Ottawa, May 14, 2007
Archived - Canada's New Government Improves Tax Fairness With Anti-Tax-Haven Initiative
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- Notes for Remarks by the Honourable Jim Flaherty, Minister of Finance, to the Toronto Board of Trade
- Notes on the Initiative
- Backgrounder - International Tax Avoidance and "Tax Havens"
The Honourable Jim Flaherty, Minister of Finance, today announced further details on the government's Anti-Tax-Haven Initiative set out in Budget 2007. The initiative focuses on improving tax fairness in Canada by preventing the use of tax havens and other means to avoid paying tax. Canada's current tax rules allow multinational corporations to avoid paying taxes by getting a double deduction for a single expense relating to a foreign investment.
"When multinational corporations use this tax loophole, Canadian taxpayers are indirectly subsidizing their international operations," said Minister Flaherty. "Our goal is to improve the fairness of our tax system and further reduce taxes for hard-working Canadians while preserving Canada's overall tax advantage for our globally successful companies."
The Anti-Tax-Haven Initiative will:1. Prevent multinational corporations from using tax havens and other tax avoidance structures to generate two expense deductions for only one investment, so-called "double dipping";
2. Provide a transition period to 2012-after the planned reductions to the federal statutory corporate tax rate are fully phased-in and the rate has been reduced to 18.5 per cent;
3. Use tax revenues generated through the Anti-Tax-Haven Initiative to further reduce business taxes in Canada; and
4. Appoint an advisory panel of experts in the near future to look for ways to further improve the fairness and competitiveness of Canada's international tax system.
"We are providing corporate Canada with a transition period of almost five years to comply with these rules; we think this is fair and reasonable," said Minister Flaherty. "Implementation will take place once our planned corporate tax reductions are fully implemented, allowing us to make our strong competitive economy even stronger."
The Anti-Tax-Haven Initiative is consistent with Advantage Canada, the government's long-term economic plan for Canada. Advantage Canada is a plan to give Canada and Canadians the key advantages to be able to compete effectively and attract new growth and investment. They are:
- A Fiscal Advantage-Eliminating Canada's total government net debt in less than a generation;
- An Entrepreneurial Advantage-Reducing unnecessary regulation and red tape and increasing competition in the Canadian marketplace;
- A Knowledge Advantage-Creating the best-educated, most-skilled and most flexible workforce in the world;
- An Infrastructure Advantage-Building the modern bridges, roads and gateways we need to link our nation and make our workers and businesses more efficient; and
- A Tax Advantage-Reducing taxes for all Canadians and establishing the lowest tax rate on new business investment in the Group of Seven (G7).
Canada's New Government has made substantial tax reductions for business over the past 15 months, such as:
- Reducing the general corporate tax rate to 20.5 per cent in 2008 as part of our commitment to reduce this tax to 18.5 per cent by 2011;
- Eliminating the corporate surtax in 2008;
- Increasing the threshold for small business income eligible for the reduced federal tax rate from $300,000 to $400,000 in 2007;
- Reducing the 12-per-cent rate for eligible small business income to 11.5 per cent in 2008 and 11 per cent in 2009;
- Eliminating the federal capital tax in 2006;
- Providing incentives for the provinces to eliminate their capital taxes;
- Changing capital cost allowance rates to better align them with the useful life of assets; and
- Reaching an agreement in principle on the Canada-U.S. Tax Treaty that includes the elimination of withholding taxes on interest and the extension of treaty benefits to limited liability companies in Canada.
When fully implemented, these changes will move Canada from the third highest tax rate on new business investment in the G7 to the third lowest. The Government is committed to establishing the lowest tax rate on new business investment in the G7, and any revenue from this initiative will further that goal.
"The changes to the Income Tax Act required to give effect to the Anti-Tax-Haven Initiative will be complex and highly technical," said Minister Flaherty. "To ensure a comprehensive consideration of the factors involved and a smooth implementation, a Technical Roundtable of tax professionals, chaired by the Department of Finance, will be invited to work with government officials at a technical level to ensure that the proposal functions as intended. This Roundtable is a short-term project that will operate independently of the Expert Panel."
The attached backgrounder describes the Anti-Tax-Haven Initiative in more detail. Draft legislation to implement this initiative will be released for comment early this summer and will be introduced in the House of Commons in the fall. The government is determined to see this initiative passed into law as soon as possible.
For further information, media may contact:
Office of the Minister of Finance
Department of Finance
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