1. Introduction
1.1 Canada’s system of international taxation is important to our country’s competitiveness. At the global level, competitiveness is crucial to attracting high-value activities, spurring innovation, and creating skilled jobs. Establishing Canada’s competitive advantage is part of the Government of Canada’s strategic policy, as set out in Advantage Canada,1 its long-term economic plan. Improving the international tax system will enhance Canada’s advantage to the benefit of all Canadians.
1.2 In its domestic tax policy, the government has taken action to improve the competitiveness of Canadian businesses. Canada’s domestic corporate tax rate is a key factor affecting the ability of Canadian businesses to expand abroad. The government’s goal of attaining the lowest effective tax rate on new business investment in the G7 supports our country’s international competitiveness.
1.3 In its international tax policy, Canada must ensure that its taxation system keeps pace with global trends to support business investment abroad and to attract foreign investment. For this reason, the Minister of Finance established the Advisory Panel on Canada’s System of International Taxation in November 2007.
Our mandate
1.4 The Panel’s mandate was to recommend ways to improve the competitiveness, efficiency and fairness of Canada’s system of international taxation, minimize compliance costs, and facilitate administration and enforcement by the Canada Revenue Agency (CRA). The Panel focused primarily on how Canada’s international tax rules affect Canadian businesses investing in foreign markets and how the rules affect foreign businesses investing in Canada.
1.5 Members of the Panel were drawn from the Canadian business community, professional tax advisory firms, and the tax policy research field. The chair and vice chair of the Panel are Peter C. Godsoe, oc, and Kevin J. Dancey, fca. Also on the Panel are James Barton Love, qc, Nick Pantaleo, fca, Finn Poschmann, Guy Saint-Pierre, cc, and Cathy Williams.
Our approach
1.6 The Panel approached our mandate with the aim of supporting Advantage Canada. The Panel also monitored the work of Canada’s Competition Policy Review Panel, which had a complementary mandate and issued its final report, Compete to Win, in June 2008. The Panel agrees with that report’s proposition that “raising Canada’s overall economic performance through greater competition will provide Canadians with a higher standard of living” and that in “the new world economy, Canada must be ready to keep pace with change and develop a global mindset that is open to two-way trade, investment and talent.”2
1.7 In developing our recommendations, the Panel sought to understand the current state of Canada’s system of international taxation, how it affects businesses, and how it compares with the international tax systems of other countries around the world.
1.8 Our discussion document, Enhancing Canada’s International Tax Advantage,3 set the context for consultation with a series of questions and an open call for submissions. In response, we received submissions from businesses, tax advisory services firms, professional associations, industry groups and individuals.
1.9 From April to July 2008, we conducted numerous consultations and round tables, engaging in informal discussions with many business groups, industry associations, economists and tax advisors across Canada to better understand their experience with Canada’s system of international taxation and their ideas on how to improve it. We also met with officials from the CRA and the Department of Finance.
1.10 The Panel conducted a program of research to supplement our consultations and deliberations. This research included a review of the tax systems of Canada’s major competitors in order to benchmark Canada’s system against international norms. We also interviewed officials with the tax authorities of the United States, the United Kingdom and other countries.
1.11 Our views and recommendations have been shaped by the submissions we received, by our deliberations, consultations and research, and by our experiences.
1.12 The predominant view formed by the Panel is that the Canadian international tax system is a good one that has served Canada well. As such, the Panel’s recommendations seek not to reform but rather to improve our existing system.
1.13 Although the Panel’s mandate did not specify that our recommendations should be fiscally neutral, the Panel considered how they could affect Canada’s tax revenues. In considering the fiscal impact of our proposals, the Panel recognized the importance of promoting competitiveness and the responsibility of sustaining Canada’s tax revenues, especially in light of the current economic climate. We believe the consequences of our recommendations, taken together, should not result in any net fiscal cost to the government.
1.14 The Panel’s goal is to offer pragmatic, balanced and actionable advice to the Minister of Finance toward improving Canada’s international tax system for the benefit of our country.
1 Department of Finance Canada, Advantage Canada: Building a Strong Economy for Canadians (Ottawa: Public Works and Government Services Canada, 2006).
2 Competition Policy Review Panel, Compete to Win (Ottawa: Public Works and Government Services Canada, June 2008), at p. 1 and p. 13.
3 Advisory Panel on Canada’s System of International Taxation, Enhancing Canada’s International Tax Advantage: A Consultation Paper Issued by the Advisory Panel on Canada’s System of International Taxation (Ottawa: April 2008).