TEI liaison meeting with the Canadian Department of Finance on pending income tax issues.

• Position: Tax Executives Institute

December 4, 2013

On December 3-4, 2013, representatives from Tax Executives Institute, led by 2013-2014 Vice President for Canadian Affairs Shiraz J. Nazerali, met with officials from Canada Revenue Agency and the Canadian Department of Finance to discuss tax policy and administrative matters. The agendas for the meetings on income tax matters were prepared by the Institute's Canadian Income Tax Committee, whose 2013-2014 chair is Bonnie Dawe of Finning International Inc. Contributing substantially to the development of the agendas were Grant L. Lee of HSBC Bank Canada, Paul T. Magrath of AstraZeneca Canada Inc., Doug Powrie of Teck Resources Ltd., and Anthony Scozzafava of Capital Power L.P. Jeffery P. Rasmussen of the Institute's legal staff coordinated the preparation of the comments. The Department of Finance agenda follows. The agenda for the meeting with CRA on income tax issues is reproduced in this issue, beginning at page 305. The minutes from the meeting with the Department of Finance will be published on TEI's website (www.tei.org) in early 2014.

Background

Tax Executives Institute is the preeminent professional organization of in-house 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 nearly 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. Legislative Update

   TEI invites a discussion and update on the Department's legislative priorities over the coming months.

2. Tax Policy Development

   TEI invites a discussion of the Department's views and perspectives on broad tax policy considerations, including the following:

   * The OECD BEPS initiative--Canada's perspective and objectives. In July 2013 the Organisation for Economic Co-operation and Development (OECD) released a 16-point action plan to curb Base Erosion and Profit Shifting (BEPS). Many of the objectives are far-reaching in scope (e.g., addressing the global digital economy) or seemingly call into question core principles of international taxation, such as the use of the arm's length principle to set transfer prices between related parties. Some countries have been vocal about what the initiative should address (e.g., eliminating so-called stateless income) and what it should not address (e.g., reallocating taxing rights between source and residence countries). What are Canada's views on the BEPS project? What would Canada consider as a successful outcome for the initiative? Which of the 16 goals (working parties or work groups) is Canada actively participating in and how?

   * Consultation Paper on Treaty Shopping. The objective of OECD's BEPS action plan item number 6 is to develop recommendations on the design of domestic legislation to prevent treaty abuse. The Consultation Paper on Treaty Shopping released in August by the Department of Finance is also aimed at preventing treaty abuse, but the project seems far ahead of the OECD's projected September 2014 timeline for releasing recommendations. Hence the Department's report or legislative recommendations may be premature or potentially at odds with the recommendations released by the OECD. What preliminary indications or insights can the Department provide on its treaty-shopping initiative beyond the consultation document?

   * Overarching Design of the Canadian Income Tax System. For the last 10 or more years, the government has been gradually reducing corporate tax rates and broadening the tax base. Is it safe to say, from the Department's perspective, that a broad-base, low-rate system is a core principle for the current and future design of the tax system as well as for specific provisions of the Income Tax Act (the Act)? Other core principles for taxpayers would include simplicity, administrability of the tax system, and predictability of the results of a taxpayer's transactions. Finally, avoidance of double taxation is critical. Does the Department agree with these core principles for Canada's tax system? As the Department develops legislative proposals, does it conduct a review or apply metrics to ensure these principles are implemented? What other guidelines does the Department employ in crafting legislation?

3. Carryover Issues

   1. Bilateral Safe Harbors

      In the 2012 agenda, TEI invited the Department's comments on the OECD's Discussion Draft on Safe Harbours in Chapter IV of the OECD Transfer Pricing Guidelines. The Discussion Draft elicited comments from taxpayers and business groups on the benefits of adopting bilateral transfer pricing safe harbours for common, routine, or low-risk cross-border transactions. In its response, the Department acknowledged the potential benefits of adopting such provisions in Canada's treaties and said it would consider the final results of the OECD project. The Department also expressed interest in TEI's views in respect of priority areas for adoption of safe harbours, including interest rates and other common, routine, or low-risk transactions. In May 2013 the OECD concluded its project and recommended that taxpayers be permitted to elect bilateral or multilateral safe harbours for less complex transactions. In a related development, the U.S. Internal Revenue Service solicited comments to develop a model memorandum of understanding between competent authorities for certain transfer pricing issues, including the use of safe harbours for routine distribution functions.

      TEI is keenly interested in implementing safe harbours for transfer pricing of...