Winds of TEI advocacy blow north with multiple submissions to Canadian governmental authorities.

• Position: Tax Executives Institute

As bears went into hibernation for winter, Tax Executives Institute remained active on advocacy matters, submitting comment letters to Canadian tax authorities and attending liaison meetings in Ottawa. The cold weather also did not keep the Canadian Income Tax Committee from commenting on new foreign affiliate legislation, or the Canadian Commodity Tax Committee from addressing British Columbia's return to the Provincial Sales Tax. Finally, the Institute's leadership and members of both committees trekked to the Canadian capital for annual meetings with the Department of Finance and the Canada Revenue Agency.

Proposed Foreign Affiliate Legislation

On October 19, 2011, TEI submitted comments in response to a Canadian Department of Finance consultation on proposed foreign affiliate legislation released on August 19. The proposals generally supplanted draft foreign affiliated legislation released in 2004 and changes to that draft released in 2010, and would significantly affect on the taxation of income earned by Canadian multinationals overseas.

"TEI commends the Department for revising the proposed legislation to take into account the concerns of stakeholders," said TEI President David M. Penney of General Motors Canada Limited. "Even with these changes, the revised proposals do not implement recommendations received from the Advisory Panel on Canada's System of International Taxation. Those proposals included expanding the exemption system to include all foreign active business income earned by foreign affiliates, and capital gains and losses of a foreign affiliate that derived substantially all of its value from active business assets."

TEI's letter identified areas needing improvement including the dividend stop-loss rule and provisions relating to absorptive mergers, surplus reclassification, and returns of capital. The letter also criticized proposed changes to Canada's upstream loan provisions, explaining they would add inordinate complexity to the tax system and would discourage Canadian multinationals from repatriating earnings from foreign investments and redeploying those earnings in Canada. Mr. Penney commented:

Despite the Canadian government's economic priority to ensure that Canada maintains one of the most competitive tax systems among the G7 countries, other countries, the United Kingdom especially, have moved farther and faster than Canada in respect of the treatment of active business income of foreign affiliates. We hope...