1999 Canadian budget proposal for offsetting of interest on corporate tax overpayments and underpayments.

June 2, 1999

On June 2, 1999, Tax Executives Institute submitted the following comments to the Canadian Department of Finance relating to the 1999 Federal Budget proposal for offsetting of interest on corporate tax overpayments and underpayments. TEI's comments, which took the form of a letter from TEI President Lester D. Ezrati to The Honourable Paul Martin, Canadian Minister of Finance, were prepared under the aegis of its Canadian Income Tax Committee, whose chair is John M. Allinotte of Dofasco Inc. David M. Penney of General Motors Corporation and Alan Wheable of Canada Trust contributed substantially to the development of the Institute's comments.

As President of Tax Executives Institute, Inc. (TEI), I am writing to commend the government for including a proposal in the February 16, 1999, Federal Budget that will permit the offsetting of interest on over- and under-payments of corporate tax liabilities. When implemented, the proposal will recalibrate the balance between taxpayers and the government in respect of the proper measure of interest on tax re-assessments and thereby foster taxpayer confidence in the equity and fairness of the corporate income tax system.

TEI is the preeminent association of business tax executives in North America. The Institute's 5,000 professionals manage the tax affairs of the leading 2,800 companies in Canada and the United States and must contend daily with the planning and compliance aspects of Canada's business tax laws. Canadians make up 10 percent of TEI's membership, with our Canadian members belonging to chapters in Calgary, Montreal, Toronto, and Vancouver, which together make up one of our eight geographic regions. Our non-Canadian members (including those in Europe) work for companies with substantial activities in Canada. The comments set forth in this letter reflect the views of the Institute as a whole, but more particularly those of our Canadian constituency.

In the past, TEI has been a vocal critic of the inequitable features of the interest assessment regime in Canada. Specifically, the combined effect of the nondeductibility of interest levied on tax underpayments and the taxable nature of interest on overpayments is highly punitive and that penalty is heightened by the interest-rate differential between over- and under-payments of tax. Moreover, the lack of a consolidated tax return system in Canada for corporate groups exacerbates the unfairness since frequently there are situations...