Strategic and Operating Review initiative. In connection with the 2012 Budget, 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 to ensure shared prosperity and a high standard of living for all.

Background

Tax Executives Institute is the preeminent worldwide association of business tax professionals. Founded in 1944, TEI's 7,000 members work for 3,000 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

TEI urges the Canadian government to maintain or enhance the international competitiveness of Canada's business tax structure by:

* Ensuring the Department of Finance completes its 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.

* Implementing the recommendations of the Advisory Panel on Canada's System of International Taxation, including--

** Eliminating withholding taxes under Regulations 102 for nonresident employees and 105 for cross-border services;

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

Implement a Loss-Transfer System for Corporate Groups

Federal budgets enacted during the past decade have focused on making Canada's business tax structure one of the most competitive in the world. To a large extent, the government has succeeded. By reducing the federal corporate income tax rate from 21 percent to 15 percent by 2012, Canada has made great strides in increasing Canada's attractiveness for both foreign and domestic business investors. Increased capital investments in Canada, in turn, have spurred productivity, promoted employment, and enhanced the prospects for sustainable economic growth. By staying the course with the scheduled rate reductions through the global recession, the government sent a strong signal to the capital markets about its commitment to enhancing the...

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