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TEI Submits Canadian Budget Recommendations

by Mike Godfrey,, Washington

13 August 2014

The Tax Executives Institute (TEI) has recommended a series of reforms to improve Canada's tax regime, enhance its international competitiveness, and streamline administration as part of its pre-Budget submission.

Submitted to the House of Commons Standing Committee on Finance, the document recommends that the corporate income tax rate, lowered over the last decade, must be maintained, and says that provinces should be encouraged to cut their rates. It adds they should be prompted to further harmonize their tax bases with the federal tax base, in a bid to secure substantial administrative savings and eliminate legacy administrative and compliance systems in the provinces.

The TEI says that, while it supports the strategic direction and pace of implementation of tax policies, there remains unfinished business. In particular, the submission points to the recommendations made by the Advisory Panel on Canada's System of International Taxation.

For instance, the Panel noted that lower withholding taxes, especially on dividends, would be beneficial. The TEI concurs, and claims that all withholding taxes constitute unnecessary friction to cross-border dealings.

It suggests that steps should be taken to ensure that Canadian residents secure benefits similar to those enjoyed by residents of the US's other treaty partners. Many of the US's more recent tax agreements provide for a nil withholding tax rate for group dividends. The TEI would like to see the Standing Committee press the Finance Department to negotiate a protocol to the Canada-US tax treaty that would eliminate withholding taxes on dividends to related party companies.

The Panel also endorsed a self-certification system for obtaining treaty benefits under Regulations 105 and 102, which impose withholding tax on payments for services rendered in Canada by non-residents. The TEI says that the Government should adopt this recommendation and repeal the accompanying 15 percent withholding tax, especially in respect of payments to US employees and service providers.

The submission then reflects on the potential issues related to the Organisation for Economic Cooperation and Development's (OECD) base erosion and profit shifting (BEPS) project. It calls on the Government to implement measures only after a careful consideration of the impact they are likely to have on the Canadian economy and its industries, and only once a consensus has been reached by a majority of OECD members.

Turning to the Canada Revenue Agency (CRA), the submission stresses that legislation should be introduced to improve the CRA's administration of audits and tax appeals. It should be accorded the authority to settle controversies based on "risks of litigation," it said.

According to the TEI, taxpayers are frustrated because they are unable to resolve disputes about uncertain issues without resorting to litigation. In addition, when taxes are reassessed, large corporations are required to pay 50 percent of the amount in dispute, which the TEI warns is a serious impediment to investment when reassessments can take years to resolve.

Adopting a risks of litigation approach would help both parties to reach a fair and impartial resolution, the TEI argues. Administrative guidelines, systematic checksm and appropriate reviews could be developed, so that cases that should be settled are settled. Issues that present important legal questions or require factual determinations would continue to be resolved by the courts.

TAGS: court | compliance | Finance | tax | investment | business | tax compliance | tax avoidance | tax incentives | employees | Organisation for Economic Co-operation and Development (OECD) | audit | ministry of finance | tax authority | agreements | legislation | tax planning | transfer pricing | tax rates | withholding tax | Canada | dividends | tax reform | services | Regulations | Tax | Tax Evasion

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