The Canadian government has shelved a planned crack down on “treaty shopping” by multinationals, according to an article by Globe and Mail newspaper journalist Barrie McKenna published Monday (September 15). Up until now the government has tried to deal with the “abuse” of tax laws by multinationals who use treaties Canada has with other countries to lower their tax bills.
In 2013, the Canadian Finance Ministry launched a consultation with Canadians on treaty shopping: “Consultation Paper on Treaty Shopping – The Problem and Possible Solutions” saying: “it is important that safeguards exist to ensure that taxpayers cannot make improper use of Canada’s tax treaties.”
It described treaty shopping this way: “Treaty shopping arises when, for example, a person who is not entitled to the benefits of a tax treaty with Canada uses an entity in a country with which Canada has concluded a tax treaty and, to obtain Canadian tax benefits, earns or realizes income sourced in Canada indirectly through that entity. As described in sections 1 and 5 below, treaty shopping defeats the purposes of Canada’s bilateral tax treaties and poses risks to the Canadian tax base.”
In an article in the Financial Post this spring following a federal budget, journalist Mary Teresa Bitti wrote: “The federal government’s latest budget introduced a proposal to block “treaty shopping” that is worrying Alberta energy companies and the foreign private equity firms that fund them.”
In his article Barrie McKenna suggests Canada’s new finance minister has “apparently bought the argument that curbing treaty shopping would put a chill on foreign investment in places such as the Alberta oil sands, leaving Canada at a competitive disadvantage.”
More information:
Globe and Mail/ Barrie McKenna – Corporations vs. Canada: The threat of treaty shopping – here
Bloomberg News – Canada Puts Treaty-Shopping Tax Plan on Hold – here
Canada Finance Department – Consultation Paper on Treaty Shopping – The Problem and Possible Solutions – here
Financial Post – Treaty shopping crackdown chills foreign investment – here
For reasons beyond our control, and for an undetermined period of time, our comment section is now closed. However, our social networks remain open to your contributions.