Withholding under Regulation 105: May 30, 2002.

On May 30, 2002, TEI submitted comments to the Canadian Department of Finance, relating to the application of Regulation 105 withholding taxes to nonresident service providers. The comments, which are set forth in a letter from TEI President Robert L. Ashby to the Director of the Tax Legislation Division of the Department of Finance, identify a number of concerns and issues relating to Regulation 105 and urges the Department to repeal the provision. TEI's comments were prepared under the aegis of its Canadian Income Tax Committee, whose chair is David M. Penney of General Motors Canada Limited. Contributing substantially to the development of TEI's comments were Carmine A. Arcari of RBC Financial, Minka M. Siegmund of Shell Canada Limited, Alan Wheable of Toronto Dominion Bank, and David W. Wozney of Safeway Canada Limited.

During the December 2001 liaison meeting with representatives of the Department of Finance, members of Tax Executives Institute expressed a number of concerns about the withholding tax required under Regulation 105. Specifically, TEI believes that Regulation 105 is a significant impediment to the competitiveness of Canadian companies because it erects artificial barriers that inhibit access to the expertise of non-resident service providers, especially those in the United States. During the meeting, the Department invited TEI to submit written comments elaborating on its concerns. On behalf of TEI, I am pleased to submit the following comments.

Background

Tax Executives Institute is the preeminent association of business tax executives. The Institute's 5,300 professionals manage the tax affairs of the leading 2,800 companies in Canada, the United States, and Europe and must contend daily with the planning and compliance aspects of Canada's business tax laws. Canadians constitute 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. Many of our non-Canadian members (including those in Europe) work for companies with substantial activities in Canada. 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 letter reflect the views of the Institute as a whole, but more particularly those of our Canadian constituency.

TEI is concerned with issues of tax policy and administration and is dedicated to working with government agencies in Ottawa (and Washington), as well as in the provinces (and the states), to reduce the costs and burdens of tax compliance and administration to our common benefit. We are convinced that the administration of the tax laws in accordance with the highest standards of professional competence and integrity, as well as an atmosphere of mutual trust and confidence between business and government, will promote the efficient and equitable operation of the tax system. In furtherance of this principle, TEI supports efforts to improve the tax laws and their administration at all levels of government.

Introduction

Since the North American Free Trade Agreement (NAFTA) came into force, there has been explosive growth in cross-border trade in goods and services within the free-trade zone. Before NAFTA, cumbersome procedures limited the opportunities in Canada for small and medium-sized non-resident cross-border service providers and limited access to such providers by small and large Canadian companies. Besides removing the trade barriers, publicity surrounding NAFTA spawned greater awareness among non-residents of the business opportunities in Canada. As a result, many more non-resident firms are soliciting business in Canada thereby providing greater competition for price and performance on services for Canadians. Moreover, Canadian businesses and consumers increasingly recognize that the market for services is not limited to domestic providers. Hence, more than ever, Canadians obtain services from niche...