Pending Canadian income tax issues - includes response from Canadian Department of Finance

Tax Executive, The, Nov-Dec, 1992

On December 3, 1992, Tax Executives Institute held its annual liaison meeting with officials of the Canadian Department of Finance. In connection with the meeting, the Institute submitted the following comments, which were prepared under the aegis of the Institute's Canadian Income Tax Committee. The chair of the committee is Vincent Alicandri of INCO Ltd. Also participating in the development of the comments was J. Lawrence Martin of Mobil Oil Canada, is the Institute's Vice President. Region I, and other members of the Canadian Income Tax Committee.

Tax Executives Institute welcomes the opportunity to present the following comments on several pending tax issues, which will be discussed with representatives of the Department of Finance during TEI's December 3, 1992, liaison meeting. In the meantime, if you have any questions about these comments, please do not hesitate to call either J. Lawrence Martin, TEI's Vice President for Canadian Affairs, at (403) 260-7991 or Vincent Alicandri, chair of the Institute's Canadian Income Tax Committee, at (416) 361-7853.

I. Background

Tax Executives Institute is an international organization of approximately 4,700 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 2,400 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 nine 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; and resource (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.

II. Tax Competitiveness

In the past, TEI has focused during its liaison meetings primarily on the policy and administration implications of specific tax proposals. Given the growing interdependence between tax, trade, and economic policies -- together with the burgeoning importance of international competitiveness (highlighted most recently by the North American Free Trade Agreement (NAFTA)) -- the Institute believes it is prudent to address the competitiveness and efficiency of the Canadian tax system on a so-called macro basis. This new approach is manifested in this section of the submission, which analyzes recent developments in Canada and in other parts of the world.

A. Background

In the last six months, two research organizations have addressed the competitiveness of Canada's income taxation system vis-a-vis the United States and expressed concerns about Canada's ability to compete in the global market. These organizations are the Conference Board of Canada Business Centre for Tax Research and the Prosperity Secretariat Initiative Steering Group, which was established by the Minister of Industry, Trade, and Technology.

The Conference Board's conclusions are contained in the Board's interim report entitled Canada-U.S. Tax Competitiveness in Manufacturing Industries, which will be published later this year. In 1990, the Conference Board expressed the view that Canada's relative tax competitiveness vis-a-vis the United States had slipped in recent years. That study reviewed four specific industries -- Petrochemicals, Steel, Forest Products, and Telecommunications.(1)

The Prosperity Secretariat's findings are contained in its publication, Prosperity Through Competitiveness, which was published in June. The report analyzes the role the financing of investment plays in the global competitive scene. At the request of the Steering Group on Prosperity, the Prosperity Secretariat undertook a cross-country consultative process, commencing in April of this year. According to the Steering Group, the study was needed because Canada's economic prosperity was at stake: "Unless we adopt a new approach to the challenges of competing in the New World Order, we run the risk of falling even further behind the leading players." In this regard, the Prosperity Secretariat reported that the message from across the country was clear and concise; there was an exceptionally high level of consensus among "stakeholders" on the important issues and recommendations and on the immediate need for action.

The study focused on the cost of capital, availability of capital, and the efficiency of the markets. One of the key areas was taxation. The stakeholders canvassed included executives in High Technology Businesses, Small and Medium-sized Enterprises, Multinationals, Institutional Investors, Banks, Venture Capital Firms, Investment Dealers, and other professionals, including accountants and lawyers. In all, the Prosperity Secretariat interviewed 280 senior business and financial industry leaders.