Pending excise tax issues; December 5, 2001.

• Position: Canadian Department of Finance

On December 5, 2001, Tax Executives Institute held its annual liaison meeting with the Canadian Department of Finance on pending commodity and excise tax issues. The written agenda for the meeting was prepared under the aegis of TEI's Canadian Commodity Tax Committee, whose chair is Martina Krummen of Air Canada. Alan Wheable, the Institute's Vice President-Region I, coordinated preparations for the liaison meeting.

Tax Executives Institute, Inc. welcomes the opportunity to present the following comments and questions on several pending commodity and excise tax issues, which will be discussed with representatives of the Department of Finance during TEI's December 5, 2001, liaison meeting. If you have any questions about these comments, please do not hesitate to call either Alan Wheable, TEI's Vice President for Canadian Affairs, at 416.982.8003, or Martina Krummen, chair of the Institute's Canadian Commodity Tax Committee, at 514.856.6675.

Background

Tax Executives Institute is an international organization of more than 5,300 professionals who are responsible -- in an executive, administrative, or managerial capacity -- for the tax affairs of the corporations and other businesses by which they are employed. TEI's members represent more than 2,800 of the leading corporations with 53 chapters in Canada, the United States, and Europe.

Canadians make up approximately 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. In addition, a substantial number of our U.S. members work for companies with significant Canadian operations. In sum, TEI's membership includes representatives from most major industries, including manufacturing, distributing, wholesaling, and retailing; real estate; transportation; financial services; telecommunications; and natural resources (including timber and integrated oil companies). The comments set forth in this submission reflect the views of the Institute as a whole, but more particularly those of our Canadian constituency.

1. Is the Department of Finance considering implementing any changes to the zero-rating provisions for intangible personal property or services to take into account issues arising from the increased use of electronic commerce? Examples of issues possibly requiring attention are:

   (i) Intangible Personal Property. While intellectual property receives a zero-rating under section 10, Part V of Schedule VI of the Excise Tax Act (ETA), similar provisions do not exist for other intangible personal property. Because the place of supply rules (outlined in section 142.(1)(c) of the ETA) tax intangible personal property if it can be used "in whole or in part" in Canada, the potential exists for taxing supplies that have very limited use in Canada. GST-registered suppliers are thus placed at a competitive disadvantage vis-a-vis non-registrants providing similar global solutions. The provision also serves as a trap, placing registrants unfamiliar with the restricted application of section 10 into unintentional noncompliance. Expanding section 10 to apply to all intangible personal property would permit GST-registrants to compete more effectively on a global basis. We invite your comments.

   (ii) Telecommunication Services. Currently, section 22.1 restricts the zero-rating provision for telecommunication services to...