7 responses

  1. pogge
    September 24, 2009

    David Olive posted on this and wasn’t very impressed with Harper. To say the least.

    Reply

  2. kim
    September 24, 2009

    Oh, can I pay it for them? I’m going to pay for timberwest, catalyst, wfp, plutonic power, bc ferries translink, the olympics, vanoc, viha, I could go on, but I’m out of money to pay their taxes!

    Reply

  3. John
    September 25, 2009

    It’s not accurate to say that Canada’s tax system taxes Canadian corporations only on their Canadian profits. The general rule is that a taxpayer resident in Canada (such as a taxable Canadian corporation) is subject to tax on its world-wide income. Of course, our system provides tax credits for foreign taxes paid, and our foreign affiliate rules will exempt from taxation in Canada certain profits earned by foreign subsidiaries resident in certain countries. But the same is true, in principle, of almost any tax system, including the US system, which is required to provide credits for foreign taxes by its tax treaties. (I understand that the US system is less generous than ours in that respect. Perhaps that is what you are thinking of?)

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  4. Erin Weir
    September 25, 2009

    The US taxes its corporations on a “worldwide” basis, as you accurately describe. By contrast, Canada taxes its corporations on a “territorial” basis.

    Profit repatriated from any country with which Canada has a tax treaty is an “exempt surplus” not subject to Canadian tax (regardless of the foreign tax rate). The rare exemption is profit repatriated from countries without tax treaties, which is a “taxable surplus.”

    For more information, please see this Finance Canada backgrounder. I have quoted a relevant portion of it here.

    Reply

  5. Erin Weir
    September 25, 2009

    David Olive’s post is indeed excellent. Also on The Toronto Star blog, Susan Delacourt noted the goofiness of this announcement even sooner.

    Reply

  6. John
    September 26, 2009

    You are confusing our foreign affiliate regime — our rules for subsidiaries of Canadian corporations — with the taxation of a Canadian corporation as such. Remember that we don’t allow consolidation of corporate groups for tax purposes unlike the US. In any case, a Canadian corporation that carries on business in the US is subject to tax in Canada on the income earned in the US (but with the ability to claim tax credits). It is simply not accurate to say that Canada imposes tax on a “territorial basis”.

    You accurately describe the exempt surplus rules for foreign affiliates to which I referred in my previous post (albeit rather vaguely). Keep in mind, however, that most countries with which we have treaties impose higher corporate taxes than we do, which is the rationale for allowing income to be earned and repatriated without additional Canadian tax being paid.

    Of course, once the repatriated earnings are distributed to shareholders, they are subject to tax again in the hands of the shareholders.

    Your post on Barbados is accurate, but isn’t it the exception that proves the rule? I wonder whether changing our system in the way you seem to advocate wouldn’t simply mean full employment for tax accountants and lawyers. Perhaps you have data on this?

    Reply

  7. Erin Weir
    September 26, 2009

    No, I think your exception is the one that proves the rule. The vast majority of international business activity is conducted through foreign affiliates.

    Many reputable publications classify Canada as having a territorial, as opposed to worldwide, corporate-tax system because it generally does not tax foreign-affiliate profits. I have not seen any publications classify Canada as having a worldwide, as opposed to territorial, system on the grounds you cite.

    Anyway, I do not believe that your point contradicts any of what I wrote about the Tim Hortons case.

    On the broader advocacy that you ask about, the simplest solution (which might create less work for accountants and lawyers) would be to just stop corporations from taking Canadian tax deductions for interest to finance foreign affiliates, whose profits are generally not subject to Canadian tax.

    Budget 2007 proposed this change, but then the government wimped out. My point in the Barbados post was that, “if we continue to allow corporations to deduct foreign-affiliate interest here, we should start taxing their foreign-affiliate income.”

    Reply

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