TEI liaison meeting with Canadian Department of Finance on pending income tax questions: December 9, 2009.

• Position: Tax Executives Institute

On December 9, 2009, Tax Executives Institute held its annual liaison meeting on income tax issues with officials of the Canadian Department of Finance. The agenda for the meeting, which is reprinted below, was prepared under the aegis of TEI's Canadian Income Tax Committee, whose chair is Rodney C. Bergen of The Jim Pattison Group. Jeffery P. Rasmussen, TEI Tax Counsel, serves as legal staff liaison to the committee. The minutes of the meeting will be posted to TEI's website when they become available.

Tax Executives Institute welcomes the opportunity to present the following comments on income tax issues, which will be discussed with representatives of the Department of Finance during TEI's December 9, 2009, liaison meeting. If you have any questions about these comments, please do not hesitate to call either Sherrie Ann Pollock, TEI's Vice President for Canadian Affairs, at 416.955.7373, or Rodney C. Bergen, Chair of the Institute's Canadian Income Tax Committee, at 604.488.5231.

Background

Tax Executives Institute is the preeminent professional organization of business executives 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 7,000 members represent more than 3,000 of the leading corporations in Canada, the United States, Europe, and Asia.

Canadians make up approximately 10 percent of TEI's membership, with our Canadian members belonging to chapters in Montreal, Toronto, Calgary, and Vancouver, which together make up one of our nine geographic regions. In addition, a substantial number of our U.S., European, and Asian 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; 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. Status of Pending Legislation

   There are a number of provisions in the Income Tax Act, Canada (hereafter "the Act") where draft legislation has been outstanding for a lengthy period, including the foreign affiliate rules in section 95, the resource successor rules in proposed subsection 67.7(10.1), and the phase-out of accelerated capital cost allowance for oil sands equipment noted in the 2007 Federal Budget. To reduce uncertainty for taxpayers when making business decisions or analyzing the tax treatment of proposed expenditures, we request an update on the Department's agenda for proposed legislation. (1)

2. Advisory Panel on Canada's

   System of International Taxation In December 2008 the Advisory Panel on Canada's System of International Taxation (hereafter "the Advisory Panel" or "the Panel") made numerous recommendations for improving Canada's international taxation system. Many of the recommendations were consistent with comments TEI made to the Panel. We invite the Department to provide an update on its views and analysis of the Panel's recommendations, including whether a potential timetable for implementation of the Panel's recommendations has been developed.

3. Non-Resident Withholding Tax

   1. Elimination of Regulation 105 Withholding Tax

      Section 105 of the Income Tax Regulations states that "every person paying to a non-resident person a fee, commission or other amount in respect of services rendered in Canada, of any nature whatsoever, shall deduct or withhold 15% of such payment" and remit it to the Canada Revenue Agency (CRA). The tax withheld is an installment in respect of the non-resident's potential Canadian tax liability.

      TEI and others expressed concern about the burdens imposed by Regulation 105 during consultations undertaken by the Advisory Panel. In its report, the Panel observed that the costs associated with complying with the regulation are significant and service providers must commonly gross-up their fees to offset the withholding tax, which can increase costs to Canadian businesses and hinder their ability to engage skilled workers from outside Canada. Moreover, the Panel said that CRA's waiver process is cumbersome and is not used as often as it could be, often because it cannot be invoked on a timely basis. Finally, the service provider will incur reduced or delayed revenues and cash-flow problems unless the payer indemnifies the service provider with a gross-up payment. After reviewing the costs and benefits of the current system, the Advisory Panel recommended eliminating the withholding tax requirements related to services performed and employment functions carried on in Canada where the non-resident certifies the income is exempt from Canadian tax because of a tax treaty. To aid CRA in enforcing service provider compliance obligations, the payer would be required to submit information reports for payments made to nonresidents. We invite the Department's reaction to...