Pending excise tax issues: December 3, 2003.

• Position: Canadian Department of Finance

On December 3, 2003, 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, which was prepared under the aegis of TEI's Canadian Commodity Tax Committee, whose chair is Sherrie Ann Pollock of the Royal Bank of Canada, is reprinted below.

Tax Executives Institute, Inc. welcomes the opportunity to present the following comments and questions on pending commodity and excise tax issues, which will be discussed with representatives of the Department of Finance during TEI's December 3, 2003, liaison meeting. If you have any questions in advance of that meeting, please do not hesitate to call either Mario M. Tombari, TEI's Vice President for Canadian Affairs, at 514.932.6161, ext. 2943, or Sherrie Ann Pollock, chair of the Institute's Canadian Commodity Tax Committee, at 416.955.7373.

Background

Tax Executives Institute is an international organization of more than 5,400 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.

Questions

1. During last year's liaison meeting, TEI asked whether any changes were under consideration to bolster the competitiveness of Canadian companies making supplies to a global marketplace. The following examples were offered to illustrate areas of concern:

   (a) Intangible Personal Property--While intellectual property is zero-rated under section 10 of Part V of Schedule VI of the Excise Tax Act (ETA), analogous provisions do not exist for other intangible personal property. Because the place of supply rules (outlined in paragraph 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 actually have very limited use in Canada. GST-registered suppliers are thus placed at a competitive disadvantage compared with non-registrants providing similar global solutions. The place of supply rules can also put suppliers who are unfamiliar with the limited application of zero-rating provisions in a position of unintended noncompliance. Expanding the zero-rating provisions to apply to all intangible personal property would permit GST-registrants to compete more effectively on a global basis. TEI invites discussion of this issue.

   (b) Telecommunication Services--Currently, section 22.1 of Part V of Schedule VI of the ETA, limits the zero-rating provision for telecommunication services to supplies that are made to a person carrying on the business of supplying telecommunication services. Because products that are characterized as telecommunication services are growing exponentially, this narrow exemption puts GST-registered suppliers at a competitive disadvantage when providing telecommunication services to persons located outside Canada.

   Many customers using these services are not in the business of supplying telecommunication...