Global issues dominate TEI's summer: U.S. contract manufacturing, Canadian tax reform, European consolidated tax base, Ontario legislation all command attention.

PositionTax Executives Institute

The increasingly global reach of TEI's advocacy was evident this summer in the submissions filed by Tax Executives Institute. In Canada, TEI weighed in on federal tax reform and retroactive legislation in Ontario. A second set of comments was filed on a proposal to consolidate the corporate tax base in Europe. And the U.S. contract manufacturing regulations were reviewed in written comments filed with the U.S. Department of Treasury and Internal Revenue Service; TEI also testified at an IRS hearing 011 the regulations in July. In addition, at the IRS's request, TEI participated in two all-day meetings--the first on tax return transparency and disclosures, and the second on enterprise compliance risk.

TEI President Vincent Alicandri called the broad swatch of technical submissions "remarkable," commending TEI's committees for the depth of their technical expertise in so many different subjects.

Canadian Tax Reform

In November 2007, the Government of Canada created an Advisory Panel on International Taxation, which issued a consultation paper, entitled Enhancing Canada's International Tax Advantage, in April 2008. That action prompted TEI's Canadian Income Tax Committee to swing into action. Drawing on the rich experience of its members on myriad international tax issues, TEI prepared comprehensive comments, which were filed on July 15. In its comments, TEI welcomed "the government's decision to establish the Panel to review the framework and administration of Canada's international tax regime, which has been in effect in its current form since 1976."

"Although the Consultation Paper and TEI's analysis are divided generally between the taxation of inbound and outbound investments," the Institute stated, "the demarcation between the two is not always clear." It cited an example of Canadian multinationals that may wish to have their foreign subsidiaries access the Canadian market but face tax disincentives to doing so. "On the other hand," TEI said, "many foreign-owned Canadian taxpayers exercise substantial stewardship activities over outbound investments, which should be encouraged."

The Institute recommended that the panel urge the government to adhere to a legislative process that encourages confidence in the fairness and stability of the Canadian legal environment. The organization outlined four principles urging Parliament to:

* refrain from enacting retroactive legislation, except where absolutely necessary and in accord with principles previously articulated by the Department of Finance;

* afford reasonable consultation periods for proposed legislation;

* return to the historical practice of providing reasonable transition periods or grandfather rules or delaying the effective date of legislative initiatives that overturn longstanding rules; and

* ensure that legislative action is prompt and that the effective date either follows the enactment date of is deferred until legislation receives Royal Assent.

TEI urged Parliament to articulate an overriding policy that lends predictability to current and, especially, future legislative and administrative policy developments. It also suggested that Canada's tax and budget policy development can be improved by greater transparency. "It is unclear, for example, what purpose is served by the secrecy that currently shrouds the development of Canada's annual budget," the Institute stated.

The professional organization also recommended that attempts to correct abuses in the tax system be addressed through targeted legislation rather than broad anti-abuse rules. "Broad anti-abuse rules create uncertainty that hinders legitimate commercial activity and often inflict harm worse than the perceived problem the legislation is designed to curb," TEI said. It recommended that any anti-abuse rules proposed by the panel--or by the government itself--be subject to extensive consultation with affected taxpayers before Finance drafts legislation.

In respect of other tax policy issues, the Institute stated that "except in rare and extreme...

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