TEI-Canadian Department of Finance liaison meeting: excise tax issues - Tax Executives Institute

Tax Executive, The, Nov, 1998

December 2, 1998

On December 2, 1998, TEI held its annual liaison meeting with representatives of the Canadian Department of Finance on pending excise tax issues. The Institute's agenda for the meeting is reprinted below. The agenda was prepared under the aegis of TEI's Canadian Commodity Tax Committee, whose chair is Munir A. Suleman of The Bank of Nova Scotia. Pierre M. Bocti of Hewlett-Packard (Canada) Ltd., the Institute's Vice President-Region I, coordinated the liaison meeting.

Tax Executives Institute, Inc. welcomes the opportunity to present the following comments and questions on several pending commodity and excise tax issues, which will be discussed with representatives of the Department of Finance during TEI's December 2, 1998, liaison meeting. If you have any questions about these comments, please do not hesitate to call either Pierre M. Bocti, TEI's Vice President for Canadian Affairs, at (905) 206-3399 or Munir A. Suleman, chair of the Institute's Canadian Commodity Tax Committee, at (416) 866-4698.

1. Background

Tax Executives Institute is an international organization of more than 5,000 professionals 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 members represent more than 2,800 of the leading corporations in Canada and the United States.

Canadians make up approximately 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. In addition, a substantial number of our U.S. 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 services; 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.

2. We understand that Revenue Canada presently classifies charges related to Internet access and Web Site Hosting as telecommunications services. This seems inconsistent with the Technical Notes supplied by the Department of Finance on the definition of "telecommunications service." Classifying such services as telecommunications services places Canadian suppliers at a competitive disadvantage vis-a-vis non-residents supplying similar services because the zero-rating provisions for telecommunication services are overly stringent. Will the Department of Finance consider broadening the zero-rating provisions for telecommunications services in order to make Canadian service providers more competitive in the global marketplace?

3. The Minister of Revenue's Advisory Committee recently issued a report that addresses a number of tax policy and administrative issues arising from electronic commerce. TEI and other interested professional associations submitted comments on the report. In a number of instances, the report recommends that Revenue Canada work with or make recommendations to the Department of Finance in respect of the tax policy implications of electronic commerce. We invite the Department to discuss whether any projects are under way in respect of either studying the effects of electronic commerce on tax policy or recommending changes to the Excise Tax Act (ETA).

4. Is the Department of Finance currently considering any recommendations to amend the "closely related" rules of the ETA in order to permit corporations with two or more equal owners to elect under section 150 for services rendered by the subsidiary to its parent corporations?

5. The legislation authorizing and implementing the Canada Customs and Revenue Agency includes a provision that would authorize the agency, in return for a fee, to collect provincial sales tax on behalf of the non-harmonized provinces. Is this proposal in the implementing legislation a signal that the Government will no longer pursue the goal of establishing a harmonized national sales tax? We invite the Department's comments and a discussion of whether taxpayers and professional associations supporting a harmonized national sales tax should continue their efforts to achieve such a goal.

6. We invite the Department to comment and discuss the projects currently on its agenda. In particular, we understand that work is underway in respect of revising the section 156 election, providing revised guidance on barter transactions and the treatment of surety bonds, and, perhaps, issuing a new tax return for financial institutions. We invite the Department to provide a status report on these projects.

7. The Quebec Government introduced changes to Quebec's Consumer Protection Act effective July 1, 1998, that prohibit certain advertising practices in respect of sales taxes. Pursuant to that legislation, Quebec's Consumer Protection Branch and Revenue Quebec have provided examples of prohibited and acceptable references to sales taxes in advertising. For example, the following references are prohibited: